If a consumer signs a contract with a business that goes bankrupt, does that void the contract?
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If a consumer signs a contract with a business that goes bankrupt, does that void the contract?
I signed with a home security company 21 months ago. About several months later I called to ask questions about my system but the lady was no help; at a later time I tried calling back the number was changed. I have learned they either gone out of business or filed bankruptcy and is a under a new name. If that is the case is our contract still valid? And what if they are located in another state whose laws would we go by?
Asked on June 7, 2014 under Business Law, Colorado
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 9 years ago | Contributor
1) If they are still in business but filed bankruptcy, that does not void the contract. Bankruptcy affects the debt obligations of the business that files--not any non-debt obligations of it, and also not any debt abligations (e.g. amounts owed) to it by other persons.
2) If they were a corporation or LLC and went out of business (i.e. dissolved), then the contract is effectively over--if the entity with whom you were contracting no longer exists, the contract is terminated.
3) Whether or not they went out of business, if they are not honoring their responsibilities or obligations, that would be a breach of contract and their breach would most likely allow you to terminate the contract.
4) If they are an LLC or corporation that still exists, or the business was a sole proprietorship (e.g. "d/b/a"), and it has so far done whatever it has to under the contract (other than being less responsive to you than they should be), the contract is still in force.
5) Check the agreement to see if it specifies where you'd have to sue (called a "venue" provision--contracts can state which courts have jurisdiction). If there is no such provision, you should be able to sue in your own state's courts.
6) Check the contract to see which law applies (a "choice of law" provision--might be in the same paragraph as the venue provision). If the contract does not specify the law, then you need to look at the "choice of law" rules of the state you end up suing in to see which law applies--this can be a complicated analysis.
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