This article originally ran in the March 2013 issue of AVN magazine.
This is a topic that certainly is familiar to all of you as consumers, but it also should be familiar to those who sell products or provide services. I am talking about standard-form contracts that are not subject to any negotiating.
The examples with which all of you invariably are familiar are found at automobile dealers, whether they involve purchasing a vehicle or having one repaired. In either event, you sign a pre-printed contract that is subject to exactly zero negotiating. Put to the side for the moment that sales and repairs of vehicles are regulated by state and federal law, so there are some provisions in such contracts that mandatory or prohibited. However, at issue here are the limitations on take-it-or-leave-it contracts that are not subject to the kinds of regulations that apply to vehicle dealers, insurance companies or other heavily regulated industries.
These are called “adhesion contracts” or “contracts of adhesion.” An adhesion contract long ago has been described as this:
“a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. ... Such an agreement does not issue from that freedom in bargaining and equality of bargaining which are the theoretical parents of the American law of contracts. Yet, today, the impact of these standardized contracts can hardly be exaggerated. Most contracts which govern our daily lives are of a standardized character. We travel under standard terms, by rail, ship, aeroplane, or tramway. We make contracts for life or accident assurances under standardized conditions. We rent houses or rooms under similarly controlled terms; authors or broadcasters, whether dealing with public or private institutions, sign standard agreements; government departments regulate the conditions of purchases by standard conditions.”
What you need to know here is that there are provisions that can be unenforceable in these contracts. There are two categories of such unenforceable provisions.
One category consists of those contractual provisions that courts are unwilling to enforce regardless of the fact that the parties may have agreed to them. A classic example, which seems to pop up in terms and conditions of websites everywhere, is a “choice of forum” provision—a clause that establishes which court(s) will be assigned dispute resolution—that has nothing to do with the location of the website.
Here’s what can happen: A website operator situated in Nebraska decides to save a few bucks by writing his own terms and conditions—more accurately by copying the terms and conditions of some other website. Putting aside the issue of copyright infringement (plagiarism), it turns out that our hero in Nebraska copied the terms and conditions from a website in Chicago. The Chicago website operator included in his terms and conditions a forum-selection clause that requires disputes to be resolved in courts of Cook County, Illinois, where Chicago is located. So, the Nebraska fellow puts Cook County in his terms and conditions, which creates what turns out to be an unenforceable provision unless the dispute is with a resident of the Chicago area. A Cook County court will simply say, “Why does Illinois have a stake in this controversy?” It doesn’t; so the court will not resolve the dispute.
As an aside, a term in that circumstance requiring arbitration in Chicago would be valid—probably not what our hero in Nebraska would have wanted. More on arbitration follows.
Other examples of provisions that are unenforceable even where agreed to by both parties are those prohibited by law. For example, California effectively prohibits one-way attorneys’ fees provisions in contracts by providing that if one side can recover attorneys’ fees according to the contract, so can the other. Another example is that most states will not enforce a pre-dispute agreement to alter the statute of limitations.
The second category of unenforceable provisions in adhesion contracts consists of those that are deemed “unconscionable.” As an absurd example, a library-card contract that in fine print requires a borrower who returns a book one day late to pay a fine amounting to the entire price of the book likely would be held unconscionable. The “in fine print” proviso often is important! For example, the validity of a provision that the sale of something is “as is” or “as is, where is” is a function of whether it is in large, bold print or in fine print.
Some courts have held that arbitration provisions must be in bold print in adhesion contracts. So, too have been provisions where a customer waives any claim for negligence—important for ski slopes and skating rinks.
There is an overriding principle here, as well. If one party drafts a contract, then the other party has the advantage of the benefit of the doubt. That is, any ambiguity is resolved in favor of the party that didn’t draft the contract.
Whether the customer would agree to the contract if the customer knew of the challenged provision is crucial to the issue of unconscionably, which is why giant-sized, bold print can be important. If a provision is prominent enough, courts often conclude that the customer in fact did agree to it.
Importantly, there is an emerging concept requiring “plain language” contract for consumers. Some attorneys (certainly not this one) love to use words like “heretofore” and “theretofore.” They think it will impress their clients. However, convoluted language can void provisions in adhesion contracts.
However, one bad apple doesn’t spoil the whole bunch in these circumstances. A defective provision in a contract leaves the remainder of the contract intact unless the defective provision frustrates the general objective of the contract. Thus, if an arbitration provision is void, the rest of the contract generally will stand. On the other hand, if a contract says that Alan will provide Bob with 12 prostitutes; and Bob will pay Alan in return a fee of $10,000; the void prostitution aspect of the contract voids the whole thing. Bob isn’t on the hook for the Ten Large.
Take from the above the fact that drafting form contracts, such as releases and terms and conditions, is more technical than you might think. Copying contracts from someone else isn’t always the best idea. Don’t fill your own teeth, either.
Clyde DeWitt is a Las Vegas and Los Angeles attorney, whose practice has been focused on adult entertainment since 1980. He can be reached at ClydeDeWitt@earthlink.net. More information can be found at ClydeDeWitt.com. This column is not a substitute for personal legal advice. Rather, it is to alert readers to legal issues warranting advice from your personal attorney.