A recent decision by the Court of Appeals teaches us that if there is a blank or a box to be initialed next to a clause in your contract, that clause may not be enforceable if the blank is not initialed. Although the facts in this case are unique, the important lesson is that if you want your contract's clauses to be enforced and those clauses have blanks next to them for the party to initial, make sure the party actually puts his or her initials in the blanks.
The case in question is Ruth Harnisch, et al. v. College of Legal Arts, Inc., — P.3d —, 2011 WL 2023001. One of the parties in that case, Pearl Lee, had been a student at the College of Legal Arts. When she entered the program, Ms. Lee signed an enrollment agreement that contained a standard arbitration clause requiring that any:
"dispute arising from enrollment at College of Legal Arts, no matter how described, pleaded or styled, shall be resolved by binding arbitration."
The basis of her dispute is not clear, but Ms. Lee and other students sued the school for breach of contract, breach of warranties, and misrepresentation. The school did not want to go to trial on the students' claims and argued that the claims should be resolved by arbitration, as the arbitration clause required.
Although Ms. Lee had signed the enrollment agreement itself — which by definition included the arbitration clause — she argued that she should not have to resolve her claims by arbitration because she had not initialed the arbitration clause in the designated space. The courts determined that because Ms. Lee had not initialed the arbitration clause, there was no "legally enforceable agreement to arbitrate." The only reason the courts did not enforce the arbitration agreement against Ms. Lee was that she had not placed her initials next to the arbitration clause. In fact, the trial court enforced the arbitration agreement against those students who had initialed the arbitration clause and the lack or presence of initials was the only difference between their cases.
The case of Ms. Lee and the College of Legal Arts was limited to the enforceability of an arbitration clause within a school enrollment agreement, but there is no reason to think that the same logic would not apply to other clauses, in other types of contracts, that have designated spaces for initials.
The important lesson here is that if you have blank lines for initials next to any clauses in your standard contracts, and you want those clauses to be enforced, you must make sure that the party who signs the contract also places his or her initials in those blank lines. This is true even if the arbitration clause is part of the overall contract and the contract itself is signed, which was the case in Harnisch v. College of Legal Arts.
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