Legal Watch

Focus on 'Formation of the Contract'

The three-day right of rescission isn't the only possible basis to invalidate a contract. Many states have similar laws that apply to residential transactions. These include language and print size requirements. Many states have adopted plain language laws. (Despite this, many industry lawyers still use a lot of "therewiths" and "heretos" in their standard industry contracts. I say enough already.) The consumer protection right to cancel law in at least one state (Pennsylvania) applies to sales that are solicited over the telephone. Other states have similar laws that apply to transactions solicited by mail. You must know what laws apply to your transactions and then comply with those laws. (Ignorance of the law is never a defense.)

Another example is where a provider engages services in states where it is licensed and in states where it is not licensed. Following a catastrophic loss, can the provider enforce their contract in the states in which the provider is unlicensed? Highly unlikely. Can the unlicensed out-of-state provider enforce the contract if it relies solely on subcontractors licensed in the state to provide the contracted services? Likely to, depending on resolution of factual and legal issues.

Be careful when making promises in the sale of an alarm system, especially to a consumer. Misleading statements may void the contract. Most states have laws that make certain practices in the sale of goods or services to consumers an unfair or deceptive trade practice. These laws impose significant liabilities, including treble damages and attorneys' fees. These laws also often permit an aggrieved party to void a contract.

The common-law provides similar remedies in some states. I've been involved in litigation where the subscriber alleged the alarm provider made false representations to convince the subscriber to purchase an intrusion system. The subscriber sustained a significant fire loss and claimed the provider told the subscriber the intrusion system would detect fire. The subscriber sought to set the contract (and its limitation of liability and related risk allocation clauses) aside, claiming the alarm provider fraudulently induced the subscriber to purchase the system. The results can be disastrous.

These are just a few of the issues you should consider when making sure your subscriber contracts are enforceable. Make sure you follow the law when selling to subscribers. In the meantime, let's continue the discussion on the LegalWatch blog.

Eric Pritchard, SD&I's legal columnist, is a partner in Kleinbard Bell & Brecker LLP, Philadelphia, a commercial law firm with a national practice in the electronic security and life safety industries. Check out his LegalWatch blog at