How Security Companies Can Sidestep Early Termination Troubles
Installing security contractors need to watch out for potential early termination pitfalls.
NOTE: The opinions expressed in this column are not necessarily those of SSI, and not intended as legal advice.
A lawyer homeowner recently sued Protection 1 alleging fraud, deceit and deceptive business practices under several statutes in California. The lower court dismissed the case but the Appellate Court has reversed, in part, and sustained the action. The decision addresses matters most of you have thought about.
Protection 1’s contract has an “early termination charge,” which is what’s left on its three-year term contract or $750, whichever is less. It also includes a contract form that uses a “lightly-shaded font” on the back page. The plaintiff claims that when first presented with the contract for signature he did not notice the second page and nothing on the first page alerted him to the second page. Also, the plaintiff claims that the salesperson did not explain important contract terms.
I have counseled consistently that salespeople should refrain from explaining contract terms; that your contract should not have light or small, hard-to-read font, on front or back; and that you avoid late payment fees and cancellation charges (as opposed to liquidated damages for breach of contract).
Here is a paraphrased version of the court’s finding that kept Protection 1 in the lawsuit: “The plaintiff asserts Protection 1 intentionally concealed the terms of the contract to ensure customers signed with the company rather than a competitor. As a result, the plaintiff contracted with Protection 1 and was harmed in that he was forced to pay an early termination fee. We find these allegations sufficient to state a cause of action for fraud and deceit.”
Here is what got Protection 1 in trouble: “Based on the record before us, the plaintiff likewise had no reasonable opportunity to learn the essential terms of the document he signed as a result of Protection 1’s purported failure to provide him with the second page of the agreement. Although the agreement warns a potential customer that he may be charged a cancellation fee, that statement alone would not have informed a reasonable person that he would be charged an early termination fee, much less one for $750 or the remaining amount due under the agreement. The plaintiff was not negligent in failing to take additional steps to ascertain what may be charged as an early termination fee. While the law is clear that a consumer is generally not excused from reading a contract, Protection 1 has provided no legal authority for the proposition that a consumer is obligated to question and investigate any provisions which merely allude to a potential fee.
“Contrary to Protection 1’s characterization, the agreement on its face does not indicate there is more than one page to the agreement. The document specifies that it is ‘page 1 of’ with the number 1 handwritten and any indication that there were additional pages left blank. We are also not convinced by Protection 1’s argument that the terms of the contract themselves indicate to a reasonable reader that there is a second page. For example, Protection 1 notes the first page states that ‘this contract contains provisions significantly limiting (Protection 1’s) liability . . .’ and ‘this contract . . . provides for arbitration of any disputes’ (bold and capitalization excluded), yet does not contain a full arbitration provision or limited liability provision. Whether these statements are sufficient to alert a reasonable reader to the existence of a second page is a question of fact. We reject Protection 1’s argument that the plaintiff was provided with a second page at the time the system was activated.”
If you use the Standard Form Contracts (K&K Standard Contracts, alarmcontracts.com) as drafted you shouldn’t be concerned about the issues in this case. If you don’t, today’s a good day to start.
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