The Terms of a Contract

Bill, one of my regular readers, asked me to write about the concept of continuing contracts, offering examples of magazine contracts, maintenance contracts and other ongoing obligations.

Bill’s concern was about the mechanism to terminate the contract.  Is it automatically terminated at the end of the term or does it continue forever?

Unfortunately, I have to offer the classic lawyer’s cop-out answer:  “It depends”.

Ignoring contracts where the terms of the contract are regulated by statute, a contract is an agreement between two parties.  The terms of the contract are in the contract.  In other words, you have to look at the terms of the contract to see how the contract is going to be terminated.

I’m not going to pretend that these contracts are easy to understand!  Often, I have to read some of them several times over to figure out whether it is a continuing contract or one for a defined term.  You need to read the contract carefully to make sure that you know how to terminate the agreement.  Make sure that you check for any penalties or charges for terminating early.

I’ve seen some pretty onerous contracts.  One client/friend had a fitness club membership with an automatic renewal.  If you read it carefully, though, even though she paid on a monthly basis, the contract had to be cancelled 60 days before the anniversary date or it would be automatically renewed for another year.  On top of that, the cancellation had to be sent by registered mail to the company’s head office in another city.  Of course, it came to me because the club was pursuing my friend, even though she had dropped off a letter at the club.  As far as the short-sighted management was concerned, they were sticking to the letter of the contract.  Needless to say, my friend never rejoined.  With owners like that, it was no wonder that the club went belly up not long after that!

There are contracts that have long terms to them.  The electricity and gas contracts come to mind here.  Despite the salesperson’s urging, don’t sign anything until you have read and understood the terms.  If you don’t understand the terms of the contract, DON’T SIGN!  Don’t expect to go to Small Claims Court and get out of it because you didn’t understand.  The first question a judge will ask is this:  “Why did you sign it if you didn’t read/understand it?”  This is often called the stupidity excuse.  It’s not a very good one.

The bottom line is this:  The terms in the contract will govern the relationship between you and the other party.  Make sure that you read and understand those terms before you sign any agreement.  If you don’t like the terms, you have a choice:  don’t sign and don’t enter a relationship, or sign and accept the terms, like it or not.  Of course, you can try to negotiate terms, but the contracts I have been referring to are generally non-negotiable.