Martial Arts Contracts
Article by Erik Whynot.
Consumers, as a generalized class of citizens in the United States, must be especially vigilant when agreeing to part with their hard earned cash. Scams, pyramid schemes, get-rich-quick garbage, and overly abrasive/adhesive contracts are an unavoidable part of life which consumers face on a daily basis. If a consumer remembers one thing, it is the he or she that must, must, thoroughly read any document prior to signing away their next mortgage or child support payment.
Most consumers agree that you should not sign anything without reading it first and most persons understand the oft spoken mantra of “Caveat Emptor” or “buyer beware”. Regardless, many still sign their lives away without a second thought as to what they are actually agreeing to. Most consumers look at the shiny new apple they are receiving, and not at what happens when this fruit turns into a lemon when you look to the terms of the agreement to protect your rights.
It has been stated that 99% of all contracts signed in the United States are “Standard Form Contracts” or “Adhesion Contracts”. These two types of contracts are virtually indistinguishable from one another and many scholars have linked the two forms by stating that most Standard Form Contracts are also adhesive.
A Standard Form Contract is what you typically see on the back of everyday agreements that millions of consumers sign on a daily basis, i.e., a membership agreement at Blockbuster Video, a waiver form you sign prior to skydiving, a hotel registration form, or a rental car agreement with Hertz. The adhesive provisions are the ones you typically find on the back of the form, often times in small print, which typically limit your rights and the liability of the company who presented you with it. Essentially, these types of contracts are comprised of boiler plate terms and provision that provide one party with much more protection than the other; most of the time these agreements are presented as a “take it or leave it” type agreement.
Adhesion Contracts are replete with waivers of consumer’s rights, liquidated damage clauses in favor of one party, limitation on what constitutes a breach of the agreement, specific prerequisites that must be strictly followed to preserve a consumers rights under the agreement, and specific limitations or waivers of a consumer's right to cancel or refund monies paid. Most, if not all, long term martial arts instruction contracts contain at least some adhesive provisions that are written to protect the school from losing the money you have paid to them under the contract.
Generally, a consumer’s obligation to pay for a useless or essentially valueless service or product does not disappear simply because he or she decides to not use that service any more. There is a reasonable expectation that a person of ordinary capacity should know what they were getting themselves into prior to signing on the dotted line. Absent extenuating circumstances, the court system, for better or worse, is not going to micromanage your financial life. It is also not going to undo a consumer’s bad financial decision absent a showing of particular commercial egregiousness or unconscionability on the part of the offending party or in the particular terms of the contract.
Paying for martial arts lessons or instruction is no different than payment for any other product or service. What students and parents often do not realize is that they may be obligated to continue paying on a long term agreement regardless of whether their son or daughter continues to attend class. Further, the vast majority of long or short term agreements do not specifically provide the consumer with an ability to cancel the agreement. Often times, if cancellation is possible, the contract will provide particular enumerated circumstances or occurrences that must occur or be adhered to for the cancellation clause to apply. Also, a cancellation fee will probably be termed as either “nonrefundable” or as “liquidated damages” owed to the school for the early cancellation of the agreement. However, what parents and students fail to take advantage of prior to signing these overreaching agreements is their ability to negotiate a better deal and take part in controlling the terms by which they are paying for services under these agreements.
One of the basic benefits of living in a free market, capitalist, society is that if one vendor does not give you what you want, on terms you can agree to, some one else in the marketplace may; but, you do not know unless you try. Thus, if “Joe’s Taekwon Do McDojo” will not agree to modify their long-term contract to allow you to pay in monthly installments and allow you to cancel the contract without penalty, you simply walk or drive to McDojo number two and see if they will accept your business on your terms.
Negotiating the terms of a long-term financing agreement with a Martial Art school is no different than negotiating the purchase of a new or used car. If the car dealership does not give you favorable terms, or at a minimum provide terms that you can live with, you find a car dealer who will. Similarly, most styles of martial art, like most consumer goods or services, are not highly specialized, unique, or completely unavailable from other competitive sources. Thus, if one school refuses to negotiate the terms of their contract, you can, and should, shop around for a school that will.
Do not blame the business for drafting an agreement that will provide them with the most profit for the least amount of work. It is the consumer’s job to negotiate away from bad terms or obligations, or, simply don’t sign the agreement. A consumer cannot blame any one but him or herself for not properly prioritizing financial obligations and for not taking control of the investment and negotiating a more beneficial cost or outcome. Know what you are signing before you sign it!!
The following excerpts are found in a typical “Adhesive” long-term Martial Arts instruction agreement. Suggested negotiating points and pinpointing of terms that should be either modified or taken out of the agreement entirely, from a consumers perspective, follow each excerpt. The actual wording of these various provisions may differ from agreement to agreement, but, the effect of each of these provisions will generally be the same. Further, in the arena of martial arts contracts, there are numerous provisions involving not only general waivers and releases of various financial obligations and remedies for breach of contract, but also waivers and releases of liability for injuries associated with participation in an “inherently dangerous activity”. This article is only concerned with the financially adhesive provisions of martial arts contracts and will not address the enforceability of the various personal injury waivers. That is an article for another time.
Complete Agreement and Modification Provisions
The parties hereto have read the terms of this Agreement before signing the same and hereby agree that that no statement, remark, agreement, or understanding, oral or written, not contained herein, will be recognized or enforced.
This Agreement represents the full and complete Agreement. No purported amendments or modifications of this Agreement will be recognized or enforceable unless same is made in writing and is duly executed by authorized representatives of the Buyer and Seller.
Self-explanatory right? Wrong. Remember, at this point in time the head instructor is a salesman trying to get your money and you are a consumer. Phrases such as “oh yeah, we’ll work with you on that” or “don’t worry, this is just a standard form, we can work something out” are said to make you feel comfortable that this guy is on the level and will not hold you to the letter of the agreement you are signing. Never sign an agreement based upon oral promises, make sure the oral representations are placed in the agreement so there is less of a chance of doubling back or “selective recollection” when the chips are down. As a general rule remember, if it is not in the contract it does not exist.
This Agreement shall automatically renew for a period of _________ (____) months upon the expiration of the ___________ (____) month duration stated in Section 1 above. Either party may cancel or request that this Agreement be modified or amended provided that the party wishing to cancel, modify, or amend provides the other party with forty five (45) days notice of its intent to cancel or wish to modify or amend the agreement prior to renewal.
These are tricky in that if you prepay for a two year contract, are you going to remember when the 45th day prior to the second anniversary of the contract signing will be? Probably not. A provision such as this should be modified to state that the agreement automatically cancels on the second anniversary of the contract signing. As a consumer you need to maintain some control over your obligation to pay for the services provided and you should not put yourself in a position where you miss a 45-day deadline that is over a year and a half away and wind up obligating yourself to pay for another two years of martial arts instruction whether or not you want to continue. The downside to ensuring an absolute cancellation is that if you want to continue you will have to negotiate a new contract and a price increase should be expected, although you should attempt negotiate down any increase from the prior contract terms.
If payment is not made when due, or if Buyer otherwise violates this Agreement, Buyer shall have fifteen (15) days from receipt of notice of such breach from Seller to cure said breach. In the event any amounts outstanding and owed to Seller are not paid in full within fifteen (15) days after notice of default from Seller, Buyer shall pay interest on all outstanding amounts at a rate of eighteen percent (18%) per annum calculated from the date on which such outstanding amounts were due and owing to the Seller. In the event Seller must retain legal counsel to enforce its rights and/or Buyer’s obligations under this agreement, Seller shall be entitled to an award of reasonable attorney fees and court costs (including appeals) associated with the collection of any amounts owed including any other costs associated with such collection activities (including but not limited to long distance phone calls, copy charges, postage, filing fees, storage, and other expenses of collection).
Any section of a contract that provides a time frame for some action to be taken, i.e., “notice must be provided within 45 days”, or “buy shall have a 10-day grace period”, etc. should be highlighted and paid close attention to by the consumer. Here, if you fail to pay any amount due on the due date, and you fail to pay said amount within 15 days of receiving notice to pay from the seller, the total amount of the contract is accelerated and becomes due AND starts accruing interest at a rate of 18% per year.
Mandatory Minimum Term
This contract shall commence on the date of signing this Agreement and shall continue for a period of _________ (___) months from said date. Purchaser agrees to pay a total amount of $_________. Purchaser agrees to pay said amount in the following manner:
( ) One time payment at a discount of 5% from the above listed total amount due.
( ) Said amount shall be paid in ____ equal installments or $______ per payment. Each payment shall be due on or before the following dates:________________________ ____________________________( ) Said amount shall be paid monthly in ____ equal installments with each payment being due on or before the ___ day of each month following the commencement date of this agreement.
Here is where the fast talking will start. The instructor or McDojo representative will quickly state that it is a 12 month, 24 month, 36 month, etc…agreement; but that you have the freedom to pay however is comfortable for you, monthly, bi-annually, annually, or one lump sum at a “discounted” rate for the entire term. This is the illusion of control that is explained at most Sales Seminar lectures. The consumer is told they can pay monthly and unfortunately, many consumers do not inquire further and assume that they can simply cancel and stop paying if little Johnny does not like martial arts. This is simply not true. Absent fraud or some showing of egregious conduct on the part of the seller, this provision will typically be upheld regardless of whether little Johnny attends class or not.
In the event Buyer wishes to terminate this Agreement prior to the expiration of the agreed __________ (___) month term listed herein, Buyer agrees that Seller’s obligation to provide services to Buyer as defined herein shall terminate and Buyer agrees to compensate Seller for the number of months remaining on the contract within thirty (30) days of the effective date of cancellation as provided for in section _____.
Ouch! This provision is harsh. It simply accelerates the total contract amount due and makes it due within thirty days of the “effective date of cancellation”, which date is defined in another section of the contract. This provision is very oppressive, but not uncommon. Again, read your contract before signing.
In the event Buyer wishes to terminate or cancel this Agreement prior to the expiration of the agreed __________ (___) month term listed herein, pursuant to the provisions specified under Section IV herein, Buyer must provide Seller with sixty (60) days notice of Buyers intent to cancel this agreement. Further, Buyer agrees to pay Seller a cancellation fee of two times the monthly payment amount as consideration for Sellers agreement to cancel this contract. Said cancellation fee is nonrefundable.
Section IV – Terms of Cancellation: Buyer may only cancel this agreement buyer is relocating his or her primary residence and said new primary residence is situated outside of a 50-mile radius of this school, or any school affiliated with this school.
So, your contract states that you may cancel the agreement so long as you provide 60-days notice of your intent to cancel and provide a non-refundable fee. The good news is that this option is better than being obligated to pay for something you will not use (or rather, your child will not use). The bad news is that there are specific terms that must be adhered to take advantage of this option and the cancellation fee is non-refundable. Once again, notice deadlines must be highlighted and paid particular attention to. Often times there may be other contingencies that must occur to bring this provision into play. For example, it may state that cancellation of the contract can only be done “pursuant to Section IV”. A quick turn to that section shows that the contract can only be cancelled if you are moving more than 50 miles away from the school and only if there is no other affiliated school within a 50-mile radius of where you are moving. Therefore, if you do not carefully read the provision you could provide the non-refundable cancellation fee, move your family, and then be billed for the remainder of the contract because you did not satisfy the contingency referenced in the cancellation provision.
Third Party Collection/Financing Companies
Mr. McInstructor has talked you into a knot and you are now ready to sign the 36-month agreement and make monthly payments toward the principle. He has told you not to worry about cancellation because he’s “a father as well and he understands how finicky a child can be” and not to worry because he’ll “work with you if little Johnny hates Tae Kwon Do and doesn’t want to come anymore”, he “works with all of the parents”, he’s “a fair and reasonable guy.” Well, great, he may in fact be a fair and reasonable guy BUT the question is whether his promises are hollow or are enforceable modifications to the adhesive terms of the agreement you just signed. Regardless, “Rob Parents Blind, Inc.” has absolutely no idea what promises, hollow as they may be, were given to you by the instructor. All they see is a bottom line, i.e., they collect on “x” number of accounts and they receive “x” profit. If you don’t pay, you are sent a thirty day notice as is required under the Fair Debt Collection Practices Act adopted in most states. If you do not pay or object to the debt, in writing, within the 30-day period, your delinquency may be reported to a credit bureau or sent to an attorney to pursue collection or both.
As was stated above, if it is not in writing it doesn’t exist. This is particularly true where the person who made the hollow promise to entice you into signing the contract is not the person collecting the money. The fact that the instructor stated that he would “work with you” does not carry over to the collection company. The contract controls.
McDojo Knows Best
While the preceding sections attempt to provide you, the reader, with a quick map of the long-term contract minefield in an objective tone, the following is entirely subjective and is provided as “food for thought” from one parent to another.
Upon signing a long-term martial arts contract you may be signing away your ability to choose what you believe, as a parent, is the best activity for your child. One prominent Central Florida martial arts organization lists the following as its overriding goal:
At Victory Martial Arts our mission is to prepare our students for success in life.
Heading home from the grocery store, I happened upon a Victory Martial Arts School in my area (there are a total of 17 Victory martial arts schools in Central Florida at the time of this writing). Knowing that I was putting this piece together, I stopped in to see if I could obtain a copy of their standard contract. The answer was no, of course, but the 20-year old girl was happy to talk with me about the programs offered by the school. Now, I did not really expect that I would be provided with a copy of their contract. I have no right to it; frankly, if I was her I would not give me one either. However, I figured it couldn’t hurt to ask.
It was explained to me that there is a 12-month minimum commitment and that they are “flexible” with how that is paid. I was also told that there are a few different programs/plans that can be purchased which provided more or less training or class time depending on the program. I asked if I could cancel the contract if my son decided that after 3 months he didn’t like Tae Kwon Do and wanted to play baseball, or some other activity. I was told that the school strives to provide its students with life skills and that quitting is not a good life skill. I was told that they have found that typically a child will only think of quitting when he or she is frustrated and having difficulty with some particular aspect of the curriculum, i.e., punches, kicks, kata, weapons (weapons? A 5-year old with kamas?). When a child is thinking of quitting they offer private instruction to assist the child with whatever difficulty he or she is having and then allow the child to assist in instructing the class on that particular skill to help build the child’s confidence. Part of the life skill taught is living up to the agreement and not quitting.
I thought, wow…just wow. Basically, if I’m short-sighted enough to sign the contract I have two options if my son decides after two months that he would like to play soccer instead, 1) force him to go to Tae Kwon Do and deal with the consequences of an unhappy child who is being forced to do something he doesn’t want to do, or 2) let him go to soccer, but be obligated to continue to pay for 10-months of martial arts lesson. A child (3-7 years old) rarely has any idea or plan for what they want to do from one minute to the next, let alone for 12 consecutive months. My son has no idea why he is being forced to go learn Tae Kwon Do. No degree of explanation as to the contractual provisions I have obligated myself to will assist my young child in realizing why he is forced to go do side kicks for two hours a week for 12 months.
My son is not the one learning the life lesson, I am. The lesson is being aware of what you are signing, and taking the time to read the fine print prior to signing. “Caveat Emptor”, buyer beware; or rather, “Caveat Creator”, parent beware.