Will a termination by convenience clause always be honored by the court, if it is used in a manner that is completely unethical? Eg. can a company terminate an account that just bought an expensive subscription without refunding said subscription?
Edit: can someone actually tell me whether this runs afoul of a tenet of contract law?
Nor is it the same in every jurisdiction - I will focus on australia.
The central tenant of contract law is that the parties are free to agree anything that is legal irrespective of whether this leads to what may seem to be a harsh or unjust outcome to an outside observer (or the parties themselves). At common law, harsh and unjust terms are legal - only unconscionability attracts legal protection. However, see below.
The parties have an obligation to follow the terms of the contract in a way that gives effect to the purpose of the contract and to not act in bad faith - there is no obligation to act in good faith. Notwithstanding, a party that scrupulously follows the terms of a contract cannot be acting in bad faith - they are doing what they agreed to do.
That said, most “termination for convenience” clauses are, by their nature, discretionary. Where a party has a discretionary power under a contract they must exercise it reasonably. This doesn’t mean that they can’t exercise the power if it causes damage to the other party but, if it does, then that is a factor in whether the action was reasonable.
If the action was reasonable then only rights and obligations up to the date of termination are enforceable at common law. So, in your circumstance the customer is not entitled to a refund.
Many contracts are not made purely at common law and statute law has knocked some of the harsh edges off.
For example, this contract may be subject to Australian Consumer Law (ACL).
For the purposes of the ACL, a person is a 'consumer' if they acquire goods or services that are priced at less than $40,000. A person is also a 'consumer' if they acquire good or services that are priced at more than $40,000 but they are 'of a kind ordinarily acquired for personal, domestic or household use or consumption'.
If your “expensive subscription” is less than $40,000 then ACL applies and you are entitled to a refund for the services not provided.
Further, if the vendor engaged in “misleading or deceptive conduct” (irrespective of if you are a consumer) then the contract can be set aside and you get your money back.
If the contract is a “consumer contract” (which includes most “take it or leave it” contracts with individuals and small and medium enterprises) then a term is unlawful if it is unfair rather than unconscionable.
Many U.S. states recognize a duty of good faith and fair dealing that may not be waived and is part of every contract.
In Colorado, this duty applies to the manner in which a party to a contract with discretionary rights under a contract is required to exercise those rights. This must be done in a manner consistent with the mutual intent of the parties in entering into the contract. It is implied as a matter of law in all contract and even sophisticated parties (e.g. big oil companies in business to business transactions) can't waive it.
Colorado's leading case on the topic is Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo. 1995) which spells out the doctrine at length:
Colorado, like the majority of jurisdictions, recognizes that every contract contains an implied duty of good faith and fair dealing. § 4-1-203, 2 C.R.S. (1992) ("Every contract or duty within this title imposes an obligation of good faith in its performance or enforcement."); see, e.g., Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., 872 P.2d 1359, 1362 (Colo.App.1994); Friedman v. Colorado Nat'l Bank, 825 P.2d 1033, 1042 (Colo.App.1991), rev'd on other grounds, 846 P.2d 159 (Colo.1993); Ruff v. Yuma County Transp. Co., 690 P.2d 1296, 1298 (Colo.App. 1984); see also Larese v. Creamland Dairies, Inc., 767 F.2d 716, 717 (10th Cir.1985) (explaining that the franchisor-franchisee relationship is one that requires the parties to deal with one another in good faith and in a commercially reasonable manner); see generally Restatement (Second) of Contracts § 205 (1981); 3 Arthur Linton Corbin, Corbin on Contracts § 561, at 278 n. 2 (1960); Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv.L.Rev. 369, 369 (1980) [hereinafter Burton I].
The good faith performance doctrine is generally used to effectuate the intentions of the parties or to honor their reasonable expectations. See State Farm Mut. Auto. Ins. Co. v. Nissen, 851 P.2d 165, 168 (Colo. 1993); Davis v. M.L.G. Corp., 712 P.2d 985, 989 (Colo.1986); Steven J. Burton, More on Good Faith Performance of a Contract: A Reply to Professor Summers, 69 Iowa L.Rev. 497, 499 (1984) [hereinafter Burton II]. Good faith performance of a contract involves "faithfulness to an agreed common purpose and consistency with the justified expectations of the other party." Wells Fargo, 872 P.2d at 1363 (citing Restatement (Second) of Contracts § 205 cmt. a (1981)). The application of the reasonable expectations doctrine often "fails to give effect to some hornbook rules governing the construction of contracts," including "the precept that contracts which are free from ambiguity are to be enforced as written...." Davis, 712 P.2d at 990 & n. 7. Nonetheless, adherence to this principle promotes "the central policy underlying contract law, that of construing contracts so as to effectuate the parties' intentions...." Id. at 991; see also State Farm, 851 P.2d at 166-67; Simon v. Shelter Gen. Ins. Co., 842 P.2d 236, 240 (Colo.1992).
The duty of good faith and fair dealing applies when one party has discretionary authority to determine certain terms of the contract, such as quantity, price, or time. Hubbard Chevrolet Co. v. General Motors Corp., 873 F.2d 873, 876 (5th Cir.), cert. denied, 493 U.S. 978, 110 S. Ct. 506, 107 L. Ed. 2d 508 (1989); Burton II, supra, at 501. The covenant may be relied upon only when the manner of performance under a specific contract term allows for discretion on the part of either party. See Hubbard Chevrolet Co., 873 F.2d at 877. However, it will not contradict terms or conditions for which a party has bargained. Id.
The concept of discretion in performance "refers to one party's power after contract formation to set or control the terms of performance." Burton II, supra, at 501. Discretion occurs when the parties, at formation, defer a decision regarding performance terms of the contract. Id. Generally, the good faith performance doctrine may be used to protect a "weaker" party from a "stronger" party. Weakness and strength in this context, however, do not refer to the relative bargaining power of the parties. One commentor explained:
"Good faith performance cases typically involve arm's-length transactions, often between sophisticated business persons. The relative strength of the party exercising *499 discretion typically arises from an agreement of the parties to confer control of a contract term on that party. The dependent party then is left to the good faith of the party in control."
Burton I, supra, at 383-84.
A right to terminate a contract for convenience is a discretionary right under a contract that is nominally absolute. But, if that right were exercised in a manner calculated to harm the other party to the contract rather than primarily to allow a party to end a contractual relationship that had become burdensome or undesirable, that might breach the implied duty of good faith and fair dealing in the contract.
In general, one party may cancel a contract for any reason which is provided for in the contract, and does not violate any current law. However, if such a contract is brought before a court which includes equity jurisdiction (as most common law courts now do), the court might well object to the terminating party obtainign an unjust enrichment as by collecting the prove for a service, but never providing th service nor a refund. Such a court might well order a refund of the unearned price, unless some other factor justified the termination.
Additionally, if the transaction is considered a consumer transaction under local law, consumer protection laws may regulate the transaction, and prohibit a cancellation without refund. The scope and provisions of such laws vary widely between jurisdictions, so one might or might not apply in any particular ase..
can a company terminate an account that just bought an expensive subscription without refunding said subscription?
No, that is very unlikely. Not only it would have to be allowed by the terms of the contract, but the clause itself might contravene consumer protection laws insofar as it has all the appearance of an unfair and deceptive practice.
can someone actually tell me whether this runs afoul of a tenet of contract law?
Contract law is premised on the covenant of good faith and fair dealing, and also on the principle that clauses are entered by the parties knowingly and willfully.
If the terms of the clause reasonably inform the customer about provider's arbitrariness, the contract itself meets the premise(s) of contract law. But, as said above, that agreement won't necessarily survive the enacted laws on consumer protection.
By contrast, if the customer is not duly informed, then the provider would incur breach of contract (and thus be in violation of contract law), fraud, unjust enrichment, and similar/related torts.
Will a termination by convenience clause always be honored by the court, if it is used in a manner that is completely unethical?
Hard to tell. Don't think that justice and the judiciary go hand-in-hand.
Much of the court system is plagued by blatant, corrupt judges. For instance, a defrauded customer might file suit and undergo intensive litigation only to be lectured by some debauched judge similar to how this narcofelon does from the bench:
The State loves [...] anybody who's powerful. Okay? And it doesn't say that anywhere in our Constitution. But if you're not in those groups, the[n] you just kind of have to [...] stay out of the way.
It is reasonable for people without litigation experience to conjecture that courts enforce laws and "serve justice". That is what we are systematically told to believe. But in reality there is a notorious lack of integrity among many, many judges. Laws are one thing, but what those judges do in actual court disputes are a very different thing. Therefore, a markedly unfair, one-sided clause will only make it easier for the judge to side with the party the judge calculates is more profitable to favor.
It's not possible to have a contract with a termination at convenience clause. A contract requires consideration from both parties. If one party can terminate the arrangement at any time without having fulfilled any obligations, then they don't have any obligations towards you, so it's not a contract. It's just you giving money to the company as a gift, and the company might do something in return. Note that a contract can allow for termination after exchange of consideration (for instance, in a lease, after one party has paid rent for some months, and the other party has provided a dwelling for some months, the contract can be terminated), but if an agreement allows one party to unilaterally cancel without having provided any consideration at all, it's not a contract.
