PA Litigation: Co-Sign or Co-Buying Cases

Defending Collection Lawsuits for Non-Payment of Debt as Co-Signor or Co-Buyer 

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What Are the Liabilities For Co-Signing or Co-Buying? 

As you can easily guess, the whole point of a lender asking you to "sign here" -- to guaranty payment of another's debt -- is to make you responsible for the debt of someone else. Pennsylvania courts do enforce such "guarantor agreements." So then, with you having "co-signed," how far does your responsibility go? 

An agreement to "co-sign" is like any other contract in Pennsylvania.  As such, when a creditor seeks to enforce an agreement -- claiming "breach of contract" -- courts first look to the written language of the agreement, whether the person is the guarantor for a student loan, credit card payment, or other loan or purchase. If the contract allows for it, the creditor can sue you (the co-signor or co-buyer) for the following amounts: 

• • • The amount remaining owed on the debt,
    • Interest on the unpaid amount,
    • Stipulated or liquidated damages for "harm" caused to the creditor from delays,  
    • Courts costs and expenses, plus 
    • Attorney fees.   

The contract may also provide where and when suit may occur. For example, a co-sign / guarantor contract can extend the four years statute of limitations via language in the agreement. Moreover, via contract, the parties may also agree that the creditor may file suit in nearly any state! -- even one where Defendant does not even live!  This is called a "choice of forum" clause.  Pennsylvania courts do enforce such clauses. Or, by contract, you could be waive your right to jury trial and be compelled to attend out-of-court arbitration in a state where you don't live! 

Thus, let's say you live in Texas and co-signed for a loan, only the creditor picked Pittsburgh, Pennsylvania as the place for arbitration of disputes. You can be hailed to appear in court -- or (more expensive) arbitration -- in Allegheny County, Pennsylvania! 

What Are the Defenses in Court When You Co-Sign? 

In some cases, the contract is air tight, but before coming to that conclusion, we consider all possible defenses.  The defenses to a co-signor contract include: 

1. Knowing that the Plaintiff / Creditor (Not Defendant / Debtor) Has the Burden of Proof

The Plaintiff must prove the existence of a valid contract, typically one endorsed by the Defendant. So, for example, in a credit card debt non-payment case, the credit card company must prove by a preponderance of evidence the existence of a contract.  If the contract is "lost" -- which is surprisingly common -- the creditor must prove in court why the original loan documents are unavailable. 

2. Proof of Authenticity of Supporting Documents

Lawsuits require evidence and proof. In Court, it is not enough to assert just any document as the complete contract.  Any party -- including a bank or credit card company -- must prove the authenticity of its documents offered as exhibits in court to prove a defendant's liability. Otherwise, the court will treat the utterances -- statements and assertions in the guarantor agreement -- as inadmissible "hearsay."  In some instances, the creditor will struggle to locate witnesses who will testify as to the authenticity of documents.  

3. No Consideration 

You have to "give to get" in life, and in contract law.  Every contract in Pennsylvania requires "bargain for exchange," meaning, there has to be something of value (however small) that each party seeks to receive from the other.  Otherwise, the contract must fail.  In other words, if I promise to give you my car, but you offer nothing in exchange, my promise is unsupported by consideration. Thus, your action to compel me to transfer my car to you would fail.  This comes up in non-compete cases, where an employer asks a current employee to sign a non-compete for no additional compensation.  There, the court would refuse to enforce the non-compete, as lacking consideration.  

The same rules applies to those who co-sign for the debt of another. You must have bargained for something in exchange for your co-signature.  The "something" need not be money, however. The consideration may have been your desire to help a friend/family member without you having been paid actual money. 

4. Statute of Limitations

Pennsylvania law imposes a four (4) year statute of limitations for to sue for breach of any contract, including one where you co-sign or guarantee the debt of another.  Note, however, if you sign an "instrument" -- such as a mortgage on a home or business and the words "UNDER SEAL" appear caps above your signature -- the statute of limitations in PA is twenty (20) years.  For more, contact a Pittsburgh lawyer at our collection lawsuit defense firm. 

5. Defense of Payment  

You or your lawyers should demand to see the payment log, to make sure each payment that had been made on the debt is recorded.  

Other Defenses 

• Clauses Against Public Policy. Pennsylvania courts do not enforce any contract that contains a provision that's against public policy.  For example, in PA, the law precludes a party from using a contract to "punish" or "penalize" a defendant.  Rather, the courts simply seek to put each party in the position she would have enjoyed, had the contract been carried out.  Thus, a court may strike a claim for late payment fees, if characterized as a "penalty."  

• Violation of Consumer Protection Law.  The courts may also refuse to enforce any contract that violates Pennsylvania's Unfair Trade Practices and Consumer Protection Law or "UTPCP." In fact, the UTPCP allows the co-signor / debtor to countersue the creditor / Bank / Plaintiff for damages for violation of the UTPCP.  A UTPCP claims exists for any false statement made to the co-signor on which she relies to her detriment.
• Violation of the Fair Debt Collection Practices Act. You may have claims for violation of federal law, to assert via counterclaim to a suit against you as the guarantor of the debt of another.  Here is how the Federal Trade Commission (FTC) describes consumer protection as it relates to co-signors or guarantors of the debt of another.  
• Failure to Deliver Goods. The co-buyer, if sued, can have a claim against the creditor for not delivering the product of the guarantor of the debt.  In other words, a seller's decision to put all his faith in a debtor, 
• Some or all of the Parties' Conduct had occurred in a state having favorable laws to the defense, and where the contract has no "merger clause" or "zipper clause," that allows the Parties to look outside of the wording of the agreement.  

What Type of Results Can Occur When Defending a Debt Collection Against a Guarantor?

Yes. One of our clients had been told by two other lawyers that she had no defense and was 100% liable -- to pay an $80,000 second mortgage for which she co-signed. However, we were able to limit her liability to $2,000, based on use showing that the State of California's three (3) year statue of limitations governed this Pennsylvania mortgage.  

The above results are not typical, however. But this shows it can pay to have a lawyer evaluate your defenses, even in the co-sign scenario. Contact a Pittsburgh lawyer at our firm for more.