Are Contracts Enforceable If Notice Of Automatic Renewal Not Given - December 29 2016
ARE CONTRACTS ENFORCEABLE IF NOTICE OF AUTOMATIC RENEWAL NOT GIVEN
Are you sure about contracts with more than month to month renewal clauses being “unenforceable” if you don’t comply with the statute and then continue to give (and the customer accepts) service after the initial term?
I believe they are “voidable”, meaning the customer would have the right to get out of it at any time after the initial term, BUT- to the extent the customer accepts service after the initial term it is bound by the other terms of the contract for said period, including to pay for services rendered prior to the customer giving notice of cancellation and most important: the limited liability and other protective provisions. As you know, in NY, its GOL 5-903 which makes such renewal clauses where the requisite notice isn’t given revert to month-to-month.
This also is consistent with Steve Rubin’s opinion that contracts “affected” by these laws do not downwardly impact multiples.
The California Statute in question actually says without the notice, the” automatic renewal clause is void”...it does NOT say the entire contract is void. Is there is any practical difference between the CA and NY statutes regarding this issue? I don’t think so.
Bottom line- the automatic renewal clause in question may be unenforceable and the contract cancellable by the customer at the customer’s option, but otherwise the contract (assuming properly written) is not and its other terms should be enforceable.
This is perhaps the most serious issue regarding automatic renewal provisions and statutes that affect those provisions. What is the consequence of non-compliance with statute? Most if not all of the statutes state that the renewal is not enforceable if the notice requirement is not met. There is a lot of confusion regarding these automatic renewal statutes, and one example is your interpretation of New York's automatic renewal statute, GOL 5-903. If the requisite notice is not given in New York the statute does not provide that the renewal "revert to month to month". The statute provides that the renewal provision is unenforceable. By implication that could mean the contract is not enforceable since it did not renew.
This issue can come up in two scenarios.
Collection cases: Clearly the alarm company will not be able to enforce the contract, recover any money for services rendered, in a renewal period. That certainly applies to future services, but may also apply to services already rendered. For example, contract term expires June 30, 2015. Renewal term of another 3 years, but automatic renewal statute not complied with. Alarm services continue to be rendered through August 2016. Subscriber stopped paying in March 2016.
Alarm company wants to sue for RMR through June 2018, the full renewal term. Won't win. Is case better if suit is started for RMR through August 2016? Chances of winning better, but not certain. In fact what about a counterclaim for refund of the money paid by the subscriber from July 2015 to March 2016 on the ground that the subscriber didn't realize it could cancel the contract at any time. These cases are not worth pursuing because of the usual short time period involved, statutory non-compliance and likelihood of not prevailing.
Defense Cases: Here is where it gets serious. Contract expires, non-compliance with statute for automatic renewal, services continue, payment made, then a loss. Subscriber sues alarm company and when the contract is raised as a defense the subscriber claims there is no enforceable contract; contract expired. Services rendered and paid for without any written contract.
Of course my position is that the written contract continued until canceled by the subsrcriber, and that the services were rendered and accepted pursuant to the contract terms. In fact the subscriber is likely to claim there is a contract for the services when suing for the loss.
I am not aware of any court decisions where this issue was squarely raised and adjudicated. The question is raised by Bob, who owns a pretty nice size fire alarm company. Fire alarms present more risk, potential claims that far exceed any insurance the alarm company may carry. So Bob's conclusion that the contract "should be enforced" may be right, I hope it is, but are you willing to bet your company and all that you may be worth? Don't. Use the Standard Form Agreements, keep the month to month renewal, and don't risk non-compliance with an automatic renewal statute.
2017 CONTRACT UPDATES ARE READY - ON SALE NOW - SEE SALE ANNOUNCEMENT
The Standard Form Agreements have been updated for 2017. We've added a non-disparagement provision. We added a liquidated damage provision when the installation is delayed by the subscriber or others. We modified the monthly payment provision for services so that you have option to give one lump sum instead of separate charges. Fire Protection contract inspection provision was modified in several ways. Retention of ownership of decals and yard signs was added. Warning on audio and video added. Fire All in One added provision to deal with inconsistent agreements. Other changes have been made and you should check with our Contract Administrator Eileen Wagda at 516 747 6700 ext 312 to see if your form needs updating. We starting adding the updates several months ago so you may be up to date. Keep in mind that our updates are free for 6 months and half price for 12 months. Updates will be prepared and sent out after the new orders are processed. The sale ends January 6, 2017, so please be patient.
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