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TURNABOUT: CONSUMERS MODIFY ARBITRATION CLAUSE

On December 13, 2002 the Supreme Court of Alabama found that two consumers had effectively modified their renewal agreement with a service provider by inserting an addendum with their payment for renewal of a pest control service. Cook’s Pest Control, Inc. v. Rebar, 2002 WL 31780946 (Ala. S. Ct., Dec. 13, 2002). The addendum stated that they (“the customer”) would have the right to consent in writing to arbitration and the right to a trial by jury. The addendum also stated that the service provider could accept the new terms by continued service to the customer or negotiating the renewal check. If the service provider did not agree to the terms, it was to contact the customer immediately. The service provider cashed the check. When the customer filed suit against the service provider, the service provider attempted to compel arbitration through a clause found in the initial agreement, while the customer disputed arbitration, citing the addendum.

The court did not address the issue of whether a party could unilaterally modify an existing contract. Rather, the court characterized the renewal billing as an offer by the service provider, and the customer’s addendum acted as a counteroffer or conditional acceptance. At that point the service provider had three options: (i) accept the counteroffer, (ii) reject the counteroffer or (iii) counteroffer the customer’s counteroffer. The court found that the service provider had accepted the customer’s addendum by continuing to provide service and cashing the customer’s check.

The service provider’s second argument was that the employee who cashed the check did not have the actual authority to bind the service provider to an agreement. The court’s response was that nothing in the original agreement limited the authority of any employee to bind the service provider, nor did the agreement direct modifications to be sent to a particular office.

This case raises a number of issues in terms of contract drafting and operational procedures for consideration and review.

For a copy of this case or for more information regarding this Alert , please contact Mike Tomkies at (614) 628‑1603 or mtomkies@dltlaw.com or Tiffany Scurti‑Swain at (614) 628‑1615 or tscurti‑swain@dltlaw.com .