Click Here to Bind: Electronic Contracts

3/11/2011 COMMENTS (0)

Internet commerce has become a routine way to shop, as on-line retailers offer consumers convenience, selection, and potential savings over their “bricks and mortar” competitors, while on-line social network sites offer members a convenient way to interact and exchange information with friends and relatives.   

Users of these websites are almost always required to agree to certain terms and conditions.  In a common situation, a consumer will be in hurry, buying something when, just before the sale transaction can close, a page or window appears requiring the consumer to accept certain terms of sale.   

Without reading these terms the consumer clicks “I accept” or “I agree” and continues with the checkout process.  These written terms and conditions are commonplace in the online world, appearing everywhere from sites for shopping and banking, media downloads, and social network registration.  In fact, these “accept” or “agree” messages are so commonplace that many users give them little thought, despite the fact that the terms and conditions can materially affect their legal rights and remedies.

Electronic contracts are not limited to these “click-to-agree” type contracts.  For example, a contract may be created through an exchange of emails, or a combination of exchanged emails, faxes, and paper documents.  Yet, it is the “click-to-agree” contract (sometimes called a “click-wrap,” “browse-wrap,” or “click-through” agreement) and the “browse” contract that seem to generate the most controversy, perhaps because they require the least active input from users.   

In a browse contract, a website user may be deemed to consent to a website’s terms and conditions, which are typically found at the bottom of a website’s homepage under the heading “Conditions of Use” or “Terms and Conditions,” by simply using the site.  For example, a large bank includes this statement on its website:  “Please read these terms and conditions carefully.  By accessing this site and any pages thereof, you agree to be bound by the terms and conditions below.  If you do not agree to the terms and conditions below, do not access this site, or any pages thereof.”   

Two of the most important provisions in these agreements relate to where and how disputes will be resolved.  Consumers often prefer to bring a lawsuit in their hometown, while businesses usually prefer to have all lawsuits brought in a single location, typically the location of the company’s headquarters, and they sometimes prefer to arbitrate disputes.  For example, PayPal^® requires consumers to agree to arbitrate all disputes, thereby waiving the right to bring a lawsuit, and to bring any such arbitration exclusively in Santa Clara, Calif.  See https://www.paypal.com/cgi-bin/webscr?cmd=p/gen/terms-outside.     

A central legal issue with these agreements is enforceability, focusing on whether a user should be bound to the contract.  Nationally, the trend seems to be that click-to-agree contracts are enforceable, with courts remaining skeptical about the enforceability of browse contracts.  Businesses wanting to ensure the enforceability of their agreements may want to heed the recommendations of the American Bar Association’s Cyberspace Law Committee, which recommends a four-step proposed test for creating valid assent:  

(1) the user is provided with adequate notice of the existence of the proposed terms;  

(2) the user has a meaningful opportunity to review the terms.; 

(3) the user is provided with adequate notice that taking a specified action (which may be use of the website) manifests assent to the terms; and  

(4) the user takes the action specified in the latter notice.  See http://meetings.abanet.org/webupload/commupload/CL320004/newsletterpubs/Browse-Wrap_Big.pdf