Changed Contractual Expectations

Say you purchase a brand-new $3 million house adjacent to a golf course in a luxury country-club development.  The developer requires all house purchasers to buy country club memberships for $175,000. You comply, relying on a clause of the club membership agreement that obligates the club to reimburse the membership acquisition fee in full, in cash, without interest, within 30 days of a member’s written notice that it intends to terminate its membership.  The club membership agreement also contains a clause that allows the club to change the agreement’s terms at any time.

A few years go by, during which real estate values fall by 50%.  A number of the development’s unsold houses remain on the market at reduced prices and club membership is below projections, causing the club to raise annual member dues to cover operating expenses.  You did not bargain for this mess and want to quit the club and sell your house.  A year ago the club’s board changed the terms of the membership agreement to provide that the club will reimburse membership acquisition fees only if the club acquires three new members for each member who leaves, and then only by paying 10% of the fee in cash and the balance by an interest-only promissory note maturing in five years.  The board complied with all of the membership agreement’s procedural requirements when changing these terms. You notify the club’s board that you are quitting the club, intend to sell your house, and expect repayment of your $175,000 membership acquisition fee in cash within 30 days, as required by the membership agreement terms in effect at your time of purchase.  In response the board says it will reimburse your acquisition fee in accordance with the new terms.

What are your rights?

3 Replies to “Changed Contractual Expectations”

  1. Melissa Kuzoian

    Although this is similar to the Demasse vs. ITT Corporation, I think an important difference to note is the time that elapsed from when the policy was changed. With the ITT case, it changed its seniority policy, then laid off employees only 10 days later. Here, the club changed the policy, and then a year later the member wishes to be reimbursed under the old terms. The member knew that the the country club reserved the right to change any policy in the handbook at any time. If they were not happy with the new terms, the member could have terminated his membership upon learning of the new policy. Instead, a year passes with the new policy intact and then the member wishes to be reimbursed. I think that if the member sought and was denied reimbursment sooner to when the membership policy changed, they would have a better chance of winning in court.

  2. Livy Amchin

    This is just like the case we discussed in class last week, Demasse v. ITT Corporation. In that case, 5 senior employees were fired after the corporation changed the layoff policy in its handbook, stating that they no longer guarantee continued employment to employees, thereby removing the protection of more senior employees from layoffs. Like the country club, ITT also stated that they reserved the right to amend the policies in the handbook at any time. In that situation, the employees sued and won, and the old policy, in place at the time they were hired, was upheld. If the same logic is applied to this case, the member should be able to get a refund within 30 days, as the original agreement stated.

  3. JesseR

    I think it might depend on how much the purchaser/homeowner knew about the term change provision in the agreement, because if he had a lot of knowledge about the amendment procedures of the Association, then he had more notice about the entirety of the agreement (and it might therefore be more enforceable). However, the language provided here ("change terms at any time") is more vague and usually contracts cannot be assented to by the parties unless the essential terms are unambiguous, so he might be able to rescind the contract altogether. There is also an aspect of reasonableness in the membership fee which could be addressed by the court, although there are some elite courses which have a fee in this range.

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