As someone who has spent a good chunk of his career advocating on behalf of consumers, I’m a big fan of the “Haggler” column that regularly appears in the Sunday New York Times. This week’s edition contains a plea for help from a woman who claims to have gotten swindled into renewing an agreement with a home alarm monitoring company that she thought she had canceled. The woman had signed up for the service for a specific period of time. Several months after that time had passed and she had sent the company her notice of intent to cancel, she discovered that the monitoring company had continued to charge her credit card. When she called them to ask about the continuing charges, they informed her, much to her surprise, that she had recently signed a 5 year renewal. Upon further investigation, she discovered that she had been tricked into signing the renewal by a service man who had asked her to sign a document that he described as a verification that he had been there to perform a system check. Her question for the Haggler: how does she get out of this contract?

When a document becomes a contract

Before the Haggler could get involved, the woman who had written him solved the problem with the help of the Better Business Bureau. Although the result was good, the help that she received, as well as the Haggler’s column about it, seem to be premised upon an unexamined acceptance that the document she signed was indeed a legally binding contractual agreement. To borrow from college football analyst Lee Corso: not so fast, my friend!

Contract formation is probably one of the most misunderstood areas of the law by laypeople. For instance, a lot of people mistakenly believe that an agreement has to be put into writing and signed by both parties to be legally binding. In fact, with a limited number of specific exceptions, oral agreements are just as binding as written ones. In most cases, you’re going to want your agreements to be in writing so that if a dispute arises between you and the other party, you will have some way to prove that your claims about what your agreement was are accurate. But a lack of writing by itself won’t get you off the hook if you’re trying to wriggle your way out of a promise that you made.

And in fact, having a signed writing doesn’t automatically bind anyone. Instead, a court or arbiter analyzing a contract is going to look to see whether certain elements are present in the agreement between the parties. Was an offer made? Was it accepted? Did the party attempting to benefit from the contract also suffer some sort of detriment as a result of the agreement between the parties? It’s these elements, rather than the existence of a signed agreement, that are going to determine whether you have a legally enforceable agreement with another party.

It’s not clear that any of those three elements are present in the Haggler’s story. But let’s assume that if this incident had given rise to a lawsuit, the service man would have come to court and said that in fact, he did clearly explain the terms of the renewal to the customer and she indicated that she understood what she was signing up for. This is definitely what would have happened, after all. Then what? At that point, the customer is in a he-said-she-said battle with a company that probably has some pretty good attorneys working on its behalf. Fortunately, we don’t need to get there. It’s the third element mentioned above — what lawyers call “lack of consideration” — that gives the customer her easiest case that there was no contract here.

No, businesses cannot unilaterally foist obligations onto their customers

As described in the Haggler’s column, the renewal agreement between the alarm monitoring company and the customer was not a binding agreement. Why? Because the monitoring company didn’t provide the customer anything in exchange for her alleged agreement to renew her contract for 5 years. Without the renewal agreement, the customer could have kept receiving the monitoring service for the payment she had been making. The only thing about their relationship that the renewal agreement changed was that the customer no longer had any ability to cancel the agreement. The company had not given her any benefit — aka, “consideration” — in exchange for her supposed agreement to renew her obligation to them. The story would have been different if the company had, for instance, agreed to give her a discounted rate in exchange for her agreement to renew. So even if the customer had known exactly what she was signing up for, and there had been no fraud, without an exchange of benefits and detriments to each party, there is no contract.

Contract or not, stopping payment can be hard

Unfortunately, whether there’s a contract or not might matter less than you would hope when a company has your credit card number. In the Haggler’s accounting of the story, it sounds as though the company immediately capitulated and stopped charging the customer’s credit card as soon as she filed her complaint with the BBB. That’s better than not capitulating, but what I suspect is happening here is that the company engages in this behavior with as many customers as possible, capitulates when challenged, but scores big with the customers that don’t notice they’re still being charged or are too busy to do anything to do about it. It’s called fee-shifting and it’s a scourge.

I recently had a situation with a phone company that I guess should remain nameless pursuant to the terms of our settlement agreement. I’ll call it Ferizon. Ferizon sent me a bill for an early termination fee that I knew I had not agreed to. I called them and wrote letters, explaining that there was no agreement because there had been no offer and no acceptance. They sent me a letter saying something along the lines of, “Sorry, but you agreed to this,” totally ignoring the cogent points that I had made. Finally, I filed a claim against them in small claims court. As soon as I did that, I got a call from them, admitting that I had been right all along and letting me know that they would be cancelling the bill. Great, except that filing and serving the complaint cost me $60, not to mention the hours that I spent putting it together and driving it over to the courthouse and then to the sheriff’s  office for service. It cost them nothing to try to squeeze me for $150, so I guess their attitude was, why not give it a shot?

So what do you do if you’re in this situation? There are a few options short of litigation, but none of them are perfect. The BBB is a good place to start, but their leverage is limited with companies who refuse to participate in their dispute resolution process. Also, your state attorney general’s office should have a consumer division that might be able to help, although most likely, it will put your report on file and only take action if they receive a flood of similar complaints. Your credit card company might be willing to do a chargeback. If that company receives enough chargeback requests about the same business, it might threaten to discontinue that business’s ability to accept its credit cards. If a business threatens to damage your credit report, you do have remedies available to you under the Fair Credit Reporting Act. And then finally, there is the small claims court option, although in my experience, this is not convenient for people who have jobs. Really, the best option for most consumers is to have your interests pursued in a class action lawsuit. But as I will discuss in another post, the Supreme Court has been chipping away at that option for years, almost totally removing it as an option in most situations where it would be useful.

For now, the point that I want to get across is that signing on the dotted line doesn’t turn a fraudulent deal into a legitimate one. If the terms of an agreement were misrepresented to you, or if you signed an agreement that provides you with no benefit, your signature alone does not turn it into a legally enforceable contract. Something to keep in mind when faced with a situation like that described in the Haggler’s column.