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Charging Interest on Overdue Payments

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  • 11-21-2014, 05:56 AM
    Curiouskate
    Charging Interest on Overdue Payments
    My question involves business law in the state of: California

    My question is a matter of charging interest on overdue payments as per a service contract. I had a one year contract with a small business to do monthly work as an independent contractor. The last 2 months of the contract they didn't pay me and I still did work. My contract, as well as each monthly invoice, states 20% of the current balance will be added each 10 days payment is not received. I tried for 3 months to get the money they owe me and they completely refused making up ways in which I breached the contract. I have written proof that their accusations are false and the money is rightfully mine, so I'm not worried about that. I stopped charging interest after 3 months seeing how the bill tripled the original amount due. And then eventually stopped bothering because I didn't want to go through the pain of small claims court. It's been a year and a half and they have begun contacting me for information and old files pertaining to the work I did in the past. No where in our contract and I'm obligated to share these things but I said I would if I was paid my balance (still capped at 3 months of interest). They refused and threatened to sue me for what they want instead. I'd like to use this opportunity to counter sue for my remaining balance. They've aggravated me and I would like to get as much money out of them as I can. Am I allowed to tax on another year and a half of interest payments for my counter suit? Is there a limit to how much interest I can charge?

    Any legal information pertaining to this subject would be very helpful!

    Thank you!
  • 11-21-2014, 08:11 AM
    Mr. Knowitall
    Re: Charging Interest on Overdue Payments
    You can anticipate that your former client will object to your late payment clause and ask the court to declare that it is an unenforceable penalty,
    Quote:

    Quoting Ridgley v. Topa Thrift & Loan Ass'n, 17 Cal.4th 970, 977, 73 Cal.Rptr.2d 378, 953 P.2d 484 (1998).
    A liquidated damages clause will generally be considered unreasonable, and hence unenforceable under section 1671(b), if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach. The amount set as liquidated damages "must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained." (Garrett v. Coast & Southern Fed. Sav. & Loan Assn., supra, 9 Cal.3d at p. 739 (hereafter Garrett).) In the absence of such relationship, a contractual clause purporting to predetermine damages "must be construed as a penalty." (Ibid.) "A penalty provision operates to compel performance of an act [citation] and usually becomes effective only in the event of default [citation] upon which a forfeiture is compelled without regard to the damages sustained by the party aggrieved by the breach [citation]. The characteristic feature of a penalty is its lack of proportional relation to the damages which may actually flow from failure to perform under a contract. [Citations.]" (Ibid.)

    In short, "[a]n amount disproportionate to the anticipated damages is termed a `penalty.' A contractual provision imposing a `penalty' is ineffective, and the wronged party can collect only the actual damages sustained." (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 931 [216 Cal. Rptr. 345, 702 P.2d 503]; see also Ebbert v. Mercantile Trust Co. (1931) 213 Cal. 496, 499 [2 P.2d 776] ["[A]ny provision by which money or property would be forfeited without regard to the actual damage suffered would be an unenforceable penalty."].)

    Is that the only provision for interest in your contract?
  • 11-21-2014, 08:39 AM
    Curiouskate
    Re: Charging Interest on Overdue Payments
    Thank you.

    That is the only mention of interest in the contract.

    If they claim that is unenforceable do you know if there is a compromise or standard rate that I would be able to charge?

    Quote:

    Quoting Mr. Knowitall
    View Post
    You can anticipate that your former client will object to your late payment clause and ask the court to declare that it is an unenforceable penalty,

    Is that the only provision for interest in your contract?

  • 11-21-2014, 08:56 AM
    Mr. Knowitall
    Re: Charging Interest on Overdue Payments
    See Civil Code, Sec. 3287.
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