We may be little more than halfway through the school year, but private schools everywhere are setting their sights on enrollment for the 2014-2015 academic year. A recent court case from Ohio serves as a timely reminder that enrollment contracts must be properly worded and carefully enforced.

In April 2006, Nicholas’s parents signed an enrollment contract for him to attend Western Reserve Academy, a $34,000-per-year boarding school in Hudson, Ohio. See Western Reserve Academy v. Franklin, 999 N.E.2d 1198 (Oh. Ct. App., 5th Dist. 2013). The contract required the parents to acknowledge that if they canceled after July 1st but before September 1st, they would remain obligated to pay half of the year’s tuition. Beyond September 1st, they would have to pay the entire tuition in the event of absence, dismissal or withdrawal. On October 26th, the parents withdrew Nicholas, citing a custody dispute with his biological father. The parents had already paid a small portion of the tuition, and the tuition refund insurance plan they had purchased paid about half of the balance. The school sued for the remaining $9,322.98.

The trial court sided with the parents. The court found that it was impossible for Nicholas’s parents to perform their side of the bargain and that the enrollment contract acted as an unconscionable, illegal penalty. However, the Ohio Court of Appeals reversed the trial court’s decision. Applying standard contract law, it found that there was no evidence of lack of meaningful choice or an unequal bargaining position when the parents signed the enrollment contract. The requirement they pay the full tuition was not an illegal penalty, but rather recognition by the parties that if the contract were breached, it would be hard to calculate the school’s damages and that full tuition was a reasonable approximation. There also was no evidence that the custody dispute rendered the parents’ performance impossible.

Although most state courts, including those in Connecticut, have ultimately enforced enrollment contracts like this one, there is risk that a judicial fact-finder will be swayed, at least initially, by influences outside of the contract. Some parents have argued persuasively that requiring parents to pay full tuition for late cancellation or early withdrawal where schools have waiting lists of students gives the school an unfair windfall. Such arguments can drive up litigation costs, create bad legal precedent if not corrected on appeal, and distract a school from its educational mission. A leading case in Connecticut upholding a school’s right to collect its full, unpaid tuition under an enrollment contract is St. Margaret’s McTernan School, Inc. v. Thompson, 31 Conn. App. 594 (1993).

To minimize the impact of enrollment contract disputes and avoid costly and distracting fights in court, schools should remember these “DOs and DON’Ts”:

  • CLEAR CONTRACT LANGUAGE: Make sure the tuition obligation is clearly and conspicuously stated in the contract.
  • LEVERAGE: The contract should state the steps the school may take, besides legal action, if tuition is not paid-e.g., holding the transcript; preventing attendance at school, after-school activities and/or graduation; not allowing the student to take finals, exams or other tests.
  • COMMUNICATE: Be clear and upfront about the seriousness of the parents’ full-payment obligations under enrollment contracts. Polite but firm conversations and written communications early on can go a long way in preventing misunderstandings and disputes.
  • DOCUMENT: Keep written records of all communications – verbal, electronic or otherwise – with parents concerning their obligations under the enrollment contract, especially regarding changed circumstances and the school’s response.
  • BE FAIR: Be explicit about your cancellation and withdrawal policies. If possible, provide clearly defined and reasonable exceptions (e.g., student sickness requiring absence of 30 days or more, unforeseen family move greater than a 50-mile radius from school, etc.).
  • BE CONSISTENT: Be mindful that your past practice of enforcing – or, more accurately, not enforcing – the contract with other parents will likely be an issue explored when you seek to enforce the contract. It is important to be consistent in your enforcement policies. While there are exceptions to every rule, make sure that you have a solid reason each time you deviate from enforcing the enrollment contract – a reason you would stand behind in court.
  • HAVE BACK-UP: Be able to justify reasons for contract language (e.g., staffing and other commitments are calculated based on enrollment, tuition does not cover total cost of education but is only part of the school’s funding source, etc.).
  • MITIGATE: Offer tuition refund plan insurance to help defray costs of unintended withdrawals. If possible, provide parents facing unexpected hardship with the option of petitioning the scholarship committee for accommodation.

For more information, contact Giovanna Tiberii Weller at 203-575-261 or gweller@carmodylaw.com.

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