contract-law
Implications of cancelling a contract when the cancellation clause was not shown to the promisee
<p>Imagine a written contract is agreed between a company and a married couple for some building work to be done on their home. Although both their names are on the contract, only one spouse actually signed it.</p>
<p>Before the work had started however, the couple fell upon some hard times and are unable to afford to have the the work even start. The company then states that the couple have to pay for 25% of the contract even though they are cancelling it.</p>
<ul>
<li>Can they hold them accountable?</li>
</ul>
<p>Further imagine that it states in the contract that unless they cancel the contract within 3 days then they be can charged (the 25%).  What if this part of the contract was on the back side of the contract in the middle of the page, but was not shown to the couple nor did they read it?</p>
<ul>
<li>Can they still be held responsible?</li>
</ul>

<h2>You signed the contract</h2>
<p>It does not have to be “shown” to you, it just has to be available. You say it was “on the back side”; providing you had the opportunity to turn the paper over, it was available to you and it doesn’t matter that you didn’t see it or read it - that’s your problem.</p>
<p>If they deliberately disguised the fact that the contract had two sides or actively prevented you from looking at the back, there might be a way out. But, as stated, it seems you just didn’t look.</p>

<p>When a party A is presented with a proposed or draft contract by a counterparty B, particularly a per-printed proposed contract, A ought to read and understand it thoroughly. If A indicates acceptance by signing the proposed contract, A may well,be bound thereby.  Unless B has taken active steps to prevent A from reading the whole contract, such as presenting an incomplete version, or presenting the contract in a holder  that prevents A from reading the back sides of pages, or making knowingly false statements such as that certain sections are &quot;unimportant boilerplate that the lawyers insist on&quot; with the intent of deceiving A as to the meaning of the contract language; A may be held to the contract terms.</p>
<p>However, contract terms are always subject to local law, and particularly in consumer transactions the law may limit permissible contract terms. In many jurisdictions, &quot;penalty clauses&quot;, that is provisions that enforce a specific amount to be paid for a breach, are not enforceable. However &quot;liquidated damage&quot; provisions, which make a reasonable estimate of damages hard to accurately measure, may be allowed.</p>
<p>Whether a 25% fee for cancellation is allowed will depend on the local law and precedents under it. The question does not, as now written, specify any jurisdiction, so there is no way to asses what laws, if any, apply to such a provision. Local laws may limit cancellation penalties, or provide a minimum time for cancellation without penalty. Or they may not.</p>
<p>A vendor may well have legitimate expenses in connection with a canceled order, making a cancellation fee reasonable.
A person in the position of A would be wise to consult a lawyer knowledgeable about local consumer protection law promptly, as rights under such laws often have strict deadlines, and if not exercised in a timely way, may lapse.</p>

<p><a href="/questions/tagged/california" class="post-tag" title="show questions tagged &#39;california&#39;" rel="tag">california</a></p>
<p>The general rule is that one who signs an instrument may not avoid the imposition of its terms on the ground that he failed to read the instrument before singing it.</p>
<p>However, there are a few theories upon which a clause described in the question may be found unenforceable, invalid or illegal based on the provided facts, and/or some reasonable inferences therefrom.</p>
<p><strong>Actual surprise</strong></p>
<p>The legal concept of &quot;actual surprise&quot; generally refers to an exception to the above-mentioned general rule based on the state of mind of a presumptive party to a contract who has failed to read the contract, later found out about its terms causing them surprise, and therefore would not have been able to consent to its provisions. These matters typically are fact heavy, but there are aspects that are decided by courts.</p>
<p>&quot;[A]ctual surprise can be established by [a] plaintiff's failure to read the contract because “[t]he general rule […] applies only in the absence of overreaching or imposition.&quot; [<em>Sanchez v. Valencia Holding Co., LLC</em> (2012) <a href="https://casetext.com/case/sanchez-v-valencia-holding-co-1#p85" rel="nofollow noreferrer">135 Cal. Rptr. 3d 19, 32]</a> (hereinafter: &quot;<em>Sanchez</em>&quot;); <em>see also Bruni v. Didion</em> (2008) <a href="https://casetext.com/case/bruni-v-didion#p1291" rel="nofollow noreferrer">160 Cal.App.4th 1272, 1291, 73 Cal.Rptr.3d 395] </a>(<em>Newton v. American Debt Services, Inc.</em> (N.D. Cal. 2012) 854 F. Supp. 2d 712, 724)</p>
<p>&quot;Overreaching&quot; and &quot;imposition&quot;, probably without any difference construed by the courts, refer generally to the act of including such terms into a contract that give an undue advantage, rights or privileges to one party over another that are not reasonably balanced, for e.g. financial strings to the contract such as arbitration clauses, liquidated damages, or &quot;cancellation fees&quot;.</p>
<p>&quot;Surprise may be determined by [the] location [of a clause of imposition]. In <em>Sanchez</em>, the court found that [such] clause located on the back of a contract that was [a single sheet of paper], 8 1/2 inches wide, and 26 inches long with provisions on both sides constituted a surprise. <a href="https://casetext.com/case/sanchez-v-valencia-holding-co-1" rel="nofollow noreferrer">201 Cal.App.4th at 85, 135 Cal.Rptr.3d 19</a>. The customer was required to sign or initial the front of the contract in eight places, but none on the back. <em>Id.</em> Although the [imposition] clause was outlined by a black box, the court found that there was surprise because <strong>the arbitration clause was located on the back of the document.</strong> Id. at 91–92, <a href="https://casetext.com/case/sanchez-v-valencia-holding-co-1" rel="nofollow noreferrer">135 Cal.Rptr.3d 19.</a> Furthermore, the court found that actual surprise could be established by the plaintiff's failure to read the contract&quot; (<em>Newton v. American Debt Services, Inc.</em> (N.D. Cal. 2012) <a href="https://casetext.com/case/newton-v-am-debt-servs-inc" rel="nofollow noreferrer">854 F. Supp. 2d 712, 724</a>) for the reasons outline above.</p>
<p>Arguably, a liquidated damages clause imposes certain limits on the parties abilities to dispute the merits of damages claims in certain sense to greater while in other to lesser extent to an arbitration clause. The law in California requires arbitration clauses to be included in conspicuous letters while the same is not true for liquidated damages, it probably implies that they generally are viewed as less imposing than arbitration clauses.</p>
<p>In either case, there is well-established case law about putting terms on the back of the sheet of a contract -- the reason why you typically see an otherwise environmentally outrageous extent of wasting in the one-side printed legal documents in at least California.</p>
<p>In fact, the cases here allude to putting at least arbitration clauses, on the &quot;front side&quot; of a sheet even if there is reference to its existence on the back implying that merely including an page counter in the footnotes would not, as a matter of law, deem a back-page contract and its terms valid which gives plausible defense against the question scenario.</p>
<p><strong>Lack of valid agreement to the contract</strong></p>
<p>This may or may not be established based on certain facts including whether or not the contract included an entire-agreement clause; a clause setting forth that no oral amendments of the written instrument are valid, legal or enforceable; the definition of parties including both spouses; and an affirmation before the signature area stating that the parties have read and understood the agreement.</p>
<p>If these were in place, there could be plausible basis to make a meritorious argument that the contract did, in fact, not ever come into force provided the parties strictly set forth that both spouses represent one side of the contract, and not each alone, and if the contract could not be interpreted, but effectively strictly based on its written body since then a requisite party would have failed to consent to it. The contract in that case would represent the parties intentions to include both parties, and the burden of proof would fall on the party contesting this -- probably a high one.</p>
<p>If the contract is not a standard, highly professionally drafted contract including the above (entire-agreement clause, &quot;no oral agreement or amendments&quot;, well defined parties, read-and-understand, with missing signature) the other party can plausibly argue that there was a meeting of the minds, an implied agreement that the contracting parties now excluded the other spouse, and it will be entered into force without them.</p>
<p>Without setting forth additional factual premises of this hypothetical, it is highly speculative to argue pro or contra.</p>
<p><strong>Unreasonable nature or susbstantive unconscionability</strong></p>
<p>California Civil Code section 1671 provides that a liquidated damages provision &quot;is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable&quot; or unsconscionable.</p>
<p>Substantive unconscionability focuses on “the effects of the contractual terms and whether they are overly harsh or one-sided” (<em>Flores v. Transamerica HomeFirst, Inc.</em> (2001) 93 Cal.App.4th 846, 853) while the unreasonable nature of such a clause requires the affirmative demonstration of the absence of objective basis of the imposition of such a clause, for e.g., because the damages would have been readily calculable upon the failure of either parties to abide by the terms of a contract.</p>
<p>Whether or not this would apply in this hypothetical depends on more factual premises that are not set forth for any reasonable speculation; one or the other or both may or may not apply. Presuming the construction requires materials, and the materials are bought by the 3rd day in substantial proportion with the 25 percent may render the clause substantially reasonable although one may seek the receipts to see the actual spending and estimate associated costs and expenses to find any difference between them. However, this could reasonable be expected to not change the underlying pretext that minds of the contracting parties met about whether or not they intended to not dispute generally such damages, and even if they differ from this intention on dimes and nickels, they will be bound by this underlying agreement of the minds resulting in substantially similar payment duties owed with no regards to any other facts that may invalidate these terms or the contract as a whole.</p>
