In my previous blog (Volume 1, Number 2), I discussed the importance of reading contracts before signing them. As a refresher, if you sign a contract, you are generally bound by the terms of the contract even if you had not read the terms of the contract before you signed it. While this advice is sound and should always be followed, I wanted to bring to your attention a potential ‘get out of jail free card’ that you can rely upon.
In Clendenning, a decision of the Ontario Court of Appeal (the highest court in Ontario), a customer rented a car at an airport. Before renting the car, the customer had chosen to pay an additional premium for “collision damages waiver”, which he had been led to understand provided comprehensive insurance for vehicle damage. The customer signed the rental agreement without reading it. Unbeknownst to the customer, there was a term in the rental agreement which allowed the rental company to refuse coverage for collision damage if the customer had driven the car after consuming any alcohol (the “No Alcohol Term”). Subsequently, the customer drank (within the legal limit), damaged the vehicle and applied for coverage. The rental company relied on the No Alcohol Term in the rental agreement to refuse coverage.
On appeal, the Ontario Court of Appeal refused to enforce the No Alcohol Term and awarded coverage to the customer, even though the customer had not read the terms of the rental agreement before signing the contract. The court’s decision was explained as follows:
- The No Alcohol Term was considered ‘harsh’ and ‘onerous’.
- A harsh and onerous term is one where the party receiving the contract (in this case the customer) wouldn’t expect that term to be included in the contract. In other words, the term would take the customer by surprise because that term didn’t reflect the customer’s intention when he signed the contract.
- The rental company did not notify the customer of the No Alcohol Term before the customer signed the contract.
- Because the customer believed that he would receive collision coverage if he damaged the vehicle, the rental company needed to draw the No Alcohol Term to the customer’s attention. The court held that because the No Alcohol Term was not a standard term in a basic car rental agreement, the No Alcohol term took the customer by surprise and did not represent the customer’s intention when he signed the contract.
The example above is important for employers and companies. Since employers and companies often rely on the terms of an executed contract, they must bring onerous terms to the other party’s attention before that party signs the contract.
Although determining whether a term is onerous is a fact-driven exercise, ask yourself the following: do you believe the other party receiving the contract would have anticipated such a term to be included in the contract; do you think it would take the receiving party by surprise? If so, be sure to bring that term to the other party’s attention before that party signs the contract. Also, bold or underline the term in the contract and put it in large font. Simple steps like these will go a long way to ensuring that the contract is later enforceable.