Your school’s budget is dependent on your enrollment—even with a solid strategic financial plan. The loss of even one student can be enough to shake the foundation of your school’s plans. That’s why you have parents sign a contract when enrolling that includes your policy on full-tuition deadlines and penalties for late withdrawals. But, what happens when a family argues that your policies aren’t fair—and the courts side with them?
That’s exactly what happened to a private school in Ohio.
The December issue of Private Education Law Report reports on a recent outcome from a six-year-old case. The story begins in 2006, when the Franklin family enrolled their son as a boarding student, agreeing to pay the tuition and a nonrefundable deposit. Their contract clearly stated that they could cancel the enrollment at no cost to them (not including the deposit) if they notified the school in writing by July 1. If written notice was submitted after July 1 but before September 1, the family would only be responsible for the first tuition payment. Sounds a lot like your school’s enrollment contract, doesn’t it? This is standard practice for most private-independent schools, and in most cases it’s the school’s security net for payment.
In this case, the Franklin’s son attended the fall semester up until October 26, when Mr. Franklin wrote to the school withdrawing his stepson due to a custody dispute with the boy’s birth father. The Franklins had paid additionally for a tuition-refund plan offered by the school that would cover 50% of the unused yearly-insured fees. However, this still left $9,300 unpaid to the school.
Six years later, in February of 2012, the school brought a lawsuit against the family for failure of payment and breach of contract.
The courts agreed that the family had breached the contract, but decided that the school wasn’t entitled to damages for the breach because the custody dispute made it nearly impossible for their son to finish the school year away from home. The courts also ruled that the school’s payment rule was illegal because it was a penalty.
Courts won’t enforce contracts if they find them impossible to perform or unconscionable. However, this case has a happy ending for the school. They appealed the ruling and the appeals court reversed the order.
This case raises two important questions: What is considered "impossible to perform", and what is considered "unconscionable".
What is considered "impossible to perform"?
Each state has it’s own definition of this term. In Ohio, a contract is impossible to perform if unforeseen events create risks to person or property that outweigh the benefits of going through with the contract.
What is considered "unconscionable"?
A contract is unconscionable when the power and benefit is all on one side of the bargaining table. The appeals court in the Franklin case found no evidence the Franklin’s couldn’t make meaningful choices; were in an unequal bargaining position; or entered the contract due to coercion, duress, or pressure from the school.
Additional ISM articles of interest
ISM Monthly Update for Admission Officers Vol. 10 No. 4 Enrollment Contract—What You Need to Know
Private School News Vol. 8 No. 8 “I Know We Enrolled, But Unfortunately Now We’ve Both Been Laid Off And?”
Additional ISM articles of interest for Gold Consortium members
I&P Vol. 37 No. 9 Managing the Fiscal Realities of Enrollment Changes
I&P Vol. 30 No. 8 The True Implications of a ‘Breach of Contract’ Lawsuit
