Online terms of use can be enforceable, but be careful!

Forming contracts through online terms and conditions has become commonplace. If the truth were known, however, we would probably discover that most people don’t read online terms and conditions or license agreements before clicking on “I accept,” or some other form of acceptance of the contract terms. But, in many cases, notwithstanding that a user did not read the contract terms, these online terms are enforceable. For vendors and other online service providers, there is some additional guidance to help move the needle for online contract terms towards the enforceable end of the spectrum.

In a decision rendered by the United States Seventh Circuit Court of Appeals, an unlucky Gary Sgouros purchased a credit score online, only to learn that the purchased score was 100 points higher than the score pulled by an automobile dealership where he was trying to purchase a car. Delivery of an artificially high score did not help his negotiations with a dealership. As a result, he filed a lawsuit against the provider of the credit score. However, in the initial round of litigation, the court never reached a decision on whether Mr. Sgouros had a cause of action based on delivery of the incorrect score, because the court focused instead on an argument made by the credit score provider that an arbitration clause in the contract was enforceable, and the litigation should be dismissed.

Although the online registration process for acquiring a credit score was fairly involved, the service agreement, which included the arbitration provision, was in a window which displayed only the first two lines of the agreement. There was a slider scroll bar on the right side of the window, but nothing required Mr. Sgouros to take any affirmative action to specifically accept the terms of the service agreement during the registration process. At the bottom of the page there was a box with “I Accept & Continue to Step 3.”

The court found, as have many other courts, that fundamentally there is nothing “automatically offensive” about online agreements. Similarly, contracting parties are generally presumed to be aware of the terms of an agreement that the parties have signed, or accepted the terms in an affirmative manner. But the platform on which the agreement resides must give the user reasonable notice that a click or continued use of a website will manifest assent to an agreement.

In this case, the court focused on whether Mr. Sgouros was likely to see the terms of the service agreement and understand that he was accepting those terms by clicking. In particular, the court asked whether Mr. Sgouros was likely to see the arbitration clause, and if there was any clear indication that by clicking on the button at the bottom of the page, he was aware that he was accepting the terms of the service agreement in the window above the box on the page. The court addressed the issue of a scrollable agreement, and was clearly troubled by the presence of fundamental terms in a scrollable window, when only the first few words of the contract were visible. At least as troubling was the failure to mention the service agreement in extensive verbiage above the “I accept” button authorizing access to the user’s credit reports. This verbiage did not refer to the service agreement or scrollable window. Taking these facts together, the court was unwilling to find that the webpage was sufficient to give a user notice of the creation of a binding contract.

The bottom line is that having a well written terms of service agreement and requiring users to click “I accept” may still not create a binding agreement if the webpage as a whole does not give the user adequate notice that he will be bound by the terms of the service agreement. Acceptance of online terms and conditions may constitute assent to a contract, but the user must at least know what are the terms, and that the user’s behavior, whether clicking on a box or link, or continuing to use a website, constitutes acceptance of the terms and conditions.

The court made an interesting observation that given the nature of technology it is not hard to give a user reasonable notice use of a site, or clicking on and “I accept” button would create a binding contract. Website providers often try to skate around this issue, because they want the user experience to be as seamless as possible. But there is a price to be paid for failing to require users to take note of contract terms, and that price is the unenforceability of critical terms that protect the online provider.

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