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The AR Group

Lack of prior notice may thwart enforcement of online terms

By Victoria Aguilar

Businesses that sell goods or services online should ensure that online terms and conditions for transactions or purchases are clearly and conspicuously issued during the purchase or registration process.

In a recent decision from the Second Circuit Court of Appeals, the court found an arbitration clause provided after online enrollment (the transaction) was completed to be unenforceable. (See Schnabel v. Trilegiant Corp.)

The court specifically cited two points in determining that the clause was unenforceable:

  1. The arbitration clause was decoupled from the enrollment transaction.
  2. The plaintiff had no previous relationship with the seller to suggest that the terms sent via email after enrollment were part of the contract, thus the term or condition of submitting to arbitration could not have been agreed to as part of the transaction.

As a result, the defendants were forced to respond to the plaintiff?s complaints through the court system.
One interesting point is that the court treated this holding differently from other cases in which consumers learn of purchase terms and conditions by opening the package (e.g., shrink wrap licenses), as well as situations in which a buyer is confronted with relevant terms through daily or routine website access or purchases (both of which have been deemed adequate). (See Inc., v Verio, Inc.)

In this case, the inability for the plaintiff to freely access and become familiar with the terms and conditions of purchase as well as poor communication regarding the related timelines is what made the result here different. The court noted that a person can accept contract terms even if he or she does not actually read them, but the offer must make it clear: A) that contract terms are being presented, and B) what constitutes acceptance of those terms.

SMART TIP: Businesses engaging in online transactions are encouraged to assess how they provide notice of their terms and conditions to purchasers. You should provide clear notice of any material terms before the purchase and provide easy access to those terms. It is important to also recognize that this notice needs to be clear and conspicuous, which means that it should be written simply and directly, allowing a reasonable purchaser to understand the implication of the contract terms. Both the timing of notice and content of notice, as it relates to material terms associated with the transaction, are important. Similarly, caution is advised for businesses that communicate changes to terms and conditions via email.