Automatic renewal provisions of service, maintenance or repair contracts are almost invariably silent as to renewal notice provisions or requirements. Often the language is similar to the following:
“Contract terms shall be automatically renewed for annual terms unless cancelled at end of contract, with sixty day prior written notice.”
Such provisions have been under attack in many jurisdictions throughout the United States. In some States restrictions have been in place for many years. In others, only recently have local Legislatures given the same attention.
New York has had a mandatory notification requirement for many years. It is the obligation of the provider of the service contracted for to give notice to the party with whom it contracts that the agreement will automatically renew unless notice of termination is provided within the requirements of the contract. Failure to cancel will not result in automatic renewal unless notification of the right to cancel is provided in accordance with the statutory provision.
Section 5-903 of the New York General Obligations Law, enacted in 1961, renders applicable service, maintenance or repair contracts unenforceable as to automatic renewal:
“…unless the person furnishing the service, maintenance or repair, at least fifteen days and not more than thirty days previous to the time specified for serving such notice upon him, shall give to the person receiving the service, maintenance or repair written notice, served personally or by certified mail, calling the attention of that person to the existence of such provision in the contract.”
Statutory notice provisions from consumer-oriented laws are now being applied to commercial contracts by the Judiciary. In the past, the courts have found unenforceable automatic renewal contracts involving numerous commercially-oriented services, where it was determined that notice of renewal was not provided in accordance with statute. The result, of course, may well be elimination of the potential for recovery.
One New York Judge wrote that Section 5-903 of the General Obligations Law was enacted to protect “small businessmen who unwittingly find themselves ‘married’ to self-renewing maintenance or service type contracts”.
Statutory language and notice requirements vary from State to State. Conflict of laws issues and forum selection provisions give rise to other variables affecting the ability to recover.
Suffice it to say that the “Automatic Renewal” clause in many contracts may not be so automatic. Credit grantors would be well advised to bear that in mind. The prudent businessperson might include notice provisions in their agreements and provide appropriate, timely notice of renewal to fortify their position in the event litigation is needed to enforce such contracts.