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Contracts

A contract is an agreement in which a party undertakes or refrains from a particular action.1 All that is necessary for most contracts to be legally valid are the following two (2) elements:

Click on the link below to find more information about this topic.

Written Contracts

Under the New York Uniform Commercial Code (U.C.C.), the statute of frauds requires all contracts for the sale of goods with an underlying value of five hundred dollars ($500) or more to be in writing, or the agreement is not binding on the parties.2 Further, telephone agreements with a total value of five hundred dollars ($500) or more without a subsequent written contract are not enforceable. 3 Generally, oral contracts are not the most effective choice. It is best for a consumer to make sure all contracts are in writing. However, oral contracts can be enforced, specifically where the statute of frauds does not apply (i.e., under five hundred dollars ($500)) and where there has been a complete performance of the oral agreement which was previously specified. Additionally, where goods are specially manufactured, and not suitable for sale to others in the ordinary course of the seller's business, any oral agreements concerning their sale would be enforceable notwithstanding the amount. 4

Contract Clauses

A contract may state, for example, that all disputes must be submitted to arbitration, that the seller has disclaimed all warranties, or that the consumer has waived the right to sue under the consumer protection statute. Under common law as well as the N.Y. U.C.C., disclaimers are disfavored, and courts construe disclaimers as narrowly as possible to protect the buyer. 5 Consumers should know that a seller’s effort to modify or limit express warranties may give rise to U.C.C. and Unfair and Deceptive Acts and Practices (UDAP) claims. If a clause purporting to limit or modify an express warranty is misleading or deceptive, it violates the New York State UDAP law. 6

General Rules for Cancelling a Contract

Validity of the Contract

Consumers often ask whether they can cancel a contract after signing. Contracts that are made in good faith, with a valid offer and acceptance, and with a clear understanding of the terms of the contract by both parties, generally cannot be cancelled. However, duress, coercion, oppression, and undue influence are all grounds for cancelling a contract. Also, if the performance becomes impossible or impracticable, then the performance of the contract may be excused, unless the parties were aware of the impossible or impractical terms before accepting the contract and still agreed to the contract. Performance of a contract may be excused if there is a frustration of its purpose, meaning that the stated purpose for the contract is subsequentially defeated by some supervening event (i.e., buying tickets to a show that has been cancelled).

A consumer who is considered incapacitated, but enters into an otherwise valid contract, might be able to void the contract due to his or her incapacity. Courts decide whether a person has the capacity to enter into a contract by determining whether the person is able to understand the nature and consequences of the transaction and make a rational judgment concerning it. 7 Some examples of circumstances which incapacitate a person’s ability to contract include: minors, persons with mental disabilities, intoxication or drug use.

When a consumer’s duty under the contract is not triggered until one or more events have occurred, the event is called a condition of performance. Until such condition has been met, the consumer is not bound by the contract. (i.e., someone promises to give money to his or her high school after his or her death).

Additionally, there must be consideration, that is, something of legal value, given up by both of the parties, for a contract to be enforceable. For example, in a circumstance of gift giving, between family members, because there is no bargained-for exchange, there is no consideration. Also, when an illusory promise occurs, (when a promise is made that the promisor actually has no obligation to keep), the contract is unenforceable. If one party is asked to do something, this is considered a pre-existing duty (i.e., not to use illegal drugs in order to receive a car), and is not deemed consideration, because the party is already under the legal obligation not to use drugs. Lastly, if a contract is illegal, such as a contract to commit a crime, it is unenforceable.

In some rare cases where there is no consideration, the contract can still be enforced. This would apply where the contract was implied in fact (i.e., a transaction history between the two parties) or implied in law (i.e., a person is unjustly enriched at the expense of the other person), or where there is promissory estoppel (injustice can only be avoided by the enforcement of the promise).

A contract can be valid even though the price is not settled. In such a case, the price is a reasonable price at the time of delivery if:

  1. Nothing is said as to price; or
  2. The price is left to be agreed upon by the parties and they fail to agree; or,
  3. The price is to be fixed in terms of some agreed upon market or other standard as set or recorded by a third person or agency and it is not so set or recorded.8

“Cooling-Off” Law

Under the Federal Trade Commission's Cooling Off Rule, 9 a consumer has until midnight of the third business day after a contract was signed to cancel either of the following:

Under the “Cooling- Off Rule,” after the buyer has cancelled a purchase, the seller has ten (10) days to:

Within twenty (20) days, the seller must either pick up the items left with the buyer, or reimburse the buyer for mailing expenses, if there was an agreement to send the items back. If the buyer received any goods from the seller, the buyer must make them available to the seller in as good condition as when the goods were received. If not, or if the buyer agrees to return the items but fails to do so, the buyer remains obligated under contract. Complaints about sales practices involving the Cooling-Off Rule should be directed to the Consumer Response Center, Federal Trade Commission, Washington, D.C. 20580.

Specific NYS Contract Cancellation Laws

There is no general “cooling-off” law in New York. Consumers should be very wary of salespeople who tell them differently. Below is a summary of the applicable New York laws on certain items:

How to Cancel a Contract

To cancel a sale designated by a contract, sign and date one copy of the cancellation form. Mail it to the address given for cancellation, making sure the envelope is post-marked before midnight of the third business day after the contract date. (Saturday is considered a business day; Sundays and federal holidays are not.) Because proof of the mailing date and receipt are important, consider sending the cancellation form by certified mail in order to get a receipt. Or, consider hand delivering the cancellation notice before midnight of the third business day. Keep the other copy of the cancellation form. If the seller did not give a cancellation form, a consumer can write his or her own cancellation letter. It must be post-marked within three (3) business days of the sale.

Other Relevant Federal Laws

Truth in Lending Act

The general rule of the federal Truth in Lending Act (TILA) regarding a contract rescission states that a borrower whose loan is secured by his or her principal dwelling has the right to rescind, unless the loan is not intended primarily for personal family purposes or the loan is a purchase money loan (i.e., for the purchase of a home). 25 There are, effectively, two (2) separate rights to rescind. The first is the three (3) day right to cancel, which can be exercised by the borrower during the three (3) business days after the loan documents are signed. During this three (3) day period, the lender should not release loan proceeds or record the security interest. This three (3) day right to cancel ends at midnight on the third business day after the loan documents were signed. A business day is Monday through Saturday, with certain holidays excluded. The second right to rescind is the extended right to cancel. The statute of limitations on this extended right is three (3) years; however, it can be tolled for certain reasons, and more importantly, a borrower can always rescind, if the loan is rescindable, when the lender starts foreclosure proceedings. Under TILA, the extended right to rescind is created when the borrower is not properly notified of the three (3) day right to cancel or the TILA disclosures are not accurate within certain statutorily defined tolerances.

Telephone Order Rule

If a good was ordered by mail, phone, computer, or fax (other than photo development, magazine subscriptions, seeds, or plants), the Federal Trade Commission's Mail or Telephone Order Rule 26 requires that the seller ship to the buyer within the time promised, or, if no time was stated, within thirty (30) days.

If the seller cannot ship within those times, the seller must send a notice with a new shipping date and offer the option of canceling the order and getting a refund, or accepting the new date. If the buyer opts for the second deadline, but the seller cannot meet it, the buyer must be sent a notice requesting a signature to agree to yet a third date. If the buyer does not return the notice, the order must be automatically canceled and the buyer’s money refunded. The seller must issue the refund promptly -- within seven (7) days if paid by check or money order, or within one (1) billing cycle if the purchase was paid for with a credit card.

Retail Contract Refunds

A consumer does not have a general right to a cash refund after a purchase is made. A seller is not required to offer refunds or exchanges, though many do. Under New York law, sellers with a refund policy must post the policy that states whether or not such establishment gives refunds and under what conditions that they do. If an establishment violates this law, it has twenty (20) days from the date of the purchase to give the buyer a cash refund or a credit at the buyer’s option, provided that the merchandise has not been used or damaged by the buyer.27

“No Cash Refund” Policies May Be Deceptive

Signs in many stores specify a “no cash refund” policy. It is deceptive to disclose a “no cash refund” policy that is at variance with a consumer’s warranty law rights. 28 For example, if a product is defective, the consumer may have the right to revoke acceptance and receive a full cash refund. Statements or signs stating “no cash refunds,” without disclosing an exception for defective merchandise, may be deceptive because they misrepresent the consumer’s legal rights. The same can be said for store refund policies that do not make exceptions where a sale involves misrepresentations about the goods, their performance, or other characteristics. Such misrepresentation is also a basis to seek a full cash refund.

When the Seller Violates or Breaks a Contract

The failure to perform, or the failure to comply with the provisions of a contract, constitutes a breach of contract. When the seller does either of these things, the buyer is entitled to damages. When the performance of the contract is delayed without notice or legitimate reason (i.e., forces of nature), the delay can qualify as a break or breach of the contract except if the contract contains a stipulation against damages for delayed performance.29

Types of Damages for the Buyer

Damages are assessed after a seller breaches the contract, to ensure that both of the parties are at least able to return to the original pre-contract positions. 30 Sometimes additional damages are granted to the buyer due to the buyer’s reliance on the agreement or other detrimental losses. The buyer may cancel where:

In addition, the buyer may recover what he or she has already paid, collect damages for all the goods affected, whether or not they have been identified in the contract, and/or recover damages for non-delivery. Where the seller fails to deliver or rejects obligation to the contract, the buyer may also:

Service Contracts

Service contracts are often entered into with respect to a large purchase, such as an automobile or appliance. A service contract, sometimes also called an extended warranty 31 or breakdown insurance, is a written contract to perform services relating to maintenance and/or repair of a consumer product. To many consumers, buying a service contract is like buying "peace of mind" from repair hassles. Some consumers, however, may be paying for more protection than they need.

Although service contracts are often for a longer duration of time than a general warranty, consumers should still be aware that with automobile repair, home improvements, and other common consumer services, there is already an implied warrantability of workmanlike quality, meaning an assurance that the performance was done in a proper, safe, and non-negligent manner. 32 Additionally, under the N.Y. U.C.C., there is already an implied warranty that goods shall be merchantable in a contract for their sale if the seller is a merchant with respect to goods of that kind. For goods to qualify as merchantable they must:

  1. Pass without objection by the buyer in the exchange under the contract description;
  2. in the case of fungible goods (goods that are substantially equivalent to another unit of the same good of the same quality at the same time and place), are of fair average quality within the description;
  3. are fit for the ordinary purposes for which such goods are used;
  4. run, as represented by the variations permitted under the agreement, and be of the kind, quality, and quantity which was permitted under the agreement;
  5. are adequately contained, packaged, and labeled as the agreement may require; and,
  6. conform to the promises or affirmations of fact made on the container or label if any. 33

Service Contract Questions to Consider

What does the service contract offer? A service contract, like a warranty, provides repair and/or maintenance for a specific time period. Warranties are included in the price of the product, while service contracts cost extra and are sold separately.

What is covered by the service contract? A service contract may cover only certain parts of the product or specific repairs. Read the contract carefully and, if it does not list something as specifically covered, assume that it is not. Service contracts do not cover repairs resulting from misuse or failure to maintain the product properly. Also, consumers may be obligated to take certain action, such as notifying the company of problems, to ensure the service contract is not voided.

What will the service contract provide that the warranty will not? Consumers should know what is already covered by their warranty before considering a service contract. Carefully compare the coverage of a warranty to the coverage offered by the service contract to decide if the service contract is worth the additional expense. Be sure also to compare and know the length of time the service contract is effective. For more information about warranties, request a free brochure from the Federal Trade Commission by writing to:

Public Reference, Room 130
Federal Trade Commission
Washington, D.C. 20580

Is the product likely to need repairs? A service contract may be unnecessary if the product is unlikely to need servicing or if the potential cost of repairs is very low.

What other costs will you have? There may be other expenses after buying a service contract. Service contracts, like insurance policies, often have deductible amounts or a surcharge every time the item is serviced. Some expenses are limited or excluded. For example, auto service contracts may not completely cover towing or rental car expenses. In addition, there may be cancellation or transfer fees if the covered product is sold to another, and the service contract is cancelled.

Where can you get service? If the service contract is offered by a local retailer, this may be the only location where the item can be serviced. Consider the possibility that problems may develop when traveling.

Who is responsible for the contract? Consumers should ask who performs or pays for repairs under the terms of the service contract. It may be the manufacturer, the dealer, or an independent company. Many service contracts sold by dealers are handled by independent companies called administrators. Administrators act as claims adjusters, authorizing the payment of claims to any dealers under the contract. If a consumer has a dispute over whether a claim should be paid, he or she should deal with the administrator.

What can a consumer do when a service contract provider goes out of business? The Before signing a contract, consider whether the company offering the service contract is reputable. Ask the State Insurance Department, the Office of the New York State Attorney General, the State Consumer Protection Board or the Better Business Bureau if they have any previous complaints against the company. If the administrator goes out of business, the dealership or retailer still may be obligated to perform under the contract. The reverse also may be true. If the dealer or retailer goes out of business, the administrator may be required to fulfill the terms of the contract. Whether a consumer has recourse depends on New York State laws.

Under New York State Insurance Law, 34 a service contract provider must either: (1) insure the performance of all its obligations under all service contracts pursuant to a service contract reimbursement insurance policy purchased by the service contract provider; (2) maintain a funded reserve account for its obligations under its service contracts issued and outstanding in the State, which contains at least forty percent (40%) of the gross consideration received upon the sale of claims; or, (3) maintain a net worth or stockholders’ equity of at least one hundred million dollars and provide the Insurance Department Superintendent with a copy of such financial statements. In short, the service contract provider has to have a specified level of insurance on the service contract regardless of its business status. The consumer should contact the New York Insurance Department for more information.

The FTC’s Holder Rule35 provides that consumer credit contracts must contain the statement that any holder of the contract is subject to all claims and defenses that could have been asserted against the seller. Moreover, FTC guidelines for the rule state that the required notice protects a consumer's right to assert any legally sufficient claim against the seller.

Can you purchase a service contract later? Owning the product for some time might allow consumers to determine if they need a service contract. If possible, consider waiting until the warranty period expires to buy a service contract.

Filing A Complaint

To report contract problems with a service provider, contact the New York State Department of State Division of Consumer Protection, the State Insurance Commissioner and or the State Attorney General. To receive help in resolving a dispute, contact the Better Business Bureau, the Attorney General, or the New York State Department of State Division of Consumer Protection. Also, contact law schools in the area and ask if they have dispute resolution programs.

  1. J.B. Preston Co. v. Funkhouser, 261 N.Y. 140, 184 (1933), judgment aff’d, 290 U.S. 163, 54 S. Ct. 134, 78 L.Ed. 243 (1933).↑
  2. N.Y. U.C.C. Law   2-201 (2008).↑
  3. Id.↑
  4. N.Y. U.C.C. Law   2-201(3)(a) (2008). ↑
  5. See Giarratano v. Midas Muffler, 166 Misc. 2d 390, 630 N.Y.S.2d 656, 27 U.C.C. Rep. Serv. 2d 87 (City Ct. 1995) (when muffler shop warranty contained conflicting clauses, warranty would be construed to protect buyer); Stream v. Sportscar Salon, Ltd., 91 Misc. 2d 99, 397 N.Y.S.2d 677, 22 U.C.C. Rep. Serv. 631 (Civ. Ct. 1977) (any ambiguity must be construed against seller who drafted form; disclaimer ineffective when bill of sale recited warranties).↑
  6. N.Y. U.C.C. Law   2-316(1) (2008); N.Y. Gen. Bus. Law   349; see also Giarrantano v. Midas Muffler, 630 N.Y.S.2d 656, 662 (Civ. Ct. 1995) (“Midas Warranty Certificate was misleading and deceptive in that it promised the replacement of worn brake pads free of charge and then emasculated that promise by requiring plaintiff to pay for additional brake system repairs which Midas would deem necessary and proper.”). ↑
  7. Matter of Will of Goldberg, 153 Misc. 2d 560, 582 N.Y.S.2d 617 (Sur. Ct. 1992). ↑
  8. N.Y. U.C.C. Law   2-305 (2008). ↑
  9. 16 C.F.R.   429 (2008) (Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations). ↑
  10. This means contracts that were made at the buyer’s home. ↑
  11. N.Y. Gen. Bus. Law   738 (2008). See also ‘Automobiles’ above. ↑
  12. N.Y. Exec Law   174-a (2008). See also ‘Charities’ above. ↑
  13. N.Y. Gen. Bus. Law   458-f (2008). Again, door-to-door contracts are defined as contracts made at the buyer’s home. ↑
  14. N.Y. Pers. Prop. Law   428 (2008). ↑
  15. N.Y. Gen. Bus. Law   624 (2008). ↑
  16. N.Y. Ag. & Markets Law   190-a (2008). ↑
  17. N.Y. Gen. Bus. Law   771 (2008). ↑
  18. N.Y. Gen. Bus. Law   654 (2008). ↑
  19. N.Y. Gen. Bus. Law   391-l (2008). ↑
  20. N.Y. Gen. Bus. Law   369-ee (2008). ↑
  21. N.Y. Gen. Bus. Law   391-i (2008). ↑
  22. N.Y. Real Prop. Law   337-c. ↑
  23. N.Y. Gen. Bus. Law   394-c (2008). See also ‘Dating Services’ below. ↑
  24. N.Y. Pers. Prop. Law   440 et seq. (2008). A purchase money loan is a home-financing technique in which the buyer borrows from the seller instead of, or in addition to, a bank. See also ‘Telephones and Telecommunications’ below. ↑
  25. sup> 15 USC  1635(f) (2008). ↑
  26. 16 C.F.R.   435 et seq. (2008). ↑
  27. N.Y. Gen. Bus. Law   218-a (2008). ↑
  28. Baker v. Burlington Coat Factory Warehouse, 673 N.Y.S.2d 281, 34 U.C.C. Rep. 2d 1051 (N.Y. City Ct. 1998). ↑
  29. See Herbert G. Martin, Inc. v. City of Yonkers, 54 A.D.2d 971; 388 N.Y.S.2d 673 (2d Dep’t 1976); Peckham Road Co. v. State, 32 A.D.2d 139, 300 N.Y.S.2d 174 (3d Dep’t 1969), order aff’d, 28 N.Y.2d 734, 321 N.Y.S.2d 117, 269 N.E.2d 826 (1971); Tupper v. Wade Lupe Const. Co., 39 Misc. 2d 1053, 242 N.Y.S.2d 546 (1963). ↑
  30. Ajettix Inc. v. Raub, 9 Misc. 3d 908, 804 N.Y.S.2d 580 (N.Y. Sup. Ct. 2005).↑
  31. Warranties, however are only provided by the original manufacturer of the product. Sometimes the extended service plan is provided by the manufacturer; other times is it provided by a third party.↑
  32. Miller v. Winters, 144 N.Y.S. 351 (Sup. Ct. 1913).↑
  33. See N.Y. U.C.C. Law   2-314 (2008). ↑
  34. N.Y. Insurance Law   7901 et seq. (2008). ↑
  35. 16 C.F.R.   433.2 (2008). ↑

 

Last Modified: April 28, 2011