Does my ex-contractor have a case against me for debt he said will be due when goods are sold (and its still not)

Question

My company is being sued by an ex-contractor for an alleged debt. We had no contract per se and the debt is for goods his factory custom made for us but were delivered late, at which point majority of our retailers cancelled and I didn't want to accept the shipment at all. Eventually I did take it under the premises (everything is documented via emails) we'll only pay when the goods are sold. A good portion of this collection still seats in my storage but it's been over 2 years and he decided he won't wait any longer, won't take the goods back and now things escalated to a lawsuit. 
 
I'm trying to figure out if it's worth it to try and prove the whole debt is very questionable in the first place or if it's long, complicated and with no guarantees maybe file for chapter 11.

James L. Arrasmith · Answer

This is a complex situation that involves several legal considerations. Here's a breakdown of the key issues and potential options: 
 
1. Contract validity: 
   - Even without a formal written contract, your email communications may constitute a legally binding agreement. 
   - The terms you agreed upon via email (payment upon sale of goods) could be considered a valid contract modification. 
 
2. Debt dispute: 
   - The contractor's claim for payment may be weakened by the fact that the goods were delivered late, causing you to lose retailer orders. 
   - Your agreement to pay only when goods are sold could be seen as a condition precedent to payment. 
 
3. Statute of limitations: 
   - Check California's statute of limitations for contract disputes. If it has passed, this could be a strong defense. 
 
4. Mitigation of damages: 
   - The contractor's refusal to take back the goods might be seen as a failure to mitigate damages, which could work in your favor. 
 
5. Chapter 11 bankruptcy: 
   - This is a significant step with long-term consequences. It should be considered carefully and as a last resort. 
   - Chapter 11 could help restructure debts, but it's complex and expensive. 
 
Given these factors, it may be worth attempting to prove the debt is questionable before considering bankruptcy. Here are some steps to consider: 
 
1. Gather all relevant documentation, especially emails outlining your agreement. 
2. Consult with a business litigation attorney to assess the strength of your case. 
3. Consider mediation or alternative dispute resolution before proceeding to trial. 
4. If you have a strong case, you might counter-sue for damages caused by the late delivery. 
 
Remember, litigation can be costly and time-consuming. Weigh the potential costs against the amount of the alleged debt. If the debt is substantial and you have a strong case, it might be worth fighting. If not, negotiating a settlement might be more cost-effective. 
 
Bankruptcy should be a last resort. It can have long-lasting impacts on your business credit and operations. Before considering this option, exhaust all other possibilities, including debt negotiation and potential defenses to the lawsuit.

Timothy Denison · Answer

If you have it documented through emails or otherwise, it is probably defensible unless you need to file bankruptcy any way.

Q: Does my ex-contractor have a case against me for debt he said will be due when goods are sold (and its still not)