What happens to a membership contract when the gym unexpectedly closes?

December 16, 2007 6:50 PM

The gym I joined 6 weeks ago went belly up over the weekend and locked their doors. Supposedly a different gym not affiliated with the bankrupt gym is buying all the contracts, but nothing is clear at the moment. What are my rights in this situation?

The gym I joined 6 weeks ago charged a membership fee and my contract was for monthly "no hassle" payments charged to my credit card with a with 60 days notice cancel policy.

I went to the new gym supposedly buying our contracts and they immediately tried to up sell me a different type of membership that cost more than what I was paying although they said they'd honor the current rate of my membership. What are my rights in this situation? I have notified my credit card company and I am going to dispute the membership fee I paid 6 weeks ago since the company has reneged on the membership by closing shop.

I had a good deal at the first gym and while I'd like to think the new gym really will honor it, they are under no obligation to do so and as this situation unravels I suspect they will decide not to honor certain terms I had with the original gym and will want to upgrade me to a more expensive type of membership. My membership was to be a month to month I could cancel at with 60 days written notice. How does a consumer protect themselves in such a situation? I had an automatic credit card deduction with the other gym and I question whether they have the right to transfer that information to a new gym I am not even sure I want to be part of since the location is not as convenient. The old gym did not notify members of their abrupt closing and the new gym seems unaware of the terms of the agreement or if there really is an agreement--they are allowing us to use the facilities for now while they figure out what is really going on. There are several hundred displaced members and no one really seems to know if they should go with the flow or not. My credit card company said they cannot block future automatic payments but that I could cancel my card and get a new one to stop the transactions. Am I obligated to continue a membership at the new gym? Am I in breach of the contract if I just cancel my credit card and refuse to pay? I don't really understand my rights under a contract when the company issuing the contract flies the coop and hands the contract and my credit info off to some third party without my permission or consent.

posted by 45moore45 to grab bag (9 answers total)

(1) Am I obligated to continue a membership at the new gym?

I believe that (like with cell phone companies) if there is a material change to the terms and conditions of the contract, the assumption by the new gym is not binding on you. IIRC, "material" in these circumstances is generally determined very simply by whether the new terms are unfavorable in any concrete, abstract (rather than than theoretical) way. IIRC, Consumerist.com has reported individuals who have had luck canceling on the basis that a farther away gym is more costly to access (gas), and that ease/convenience of access is an important/material aspect of choosing a gym.

(2) Am I in breach of the contract if I just cancel my credit card and refuse to pay?

Assuming there was a material change as per (1) above, IIRC you can "repudiate" the new contract immediately and terminate on the spot. This is because if Gym A no longer exists and the contract was transferred to Gym B, but with a material change, THERE IS NO CONTRACT WITH GYM B. Your options would be to (a) decline to enter into a contract with Gym B, or (b) enter a new contract with Gym B.

Gym B might see this differently, but you have a good faith grounds to dispute with your credit card and discontinue payment immediately. That is, should you change the credit card numbers, I don't believe Gym B would have grounds to pursue collection against you.

(3) I don't really understand my rights under a contract when the company issuing the contract flies the coop and hands the contract and my credit info off to some third party without my permission or consent.

Your rights are as follows:

(a) If there is no material change in the terms and conditions, you are bound by your contract under the assumption,
(b) If there is a material change in the terms and conditions, you may
1. Repudiate (immediate termination)
2. Enter into a new contract under the new terms and conditions.

I am a lawyer.
Contracts are not my field of expertise - I'm more a tax maven, with some comp and disability/federal public benefits.
I am not your lawyer.
I have asked this question because I feel for you, and want to see you vindicated, but I've done no research and base my assertions on my law school and bar exam study, along with some non-legal personal experience.
Other answers may suggest I'm wrong; I would not be suprised if they are right.

Good luck!
posted by bunnycup at 7:07 PM on December 16, 2007 [1 favorite]

This is an aside but you might want to check with other gyms in your area-when one of the local gyms closed our gym had a special deal for the displaced customers. I think they might even have waived their signup fee or something. Perhaps a gym you like better would do something for you like that.
posted by konolia at 7:21 PM on December 16, 2007

The only real arbiter here is the content of your contract. You received a copy when you signed up. Go find it.

There may be state protections for you. In the mid/late 80s it was a common scheme to open a gym and sell memberships which you had no capacity to service, then declare bankruptcy. Several states reacted and tightened state laws around the matter. You may or may not be in one.

However your contract will have clear indications about transferability and what options you do and do not have to get out of it. If you have any doubt call your state's attorney's office.
posted by phearlez at 7:55 PM on December 16, 2007

They didn't just decide to close up shop one day. They knew they were on the ropes and likely to close, but probably continued to sell memberships right up to the day they locked the doors. I would think that this is fraud, and that a contract entered into under these conditions would not be enforceable.
posted by Joleta at 8:51 PM on December 16, 2007

Go to the web site for your state attorney general's office and look under consumer affairs for information about health clubs. Health club contracts are one of the top consumer complaints and many states have special rules pertaining to their contracts. Sudden closure of facilities is very common. Examples from New York State are here and here. You may want to file a complaint or ask for assistance from your state's office.
posted by JackFlash at 9:07 PM on December 16, 2007

You don't have a contract with B unless you want to; A can't unilaterally transfer your membership to B without your agreement in any jurisdiction I know of (IANAL!). I don't reckon you'll get money back for services not rendered (excepting what JackFlash says above) because you are an unsecured creditor and probably very low in the queue of people to get paid out. However, you shouldn't have to pay any more unless you want to become a member of B.

Go read your contract. It's not like it's in Klingon.
posted by polyglot at 10:20 PM on December 16, 2007

Just for the record/education/background information:

Assumption of contracts is typically permissible, for two reasons. Most corporate contracts (i.e. cell phone, gym, and so forth) include a clause expressly reserving the right to assign the contract. Secondly, assignments of contractual duties (i.e. A has an obligation to perform it's end of the deal, and asks B to do so instead) are normally permissible, at least under the UCC (sales of goods only; does not apply to a gym contract) and perhaps under the common law as well. For example, if you hire Joe's Shirts to print 50 t-shirts and they find they can't handle the volume, they can send you 50 identical t-shirts made by Tims Tees. The exception to the general rule permitting assignments, is when the nature of the obligation assigned makes it impossible for the assignee (B) to perform as the original obligor (A) was going to do. For example, if you hire Very Famous Artist to paint your portrait, he can't assign the obligation to his brother John the Butcher. This is so because there is a MATERIAL CHANGE (a real, solid, concrete difference) in a painting contract performed by Very Famous Artist and John the Butcher. To make this more clear, an obvious case would be where a gym with a pool assigns your contract to a gym without a pool - you are NOT expected to be bound by an assumption where there is a specific loss of the type or quality of services for which you paid. If your mental answer is "Well, the price of the contract - the monthly fee - should then be adjusted downward," you are drifting on the edge of a good answer - if the terms are being renegotiated that means there has been repudiation and the original contract no longer exists.

These concepts are not normally included in the four corners of the contract, i.e. in the language written on the document (whether in English or Klingon, and English legalese can be the functional equivalent of Klingon). Of COURSE they aren't - the companies don't want to tip off everyday consumers that they can get out of these nonsense contracts when there has been an assignment of duties that harms the consumer. Why would they TELL you that?? "Read the contract" is not going to be really helpful as an answer here, because the contract likely states that Gym A reserves its right to assign the contract to whosoever it pleases, which is legitimate, but not the whole answer.

Again, this is my "law school" answer. I'm not skilled in this area. I'm not giving legal advice. I jsut CARE DAMNIT.
posted by bunnycup at 5:53 AM on December 17, 2007

@Joleta

It is my understanding that it's relatively common in industries like this one to, when things are going bad, have a massive sale hoping to bring in lots of revenue to keep things going.

If the gym's intention was to close, and they were sill selling contracts to line their pockets then there's a colorable fraud argument. If their intention was to make enough money to keep the doors open, no fraud.

The point is likely moot, though, as (assuming fraud) it would likely cost several times more to prove it than the value of the contract itself.


Also, seconding the above... specifically bunnycup and the folks who say "read the contract". I wouldn't be surprised if you agreed to let them assign the contract. Especially if they had already contemplated selling out before they did their most recent membership push.
posted by toomuchpete at 9:03 AM on December 17, 2007

I'm not saying that this is your case, but... gyms/health clubs have operated a pump-and-dump scam for decades. The usual scenario is: Open a flashy new club with lots of shiny exercise machines and widely promote it. Offer a lifetime membership that's a really good deal. Excitement builds and lots of people join. Suddenly close the business and tell everyone that some other club will honor your contract, but omit details. Leave the state.
posted by exphysicist345 at 9:27 AM on December 17, 2007