Drafting Consumer Contracts That Also Protect the Seller

Date Published: 
August, 2004
Original Author: 
Ed Carpenter
Eagle Consulting, Inc., Topeka, Kansas
Original Publication: 
ICFM Magazine, August-September 2004

Can all those rules and regulations designed to protect buyers and allow them
to cancel contracts your counselors spent hours to sell actually be good for business?
Yes they can, with properly drawn contracts and well-trained counselors.

The genesis of this article is the three-part series reprinted by International Cemetery & Funeral Management magazine in the winter and spring of 2002, "The Prego Defense," which discussed seller's protection in funeral and cemetery contracts. That series sought to discuss how we as sellers of funeral and cemetery merchandise and services could clarify the allocations of risk in our consumer contracts to protect ourselves from less than scrupulous consumers.

The goal in this article is to discuss federal regulatory requirements as they apply to consumer contracts, to emphasize again the importance of consistency among our contracts and related instruments or documents and to discuss how regulatory requirements can protect us in dealings with customers as well as with regulators.

Customers who want to avoid living up to their contractual obligations may try to find some area in which the cemetery or funeral home is not complying with all of the technical requirements of federal and state laws. A properly written contract that ensures compliance can give us great power from a negotiating standpoint.

The Power of the Written Word
We are all not Indians and our word is not always good. Chief Joseph once observed: "Good words do not last long unless they amount to something."

In the context of preneed consumer contracts, there is usually a material lapse of time from the date the agreement is entered into and the date the merchandise and services are actually delivered or realized. So while prearrangement is good both for the seller who has gotten the business and for the purchaser who has locked in prices and gotten peace of mind, if it is not completely clear what the prearrangement covers—and  does not cover—misunderstandings may develop at the time of delivery.

As experienced cemeterians and funeral directors, we should find this risk of misunderstanding not merely foreseeable but obvious. All the more reason then to make such contracts clear and consistent. A good contract should:
clearly state what is being purchased;
clearly state what is not being purchased;
set forth appropriate times and terms for performance;
permit substitution of merchandise and services;
permit delay in performance for circumstances beyond the cemetery or funeral home's control;
provide for clear default consequences, including how to get out of the deal if the consumer does not perform;
limit or permit assignment dependent upon whose rights are to be protected;
permit the cemetery or funeral home the right to correct errors; and
make the contract binding upon the consumer's successors in interest.

Consistency and Simplicity
Consumer contracts should be written with a clear appreciation that they will be acted on by individuals who are not lawyers and, more often than not, are not the ones who entered into the contract in the first place but rather their survivors.

Choose simple words rather than complex ones. Make sentences short rather than compound or complex. Use short, simple paragraphs and order them in a logical sequence.

Be consistent. For example, don't refer to the consumer as the "buyer" in one place and as the "purchaser" in other places. Don't call an outside container a "vault" in some places and a "box" in others. The importance of consistency extends beyond contracts. The same definitions, language, terms and conditions and so forth should be used in related instruments such as cemetery deeds (or burial right certificates), rules and regulations, merchandise certificates, delivery acknowledgments, interment authorizations and other schedules or instruments used in conjunction with the transition or affecting the nature of the transaction.

Crafty lawyers can use inconsistent or conflicting language against us. It is often presumed that ambiguity and inconsistency should be construed against whomever drafted the contract, so if there is a debate, the burden will be on the cemetery or funeral home to clarify what the deal was.

Therefore, if there is anything to be learned from this article, it is that whoever drafts your company's contracts should resist the lawyer's natural tendency to make consumer contracts as complex and full of "legaleze'' as possible. Complex language often fosters debate—though it's true that lawyers often disagree over even the simplest language!

To illustrate what I mean, I offer this example, attributed to Robert H. Mundheim, general counsel to the U.S. Treasury Department during the Carter Administration, of the way lawyers see and do things. Here is what Mundheim had to say: "When an ordinary person wants to give an orange to another, he merely says, 'I give you this orange.' But when the lawyer does it, he says: 'Know all men by these presents: l hereby give, grant, bargain, sell, release, convey, transfer and quit claim of all my right, title, interest, benefits and use whatever in, of and concerning this chattel, otherwise known as an orange, or citrus or erantium, together with all the appurtenances thereto of skin, pulp, pith, rind, seeds and juice, to have and to hold the said orange together with its skin, pulp, pith, rind, seeds and juice for his own use and behoof to himself, and his heirs in fee simple forever, free from all liens, encumbrances, easements, limitations, restraints or conditions whatsoever, any and all prior deeds, transfers or documents whatsoever, now or anywhere made to the contrary notwithstanding, with full power to bite, cut, suck or otherwise eat the said orange or to give away the same, with or without its skin, pulp, pith, rind, seeds or juice.'"

What the ordinary person said in five words, Mundheim turned into 147 words. The effect of either statement is the same. The relative efficiency of drafting the two statements is easy to see. Certainly the example is an absurd one, but you get the point. Show this to your lawyer—maybe he or she will get the point, too.

Buyer's Protection
Government, in its wisdom, has elected to adopt massive and complex statutory and regulatory schemes to protect buyers from unscrupulous sellers (or maybe to protect buyers from themselves). In addition to federal statutes and regulations, most states require consumer contracts to include mandatory disclosures that essentially give buyers numerous technical reasons why they should not have to honor their contracts.

Unfortunately, the federal and state disclosure requirements often conflict with each other, which can make writing an enforceable contract impractical, so lawyers truly have their work cut out for them. In addition, these mandatory disclosures come from the government, the expert at making the simple complex. Finally, these disclosures are written in legaleze, in the grandest of the Mundheim model, so drafting something simple and short is virtually impossible. Of course, while these disclosures must be in consumer contracts, most consumers ignore them anyway because they don't know what that "stuff" means.

I have restricted the technical requirements in this article to federal disclosures. Make no mistake; however, your state has its own requirements. Hire competent counsel and make sure your contracts include them all.

Buyer's Right to Cancel:
The Three-Day Cooling-Off Period
If the sale is made in the home, commonly known as a "door-to-door" sale, the Federal Trade Commission requires that the buyer have the unilateral right to cancel the contract. The FTC rule consists of two basic elements.

First, the contract must contain a written disclosure of the buyer's right to cancel in substantially the following form:


Since the disclosure only applies to home ("door to door") sales, I have chosen to expand the notice to indicate that it does not apply to "office sales." That way we can use the same contract form for office and home sales.

Second, the buyer must be provided a Notice of Cancellation in substantially the form shown below.

This mandatory notice is required when there is a sale, lease or rental with a purchase price of $25 or more, whether in single or multiple contracts, in which the seller's representative personally solicits the sale at the buyer's residence. For purposes of the rule, the buyer's residence may include a temporary residence such as a hotel or motel room, a convention center, fairgrounds, restaurant, the buyer's business or a dormitory lounge—i.e., any place other than the seller's place of business.

There are, of course, exceptions to the rule, but in almost all cases, sales counselor or funeral director presentations in the home will be covered. In short, all contracts where sales are made should include the disclosure and the cancellation form so that you can be sure, as in "The Prego Defense," it is "in there."

Finally, the rule requires that the disclosure must be placed in "immediate proximity to the space reserved in the contract for the signature of the buyer" (16 CFR 429.1 [a]). As with most federal laws, whether or not you are in compliance with this rather ambiguous placement requirement is a matter of opinion. Lawyers like that because everyone has an opinion. (For a more in-depth review of the rule, the reader and counsel are referred to 16 CFR 429.0, et. seq.)

Preservation of Consumer's Claims and Defenses
The FTC also has adopted a disclosure and notice rule that states that regardless of to whom the sales contract may be assigned by the seller, the consumer retains the right to assert claims and defenses against the assignee. This preservation of the consumer's claims and defenses may be found in the Code of Federal Regulations at 16 CFR 433. It requires the following notice in consumers contracts:

Notice to consumer: Any holder of this consumer credit contract is subject to all
claims and defenses which the debtor could assert against the seller of goods and services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder.

(Note the use of "hereto," “hereof” and "hereunder," all in two sentences of great Mundheim legaleze.)

The purpose of this disclosure is to prevent the seller from factoring or assigning the contract to a financial institution where the institution could assert that it had no notice of any claims or defenses that may make the contract unenforceable. While in theory the notice would be effective only if the contract was assigned, the reality is that if it is possible that the contract could be assigned (and why wouldn't the seller want that flexibility?), then the disclosure is mandatory.

Reprinted with the permission of Wakarusa River Management Co., Copyright 2004. All rights reserved. Neither the author nor the publisher is providing legal advice through publication of this article. If such advice is needed, the services of a qualified attorney should be sought.

Part 2, in the October issue of ICFM, will cover truth in lending, consumer remedies, the funeral industry practices rule, buyer's protection as seller's protection and a model form for credit sales.