Consumer Contracts

What you should know when you enter into a contract.

As a consumer, you enter into dozens of different contracts each and every week. For example, when you buy your breakfast at the local diner on your way to work, you've made a contract. In return for the bacon, eggs and coffee, you agree to pay the restaurant the price of the meal. Most of these contracts are carried off without a hitch; you pay for what you get, and you get what you pay for. And when the price involved is relatively small, any problems that do arise are usually easy to deal with. The merchant gives you a refund of the purchase price, or a new item, or you simply resolve to take your business elsewhere in the future.

Sometimes, however, serious problems can occur, especially when more significant amounts of money are involved. Some merchants are less than cooperative in working with their customers to resolve any problems, no matter what amount of money is involved. And in some cases merchants are downright deceptive in the way they advertise and the quality of what they deliver.

To help you avoid some of these more unpleasant situations, it's important to clear up some of the more popular misconceptions about consumer transactions.

First, always remember that in most cases, an oral contract is just as enforceable as a written one. While it's true that laws require some kinds of contracts to be in writing (such as those for the sale of real estate, or when the goods being purchased exceed a certain value, such as $500), other kinds of contracts are equally enforceable whether they are written or not.

The problem with oral contracts isn't that they are unenforceable, but that they are so much more difficult to prove than a written agreement. For example, if you make an oral agreement with your neighborhood handyman to waterproof your redwood deck and he fails to complete the job in the way you thought you had agreed upon, how can you prove what the terms of the agreement were? Essentially, you will have to go to court and tell your story to a judge. The handyman will have his own story to tell, one which may be far different from yours, but which may be equally credible and convincing.

But if your agreement is in writing and signed by both you and the handyman, and the handyman fails to live up to the terms you set out in writing, it's much easier to convince a court that the agreement has been breached and that you are entitled to damages, payment of the money necessary to make the job right.

Another common myth related to consumer contracts is that consumers have the legal right to return goods for any reason at all. While it's true that many manufacturers and retailers have very liberal returns policies, in most states there is no law that requires merchants or manufacturers to accept returns unless the goods sold prove defective. So before you buy, it's important to know exactly what the merchant's returns policy is, and to be sure that the item you want to purchase is the right one for you if that policy is less than generous.

Another popular misconception involves the "cooling-off" period that lets consumers back out of certain kinds of consumer transactions. Just about any lawyer who has ever worked with consumers has had a client who believed that the law allowed him to change his mind about a purchase even after he signed a sales contract. For some reason, many consumers believe that this is especially true when they are purchasing a car.

As a matter of fact, the Federal Trade Commission does have a rule that calls for a three day cooling-off period. But that rule only applies to very specific kinds of consumer contracts. In order to qualify, the contract must be for an amount greater than $25. It must have been made in your home or at another location that's not the seller's ordinary place of business, such as at an exhibit hall or in a hotel room or restaurant.

But if you enter the sales contract at the seller's place of business, or if the sale was begun at the seller's place of business and merely concluded in your home, the FTC rule doesn't apply. Similarly, if the sale is made by telephone, or if the contract is for items like real estate, securities, or insurance, the contract isn't covered by the Federal Trade Commission rule. Unless you live in a state that has its own laws providing cooling-off periods for other kinds of sales, such as for health club contracts, dance lessons, or sales made over the telephone, your contract becomes a legally binding document the moment you sign it.

So what's a consumer to do? First, don't allow yourself to be pressured by a salesperson into signing a contract with which you're not completely comfortable. While it may be hard to resist an offer that's "good today only," chances are it will be much harder to live with the terms of an agreement that obligates you to make payments you can't afford, or purchase merchandise you don't really want. And you may be surprised at how often you can get a deal that's not much different from the "today only" offer a day or two (or even weeks) later.

Never sign any contract that contains terms you don't completely understand. You may not want to rely on the seller's explanation of these terms, either, since a salesperson has a vested interest in getting your signature on the dotted line. If you need objective advice about what a contract term means, many lawyers will review a sales contract and explain its terms for a very modest fee.

You should never sign any contract that isn't completely filled out, or which contain terms that are different from what you thought you were agreeing to, since most sales contracts contain a paragraph which invalidates any previous agreement or understanding between you and the seller. If you've been promised something by the salesperson that doesn't appear in the written contract, have that promise added in writing to the agreement.

If you're financing your purchase, be sure the contract spells out the sale amount, your down payment, and the amount you are financing. The contract should also disclose the interest rate and annual percentage rate you'll pay, the number of payments you will make, and the total amount you will have paid when the contract is completed. And you should also have the right to pay off the balance of your purchase at any time without incurring a penalty.

Once you have signed a sales contract, be sure you receive a copy that's signed by the salesperson or other authorized company personnel. Keep the copy of the contract in a safe place, along with warranties and other information about the product or service you've purchased.

If the sale is one that's covered by the FTC Three-Day Rule, the salesperson is legally obligated to inform you of your right to cancel at the time of the sale. In addition, you should be given two copies of a cancellation form. In order to cancel, you simply sign and date the form and mail it to the company before midnight of the third day after the date on your contract. Although it's not required by law, it's a good idea to send the notice by certified mail, return receipt requested, so you will have proof of when you mailed it and when the company actually received it.

After receiving your cancellation notice, the company must cancel and return any contracts you signed within 10 business days. If you gave the seller any goods as a trade-in (such as your old vacuum cleaner), the goods must be returned to you along with any money you paid within this same 10 business day period.

If the seller left the goods you purchased with you, it must pick them up within 20 days of the date you canceled your contract, or make arrangements for you to return them at its expense. If the seller fails to make the pickup or arrangements for return that are agreeable to you, you are legally permitted to dispose of the goods as you wish.

This doesn't mean, however, that you can do anything to make it impossible for the seller to obtain the goods from you. For example, if you agree to be home at a specified time and then don't answer the door when the seller or his representative come to collect the goods, you forfeit your rights under the Three-Day rule, and you can be held to the original terms of your agreement. Similarly, if you accepted merchandise in good condition but return it in damaged condition, you can be held to the terms of your original contract.