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socrateaser
socrateaser, Lawyer
Category: California Employment Law
Satisfied Customers: 33369
Experience:  Retired (mostly)
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California Law......I am a telecom consultant; sub S corp.

Customer Question

California Law......I am a telecom consultant; sub S corp. My terms in my agreement are payable upon receipt. I have a VERY slow payer and I would like to charge them late fees (or whatever) at what I believe in CA is a maximum of 10% per annum. However, late fees are not addressed in my agreement but it my contract does state that if the client defaults on payment(s) that they will be responsible for all legal and collection fees. What if anything can I legally bill them and what should I call it on the invoice.
Submitted: 8 months ago.
Category: California Employment Law
Expert:  socrateaser replied 8 months ago.
Hello,

You cannot charge a late fee, when it is not provided for under a contract (and many times, a late fee cannot be collected even when it is provided for under a contract). A late fee must be a reasonable approximation of actual damages sustained. Otherwise, it is considered an unlawful contract penalty.

In court, you could claim damages which include out-of-pocket costs reasonably connected to the payor's late payments. But, that would be according to proof, and not according to any fixed fee amount, unless it is stated in the contract.

Re interest, you can charge 10% interest (the legal interest rate in California), on any day during which you have a vested right to damages under the contract. Civil Code 3287(a). So, for every day that payment is late, according to the contract, you would divide 10% by the number of days in the year, multiply that by the total amount past due on that day, and that would be your additional prejudgment interest damages. You can only collect this if you actually sue and get a judgment -- but that's what the court would order.

Prejudgment interest in California is simple -- not compounded. So, you can't charge interest on interest -- it's only chargeable on the total unpaid balance due under the contract.

Please let me know if my answer is helpful. And, thanks for using justanswer.com!
Customer: replied 8 months ago.


pre litigation is there any fee I can charge such as but not limited to liquidated damages or other? Also, does the "responsible for legal and collection fees clause" mean nothing?

Expert:  socrateaser replied 8 months ago.
Liquidated damages is an "agreed to" amount that substitutes for the reasonable approximation of damages actuall sustained to which aI previously referred. Civil Code 1671(b). Without an agreement stated in the contract, you cannot assess liquidated damages. All you can do is to request damages for your consequential costs -- those costs which were actually sustained as a result of the customer's late payments.

Example: You cannot pay your office lease and you sustain a $50 late fee. The reason you cannot pay is because the customer paid late. That is an actual damage sustained as a consequence of the late payment. You can demand compensation for this amount.

But, you cannot charge a "fee," when no fee was agreed to in the contract.

Of course, if you provide a new invoice for a new job under a new purchase order of the customer, then you can send a counter memorandum stating that your services will be subject to late charges and interest if payment is not timely. But, until that occurs, you can't charge a late fee.

The terms, "responsible for the legal and collection fees," means cost of suit (filing fees) and costs of collection (fees to the sheriff for execution, etc.). This has nothing to do with late charges, liqudated damages, prejudgment interest.

It also does not cover attorney's fees, which are the biggest part of a contract lawsuit. So, if you don't have a prevailing party attorney's fee clause in your contract, then you need to add one -- because that's a gaping hole, if you have to sue.

Hope this helps.
socrateaser, Lawyer
Satisfied Customers: 33369
Experience: Retired (mostly)
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