To Initial or Not? Thoughts on Requiring Initials for Contract Provisions
Among business executives and corporate lawyers, there is an ongoing and long-running debate about the value of requiring a party to a contract to initial various provisions and clauses in addition to signing the agreement. It is common, for example, in real estate purchase agreements that the parties are directed to “initial here and initial there.” This is similarly true with service repairs and with rental agreements and many other types of agreements. There are pros and cons to this practice.
On the one hand, in the event of a dispute, having initials next to a contract provision allows a court to determine that the party actually agreed to that particular provision. Sometimes parties to an agreement will attempt to avoid the provision, like a mandatory arbitration clause, by saying “I didn’t see that and didn’t agree to that.” The force of that claim is severely undercut if the party’s initials are in the margin next to or under the disputed clause.
On the other hand, having spaces for initials gives an easy argument for non-enforceability if there is a failure to get the initials in the space provided. When that happens, the courts may take the view that the party did not agree to the clause. This might be true even if the party’s signature appears on the contract in some other place. The non-enforceability argument is made possible by the fact that a space or line is provided for an initial. If no such space or line is provided, then courts are forced to base a decision of enforceability on whether the contract is signed or on esoteric legal principles like public policy and/or substantive or procedural unconscionability. This is the debate.
A couple of cases involving arbitration clauses illustrate the problem. The first case is Anderson v. Pitney Bowes, Inc., Case No. C 04-4808 SBA (US N.D.Cal. 2005) (unpublished). In that case, an employee signed an employment agreement and was supposed to place his initials next to a what was called the “Voluntary Agreement” paragraphs. This was a long, all-capital letter statement whereby the employee acknowledged and agreed that his agreement to the contract was voluntary, that he agreed to the whole contract (which contained an arbitration provision) and also acknowledging that he was waiving his right to a jury trial. The employee signed the agreement, but said that he made “conscious refusal” to initial the “Voluntary Agreement” paragraph. Eventually, there was a dispute and the employer sought to compel arbitration. The employee argued that his lack of initial meant that he could not be compelled to arbitrate. The failure of the employer to secure the employee’s initials resulted in tremendous amount of legal work and great difficulty for the court that was asked to resolve the dispute.
In the end, the court ordered arbitration based on the employee’s signature and his signature on other documents that were part of the hiring process. However, the case would have been simple if there had been no separate place for the employee’s initials. As an aside, the case would also have been simple if the employer had had better contract review and compliance procedures. In general, for any San Diego business, someone needs to be tasked with making sure all contracts are properly executed. An experienced and trusted San Diego corporate attorney can help with this.
The second illustrative case is Recinos v. SBM Site Services, LLC, Case No. A151253 (Cal. App. 1st Dist. August 10, 2018) (unpublished). Recinos also involved an arbitration provision. Recinos and her fellow plaintiffs were janitorial and building maintenance service technicians. They each signed at-will employment agreements that contained mandatory arbitration provisions. On the page where the arbitration provision was located, there was a full signature line (not merely an initial). Further down on the same page was a “certification” section (similar to the Voluntary Agreement provision discussed above in the Anderson case). The certification stated in pertinent part: “My signature below certifies … that I am agreeing to be bound to the employment terms and conditions established in this application…” The plaintiffs in Recinos did not sign under the paragraph requiring arbitration but did sign further down the page under the certification language. The plaintiff asserted that they did not sign because they were “uncertain” of its meaning and impact of the arbitration provision. Unlike in Anderson, the California trial court held that there was no agreement to arbitrate because there were no signatures in the space that accompanied the arbitration section. The trial court was affirmed by the Court of Appeals.
As with Anderson, very likely, the case would have been resolved differently had there been no separate line for the arbitration provision. Also like Anderson, Recinos shows the importance of having someone review contracts to ensure full and complete execution.
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