Amendable, Illusory, Contracts

A set of golf club membership contracts provide that they “may be amended from time to time.”  Signatories, who plunked down $185,000 refundable deposits to join once the clubs were operational, want to exercise the refund clause.  The clubs respond that they can exercise their amendment ability and keep the deposits.  Lawsuits result.

This seems clearly wrong.  The amendment clause should be interpreted in light of commercial reasonableness, or the contracts are voidable as illusory.  If “may be amended from time to time” means that the Club has the sole discretion to change both signatories’ obligations to the detriment of the members, then we’ve got a pretty clear example of a contract in name only.  Rather, I imagine that the amendment language, reasonably interpreted in light of commercial norms, is limited to non-material terms -which would not include the refundability of the deposits.  Indeed, the members argue that refundability was a “relatively unusual stipulation [that] was a big part of the appeal of joining.”

What do you think?

(H/T Atrios)

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3 Responses

  1. I haven’t settled on the right normative answer, but this is an ongoing debate in at least a couple other areas:

    1. Credit cards
    2. Online service providers.

    I’m publishing an article on whether the latter complies with the rule of law, at least with respect to virtual worlds: http://papers.ssrn.com/abstract=1463583

  2. Alan Rau says:

    Start small: The natural reading of the “amendability” language is that the Club can amend unilaterally for the future, after a reasonable notice period—but that it can’t retroactively affect vested rights. This is the common reading given to arbitration provisions, where “amendment” can’t affect a dispute which has already arisen, which reading saves such provisions from the charge of being “illusory” or “unilateral.” You don’t have to get into the problem of “materiality,” which may be more difficult to calibrate.

  3. Hippo says:

    I don’t see why the clubs shouldn’t keep the money. After all, the US Circuit Courts of Appeals have repeatedly ruled that similar amendment clauses in employment contracts allow employers to cancel retirees’ health benefits no matter how clear and specific the language promising them, whether or not they were bargained for, and even if they have already been relied upon!

    See, e.g.,

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1445583

    for a complete summary of this travesty.