ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, October 23, 2008

Creep Bliss in Seattle

SlawsonEmeritus Professor David Slawson (pictured) of USC's Gould School of Law, provides this link from the Seattle Times, as well as the following summary:

A firm based in New York State sells credit-card machine leases to merchants, using supposedly independent contractors in various states to actually make the sales. The salespersons the contractors employ tell the merchants that the leases will cost them only $20 a month but if they don't prove profitable, the merchants can transfer their leases to someone else and be free of the rental obligation. However, the fine print makes the leases nontransferable and noncancelable without a big cancelation fee and also much more expensive than $20 a month. In total, it costs a merchant $12,000 to $15,000 to get out of the lease or to continue using it for its full term. The fine print also apparently makes New York law control, and if a merchant stops paying, the New York firm brings suit against them in New York, making it very difficult and expensive for them to defend. The suit itself, if not settled, can ruin a merchant's credit rating.

Professor Slawson appends the following questions for any who might care to offer advice:

1. Aren't the local contractors still the New York firm's agents, despite being independent contractors, because an agent is someone who has the power to make contracts for the principal, *by definition?*

2. Would any of the limits on choice of law for contracts allow a Washington court to apply Washington law despite the contract?

3. Since it would not be enough merely to declare these contracts unenforceable, because the New York firm could continue to ruin a merchant's credit rating anyway, simply by bringing suit (and possibly alleging some
new fact that distinguished the Washington court's decision), what basis might there be for bringing a fraud action against the Washington contractor and/or the New York firm?

Comments will be greatly appreciated.

[Jeremy Telman]

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Could you use a fraud argument to void the contract (or at least plead it is voidable by the merchant) and thereby void the choice of law provision? Sue both the agent and the principal in Washington. The agent could be independently liable for the fraud since the principal will undoubtedly claim that the fraud was not within the scope of the agency. It will be hard to enforce a choice of law provision when the contract was procured by fraud. Just a thought.

Gavin Craig

Posted by: Gavin Craig | Oct 24, 2008 6:30:54 AM

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