The Case at Hand
The case at hand concerns Takem Appliances and Electronics, LLC and a disgruntled customer, Sally Walker, who has defaulted on payment but is threatened to stop paying and sue Tommy if the collection process proceeds. Following an examination, it is clear that Takem LLC is acting within the bounds of the law and should continue with the repossession proceedings, and Sally has no argument against the firm. However, the company's procedures are immoral, and it should make the necessary reforms to ensure its smooth running.
Background Information
My client, Takem Appliances and Electronics, LLC, is involved in this situation, as is a disgruntled client, Sally Walker. Takem Appliances is owned and operated by Tommy Taken and is located in the rural areas of Southwest Virginia, and serves the poorer and often less educated residents of the Appalachian regions of Tennessee, Kentucky and West Virginia. The location ensures that, Takem Appliances and Electronics LLC faces relatively less competition thus the company charges 10-20% more than the actual selling price. Recently, the Tommy thought of expanding the business thus employed salespeople to sell the different electronics from door-to-door. However, the salespeople charge 30% more than what the client would have paid for in the shop but do not disclose this vital detail to the client. Additionally, a majority of the client have poor credit thus the purchases are financed by Takem's LLC. Thus, salespeople compel clients to sign bill of sale, a security agreement and a negotiable promissory note. Further, Takem charges 15% application fee to process the documents for sale and the maximum interest allowed law. Though the default rate is high, Takem is doing really well due to repossessions, collection, high markups, higher prices and numerous charges. Recently, Tommy received a letter from Sally Walker a disgruntled customer from whom Tommy had started a collection process since Sally had defaulted on a computer. In the letter, Sally argues that she had already paid enough for the computer and she would not pay anything more, and that the whole deal was unconscionable thus unenforceable. Additionally, she threatened that she would sue Takem for punitive damages, and write alert the various editors of local papers if Takem pushed the matter further.
Consumer Protection Laws
The above case falls under the consumer protection laws of the US. The consumer protection laws are a group of legislations that are designed to guarantee fair trading by protecting the rights of traders and clients by ensuring fair competition and accurate information is maintained in the buying relationship Specifically, these legislations aim at prohibiting the overpricing of commodities, especially those that can be depleted or used up (Shally-Jensen, 2011). Thus, the legislation covers the usable commodities, among them the food products. Another act preventing the overpricing of commodity is the price-gouging act. However, like the consumer protection act, the price gouging act prohibits a more than 10% increase in the prices of essential commodities such as energy and food supplies, either due to their shortage, speculation or after disasters. Other items that fall in this category include items that relate to ownership of property from individual to another for cash considerations or other value as codified in the Uniform Commercial Code (UCC) (Waller et al., 2011).
The Legality of the Sales Contract
My client, Takem's Appliances and electronics LLC deals with appliances and electronics such as computers among others and not the basic commodities that are protected by the consumer protection laws. Thus, Takem Appliances LLC does not contravene any law by making a 10-20% increase in the prices its products. Additionally, the UCC stipulates that a sales contract can be written or oral; but it is only legal if there is an express agreement between the buyer and the seller. For the non-consumable products, the seller can quote any price even if the price is over-quoted, but the buyer has the right to refuse or counter the offer. However, the acceptance or the acknowledgement of the price as stated in the offer signifies the start of an enforceable contract (Waller et al., 2011).In this case, Sally had agreed to purchase the computer at the price quoted by Takem appliances. Though the price was higher than the actual price, she would have countered or refused to participate in the sale agreement. Sally choose to accept the offer, which was signified when she appended her signature on the bill of sale and other documents (Shally-Jensen, 2011). It is appropriate to indicate that for the legality of the acceptance (sign) of the sale contract, we are assuming that the Sally was in her right mind when signing the contract, and there was no undue influence to accept the offer as these were not part of Sally's argument. Since there was a mutual consent of the contract, the signing (acceptance) marked the start of an enforceable sale contract (Chrisman, 2014). Thus, Sally cannot bolt out saying that she has already paid enough for the computer. The price of the computer was as agreed on the sales contract, thus the argument that she has paid for the computer is not admissible.
Unconscionability of the Contract
Further, Sally argues that the contract is unconscionable, thus unenforceable. According to Waller et al. (2011), unconscionable contracts are the extremely unjust contracts, whose terms overwhelmingly favor one side of the contracting parties, especially the party that has a superior bargaining power. The contract is said to be contrary to good conscience since there is reasonable person in the right mind would accept the terms, and as such the contract is unenforceable. This helps to prevent the perpetrator of the unconscionable from benefiting since enforcing the contract would be unfair to one party. Among the factors that can be used to invoke unconscionability of a contract include bargaining power, mental capacity, age, superior knowledge by one party and lack of choice. Others factors that can may make a contract unenforceable include fraud, deceit , deliberate misinterpretation of facts or contracts that aim to deprive an individual off valuable possessions (Granville & Dine, 2013). However, the Sally case cannot claim that the contract is unconscionable. Though we know that Sally was old and relatively uneducated, she cannot claim that the salespeople took advantage of her age to make the contract since the contract is not unique to her alone; it is the common mode of operation of Takem Appliances LLC while dealing with its client. Though the salespeople did not disclose that the door-to-door costs the client 30% more than when the same product was bought from the shop, that information is not material enough to be a gross misinterpretation of facts that would otherwise make the contract unconscionable (Federal Trade Commission, 2010). Further, Takem LLC charges the maximum rate of interest allowed by law; an evidence that the contract is not overwhelmingly favoring LLC as Sally's letter would have us believe. Thus, the sale contract between sally and Takem LLC is conscionable, and thus enforceable.
The Repossession Process and Strategy
In addition, the law allows corporate and individuals to finance others to purchase goods as long as the financing statutes are all followed. Further, the Uniform Commercial Code (UCC), especially the Retail Installment Sales Act (RISA), and the Fair Debt Collection Practices Act gives sellers different options to recover their money from sellers that default in retail Installment sales. Among the methods allowed include collection, where the seller, upon identifying that the buyer is in default, can repossess the goods sold (Litowitz, 2007). However, the law requires the seller to have valid security interest in the goods that are being contested, which is evidenced by documents such as the promissory note and the bill of sale. And even these should satisfy the requirements for the Status of Fraud which is tasked with enforcing all types of contracts (Granville & Dine, 2013). One of these requirements is the debtor's authentication of the agreement, such as a signature or the electronic mark. Further, the agreement must include the a reasonable description of the collateral which will reposed, which in most cases is the good that was bought through installment sales.Takem Appliances LLC has followed all the processes laid out by the Statute of Fraud; the sales people get the customers to sign the bill of sale, negotiable promissory note and a security agreement. With these documents signed, Takem Appliances LLC has a legal right to collect the security, if the company can evidence that Sally is indeed defaulting (Gordon-Davis & Cumberlege, 2006). From the case, Sally is in default, thus Takem can go ahead with the repossession without worrying about the threats that Sally would seek punitive damages, as the company has followed the correct financing and repossessing procedures (Litowitz, 2007).Again, the law allows two types of repossessions; the judicial repossession strategy and the self-help repossession. In the judicial repossession strategy, the creditor uses judicial officials such as lawyers to inform the debtor of the pending repossession. Instead of collecting the goods on own or using hired operatives, the creditor uses the law enforcement agencies or companies that are legally established to assist creditors in the repossession strategy (Gordon-Davis & Cumberlege, 2006). Conversely, the self-help repossession strategy allows the creditor to make personal arrangements pertinent to the collection of the good. Thus, the collection may be personal or contracted to hired operatives. However, Article 9 of the Uniform Commercial Code stipulates that the self-repossession strategy can only be conducted if the creditor is able to seize the good without breaching the peace, failure to which the creditor can be sued, and debtor may recover the damages for the infraction. Additionally, the creditor is vicariously responsible for all actions of the recovery process by the recovery specialists or repossession agencies. The self-repossession strategy is cheaper as is less bureaucratic, thus is more preferred by many creditors (Granville & Dine, 2013).Evidently, Takem Appliances LLC preferred the self-help repossession strategy thus did not inform a lawyer before the onset of the repossession; this does not make the repossession illegal (Gordon-Davis & Cumberlege, 2006). In addition, it is not mentioned that Takem breached peace during the start of the process of peace when starting the collection process. Thus, Sally cannot in anyway argue that she would sue for damages. Takem should continue with the collection process as peaceful as practically possible to avoid any liability pertinent to the collection. The business model adopted by Takem Appliances is completely legal, and the processes followed in financing and collecting the computer are completely legal. As such, Takem should continue with the collection process as Sally does not have a case.
Recommendations for Takem Appliances
Evidently, the cases of defaulted payments are on the rise in the US, predisposing creditors and Hire purchase sellers to the risk of losing their revenues. According to Granville and Dine (2013), businesses should take appropriate steps to protect themselves from risks associated with the collection process. These include stipulating provisions governing the repossession process into the security agreement, and notifying the debtor about the pending repossession beforehand. These procedures will reduce instances where peace is breached, thus help in ensuring a smooth repossession process. Conversely, Tommy should include a clause in the security agreement that expressly states that Takem Appliances would repossess the security after the debtor is in default. The clause should also include the number of months which if unpaid would be considered as a default for the avoidance of doubt on defaulting. These strategies will ensure that Takem's clients know when they are in default to avoid surprises and ensure smooth repossession process (Gordon-Davis & Cumberlege, 2006).Though the law allows creditors to use the self-repossession strategy, many debtors have managed to invoke the article nine of UCC, which warns the creditor from breaching peace while collecting the security. In most cases, debtors cause mayhem and sue creditors for breaching peace, or for damage, leading to loss of creditors' money. According to Granville and Dine (2013), the use of Repo agents and independent contractors that are legally allowed to repossess security absorbs the creditor of all liabilities that may arise from the collection process. Thus, it would be appropriate for Takem to use Repo agents to help repossessing his products as they would absorb the company off all liabilities that arise from the process. Better yet, Tommy should start using the judicial or the court-ordered repossessions. Though costly, bureaucratic and time-consuming, the judicial repossessions are commercially reasonable as they help absorb the creditor of all liabilities that may arise from the repossession process.Additionally, it would be appropriate for Tommy to establish a limited Liability company that finances Takem's clients instead of financing these clients as Tommy. According to Granville and Dine (2013), people are more likely to default paying to individuals creditors than institutional creditors. Thus establishing a company to deal with financing will reduce the number of defaults, thus reduce losses that may arise from defaulted payments.Though Takem's LLC Business Model is legal, it is unethical. Though the law allows overpricing of the non-consumable goods such as electronics, it is unethical for companies to overprice its products to seek undue advantage. Takem Appliances is located in rural areas where there is little competition, serves the relatively uneducated residents. The lack of alternative sellers and lack of education has made Takem LLC operate as a virtual monopoly that can increase the prices at will, thus the overpriced goods. This is clearly unethical; sellers should be mindful of their clients and only seek their due profits (Federal Trade Commission, 2010). Additionally, it is unethical for Takem's salespeople to withhold the fact that they charge 30% more for goods sold using the door-to-door services, and the extra charges for the processing of the documents required for the financing. Knowledge of these facts would significantly influence buyers decisions, thus withholding such information gives Takem LLC some advantages over the buyers, making the process unethical (Sepinuck & American Bar Association, 2008). Clearly, this is unethical; ethical business dealings calls for all parties involved in a sale contract to be of utmost faith, and reveal all pieces of information pertinent to a sale contract, especially if such information would lead to an alternative decision from either of the parties. Additionally, the company is charging the highest of the legally allowed interest. May be, this interest is higher than the market rate and is giving Tommy an undue advantage over the client, which is unethical (Gordon-Davis & Cumberlege, 2006).From the above, Takem LLC business model is legal; the company is selling non-consumable goods thus it can increase their prices as there are not covered by the price gouging act. Further, the company makes its clients sign all the necessary documents of sale and financing, signifying buyers' acceptance of the offers given. Though the company withholds some information, it is not material enough to make the contract unconscionable. Thus the sale contract is enforceable, and mode of repossession adopted by the company is legal and has not breached peace. Thus, Sally does not have a case against Takem, cannot sue for damages nor fail to complete the pay. Takem should continue with the repossession process, but in the future, should use the judicial repossession strategy or better yet, establish a limited liability company to deal with the financing process. Despite the legality, the Takem LLC is unethical in that it overprices it commodities, charges highest interest and withholds vital information from sellers. As such, I would propose that Takem LLC prices its commodities as other sellers, reduce the interest rate to the market interest rate, and inform the clients of all charges that would be involved in the whole sale and financing process.
References
Chrisman, R. (2014). advanced Business Law for Accountants. New York, NY: McGraw-Hill.
Federal Trade Commission, (2010). Fair Debt Collection Practices act. Annual report 2010.
Gordon-Davis, L., & Cumberlege, P. (2006). Legal issues for entrepreneurs. Cape Town: Juta.
Granville, B. & Dine J., (2013). The Processes and Practices of Fair Trade: Trust, Ethics and Governance. London: Routledge
Litowitz, D. E. (2007). Perspectives on the Uniform Commercial Code. Durham, NC: Carolina Academic Press.
Meiners, E., Ringleb, H., & Edwards, F., (2014).The Legal Environment of Business. Boston, MA: Cengage Learning
Sepinuck, S. L., & American Bar Association. (2008). Practice under Article 9 of the Uniform Commercial Code. Chicago, IL: American Bar Association.
Shally-Jensen, M. (2011). Encyclopedia of Contemporary American Social Issues. Santa Barbara, Calif: Abc-Clio.
Waller, W., Brady, G., Acosta, R. and Fair, J., ( January 12, 2011).Consumer Protection in the United States: An Overview. European Journal of Consumer Law.
