• Kristina Bergsten

Are Auto-Renewal Contracts Enforceable in Colorado?

The short answer is: yes.

So far, the Colorado legislature has only addressed auto-renewal contracts with respect to health club memberships and promotional products (i.e., promotional products are deemed "unconditional gifts" and the company cannot charge or invoice the recipient for the promotional product).

Contracts are formed based on "mutual assent," which means an offer and acceptance of the offer. An "offer" is when one party clearly shows a willingness to enter into an agreement. This willingness creates the power of acceptance by the second party. Once the offer has been accepted, a contract is formed.

Mutual assent is determined by objective factors, rather than the subjective intent or belief of either party. In other words, when looking at whether or not a contract exists, the question is: would a reasonable person in the position of the other party believe that the first party's statements, actions, appearance, or circumstances surrounding the transaction intended to enter into a contract? If the answer is "no," then there is no contract; if the answer is "yes," then there is a contract.

For a contract to exist, the terms of the contract must be certain and definite, or the contract will fail for indefiniteness. Historically, the parties, the subject matter, the price, and quantity needed to be specifically spelled out in a contract in order for it to be enforceable. Today, under Colorado law, a contract may omit price and quantity, so long as those items were intended to be filled in by a person with authority to do so. However, if the terms of a contract are vague, the contract cannot be enforced because the parties did not clearly show what they intended to contract for.

Another necessary part of a contract is called "consideration." This is a legal disadvantage or injury in exchange for the other party's legal disadvantage or injury. Consideration can be: a return promise to do something; a return promise to not do something; performing an act; or not doing an act. In other words, the legal disadvantage must be something of substance given in exchange for the return promise. If a party to a contract makes a promise that lacks substance because it is vague or that party can choose whether or not to honor it, that is called an "illusory promise." All contracts require a certain amount of good faith and all parties must take reasonable steps to fulfill their promises, otherwise the contract is illusory.

Some contracts can be defended against on the grounds that they are illegal or unconscionable. If the subject matter of a contract requires consideration or performance that is illegal, the contract itself is illegal and unenforceable. An unconscionable contract is when the terms of the contract are so unfair that no reasonable person in the position of the parties would have agreed to it. Unconscionability may also apply to boilerplate language in contracts that are inconspicuous, hidden, or difficult for a party to understand. Courts have also applied unconscionability to "contracts of adhesion," which are contracts where there is greatly unequal bargaining power between the parties and the weaker party is left with no other option besides, "take-it-or-leave-it."

It is questionable whether or not an auto-renewal contract meets the above-outlined requirements of a contract. An auto-renewal contract is arguably much easier for the parties to work with since neither one will have to stop and interrupt the flow of business to negotiate a new contract with new terms. However, these contracts can also trap an unhappy party to a contract if that party is not careful and does not cancel the contract within the proscribed amount of time. Such auto-renewal contracts raise a lot of questions and concerns about unconscionability, particularly when one party has superior bargaining power to the second party. Auto-renewal contracts also remove the ability of the second party to consider whether the consideration given is worth the value of the bargain received because the power of acceptance is essentially forfeited.

So while most auto-renewal contracts are enforceable in Colorado, it is possible that their failure to meet certain basic requirements for a contract gives an unhappy party the opportunity to defend against the contract.