Logan, UT asked in Business Law and Contracts for Utah

Q: Are we obligated to continue servicing equipment after canceling a plan, if a customer has paid?

I work for a hvac company. We have a maintenance contract. (Prepay for annual services) With that, customers have the option of making payments monthly via auto withdrawal. In our contract it states if more than 2 payments are missed, the plan is canceled. We offer 5 year and 10 year plans. My boss no longer wants to offer the option of making 12 monthly payments because his thought is, if they pay 8 of the 12 payments and we cancel the plan... are we still obligated to go service their hvac equipment for the 4 years they technically paid for? Are we at risk of being sued over the amount paid into it? Are we obligated to refund them the money they paid into it that they didn't use towards a service?

So my math was off a bit. So here's the example : a 5 year plan costs $790. 12 monthly payments would be $65.83. If they pay 8 of the 12, they pay $526.64. Basically 4 years worth of services. If we cancel, do we refund or continue to service for the 4 years they DID pay for?

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1 Lawyer Answer
Kenneth Prigmore
Kenneth Prigmore
  • Spanish Fork, UT
  • Licensed in Utah

A: Please note that I am not your attorney, and this conversation does not create an attorney client relationship. The issues discussed here are general ideas based on a very limited set of circumstances. Normal discussions with an attorney will produce better results as the attorney knows what issues matter and will ask you questions to create a complete picture.

Basic contract law states that you can only demand something from someone if you have given them an agreed upon amount for the product or service. If someone pays for a year of service, you are normally obligated to provide that service or replace it with a pro rated refund or a service of equal value to the customer.

I don't follow your math in the question. Are the monthly payments covering a month's worth of service? Or does the 5 or 10 year plan get fully paid off in just 12 equal payments paid monthly?

If someone is making monthly payments for a month's service, you shouldn't feel obligated to continue servicing them for free after they stop making payments.

If someone has made 8 monthly payments in an amount equal to 3.5 years of service, you arguably owe them that 3.5 years of service or a prorated refund. They could definitely sue you for the difference and have a significant chance of winning.

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