Also known as:refuse to pay · refuses to pay · refusing to pay · refused to pay · nonpayment · payment refusal
Written by attorneys · grounded in primary & secondary sources — see below
Conduct by which a party declines or fails to make a payment required by contract, statute, or other legal obligation. The act may trigger remedies, presumptions, or defenses depending on the surrounding circumstances and the governing rule.
Sources & Authorities· 14 primary sources
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Cases
Uniform Acts
Model Codes
Restatements
Dictionaries
How it applies
Common Examples
6
Shareholder Siphoning and Veil Piercing
Ronald Reed formed Regal Apparel as a one-person corporation with minimal capital. After the company incurred substantial debts to suppliers, Reed transferred all incoming revenue to his personal accounts and directed the corporation to refuse payment on the invoices. Suppliers sued and asked the court to pierce the veil. The court examined the totality of circumstances, including the refusal to pay combined with inadequate capitalization and disregard of formalities, and held Reed personally liable.
Installment Note Becomes Overdue
Raymond Ramos executed a promissory note payable in monthly installments to Ridgeway Partners. After Ramos missed the third installment and made no further payments, Ridgeway Partners treated the note as overdue. When Ridgeway Partners later negotiated the note to a third party, the transferee took it subject to the overdue status created by the ongoing refusal to pay the installments.
University Withholds Publication Funds
Rebecca Ross, a student at a public university, edited a religious newspaper and submitted a request for reimbursement of printing costs from student activity funds. University administrators refused to pay the invoice solely because of the publication's religious viewpoint. Ross sued, claiming the refusal violated the First Amendment.
Rosenberger v. Rector and Visitors of the University of Virginia515 U.S. 819 (1995)
Insurer Denies Class-Action Coverage
Rhea Reynolds filed a state-law class action against an insurer that had refused to pay certain medical claims. The insurer removed the case to federal court, arguing that a federal rule governing class actions displaced state procedural limits. The Supreme Court held that the federal rule controlled even though the underlying dispute centered on the insurer's refusal to pay.
Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.559 U.S. 393 (USSC 2010)
Bad-Faith Refusal Triggers Punitive Damages
Raphael Rivera was insured by an automobile insurer that refused to pay a valid claim despite clear evidence of coverage. After a jury found bad-faith refusal, the court considered whether a multimillion-dollar punitive award was constitutionally excessive. The Supreme Court held that the award violated due process because it bore no reasonable relation to the actual harm caused by the refusal.
State Farm Mutual Automobile Insurance Co. v. Campbell538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003)
Tenant Withholds Rent for Uninhabitable Conditions
Rajesh Rao leased an apartment from Riverfront Developments. After discovering serious plumbing and heating defects that the landlord refused to repair, Rao stopped paying rent. The landlord sued for possession. The court held that the implied warranty of habitability permitted Rao to withhold rent once the landlord's refusal to maintain the premises rendered the unit uninhabitable.
Javins v. First National Realty Corp.428 F.2d 1071 (D.C. Cir.), cert. denied, 400 U.S. 925 (1970)
Common questions
Frequently Asked
5
When does a party's refusal to pay an installment note render the instrument overdue under the UCC?+
Under UCC § 3-304(b)(1), if the principal is payable in installments and a due date has not been accelerated, the instrument becomes overdue upon default for nonpayment of an installment and remains overdue until the default is cured. The refusal therefore fixes the instrument's overdue status for subsequent holders.
Supporting sources
Does a shareholder's refusal to pay corporate debts support piercing the corporate veil?+
A refusal to pay is one factor courts consider in the totality-of-the-circumstances test for veil piercing. When combined with inadequate capitalization, failure to observe formalities, or siphoning of funds, the refusal can demonstrate that the corporation was merely a facade for the dominant shareholder.
May a university refuse to pay printing costs for a student religious publication?+
No. When a public university denies funding solely because of the publication's religious viewpoint, the refusal violates the First Amendment even if the university claims a compelling interest in avoiding establishment-clause problems.
Supporting sources
Can an insurer's refusal to pay a claim support a bad-faith punitive-damages award?+
Yes, but the award must be proportionate to the actual harm. A refusal that constitutes bad faith may justify punitive damages, yet due process limits the amount to a reasonable multiple of compensatory damages.
Does a tenant's refusal to pay rent excuse performance when the premises are uninhabitable?+
Under the implied warranty of habitability, a tenant may refuse to pay rent once the landlord fails to maintain habitable conditions. The refusal does not constitute a breach if the defects render the premises uninhabitable.
claiming that he had committed suicide. It appears that neither Empire Mutual nor respondent has ever had any office or agent in California. And so far as the record before us shows,…
the printing costs violated their rights under the First Amendment. After the District Court granted respondents summary judgment, the Fourth Circuit affirmed, holding that the University’s…
of liquor taxes "upon such terms and conditions as shall appear to him reasonable." Act of Mar. 3, 1791, ch. 15, § 43, 1 Stat. 209. A few years later, the Secretary was authorized, in lieu…
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