There are many reasons why a company may want to provide its terms and conditions online. The benefits include shorter contracts, reduced paper waste, ease of access and distribution and the desire to have uniform terms. However, is it enforceable when businesses utilize these types of hybrid arrangements? In other words, do online terms and conditions still create binding contracts?
An online contract is conceptually very similar to and is drafted in the same manner in which a traditional paper-based contract is drafted. In the case of an online contract, the sellers who intend to sell their products, present the products, prices and terms for buying such products to the prospective buyers. In turn, the buyers who are interested in purchasing the products either consider or click on the ‘I Agree’ or ‘Click to Agree’ option to indicate the acceptance of the terms presented by the sellers, or they can sign electronically. Once the terms are accepted and the payment is made, the transaction can be completed. The communication is basically made between two computers through servers.
Online contracts can be categorized into two: browse or web-wrap contracts and clickwrap contracts. Other kinds of online contracts include employment contracts, contractor agreements, consultant agreements, sale re-sale and distributor agreements, non-disclosure agreements, software development and licensing agreements, and source code escrow agreements. Though these online contracts are witnessed in our everyday lives, most of us are not aware of the legal complexities connected to them; the use of online contract faces many technical and legal challenges.
Given the emphasis placed on a user’s assent, courts favor a binding agreement where the user engages in affirmative conduct, acknowledging the terms of an agreement. For instance, a genuine clickwrap agreement, in which a service provider places the terms of service just adjacent to or below a click-button (or check-box), has been held to be sufficient to indicate that the user agreed to the listed terms. In these cases, requiring the user to click “I Agree,” after calling attention to the terms and affording the user an opportunity to review them, demonstrates that the user agreed to the terms. However, courts generally do not require that you actually have read the terms, but just that you had reasonable notice and an opportunity to read them.
Users will then have to actively accept the terms and conditions by “clicking” into a box with words like:
“I accept” or “I have read the Terms and Conditions and I agree to be bound by them” (a thorough attempt to make sure the customer knows this is a legal contract).
In other words, it’s not merely clicking the “I Agree” button that creates the legal contract. The issue turns on reasonable notice and opportunity to review —whether the placement of the terms and click-button afforded the user a reasonable opportunity to find and read the terms without much effort.
Mechanisms for creating a binding contract
A clearly presented clickwrap agreement represents the “best practice” mechanism for creating a contractual relationship between an online service and a user. Such a mechanism should:
- Conspicuously present the terms to the user prior to any payment (or other commitment by the user).
- Allow the user to easily read and navigate all of the terms (i.e. be in a normal, readable typeface with no scroll box) – Don’t make it difficult to find them by requiring the user to go through multiple steps to get there. Be clear about what constitutes an acceptance of legal terms. Vague references to binding legal terms and conditions—such as labeling a link “Legal”—may not provide sufficient notice.
- Provide an opportunity to print, and/or save a copy of, the terms;
- Offer the user the option to decline as prominently and by the same method as the option to agree; and
- Ensure the terms are easy to locate online after the user agrees ( i.e., there is a clear reference to where the terms can be found). Parties should attempt to use a direct link, such as the online terms and conditions found at XYZ.com/terms-and-conditions, or something similar. Courts are especially skeptical where service providers do not place links to terms, or references to them, in conspicuous locations so as to notify the user that they even exist.
A browse-wrap agreement will place the vendor in a weaker legal position because it does not provide the same degree of reasonable notice to the user; it is not recommended for business owners.
For a browse-wrap agreement to be enforceable, the website must give the user actual or constructive notice of the agreement and the user must consent to the agreement. Unlike a clickwrap agreement, a user does not need to take action to affirm his consent to be bound. Instead, the agreement typically states that use of the website is deemed acceptance of the agreement. However, courts are more likely to enforce clickwrap agreements than browse-wrap agreements.
The main problem with browse-wrap agreements is that they are written in a manner that gathers consent by the user’s action, such as browsing a website. Therefore, the consent is implied and might be harder to prove when seeking to enforce the agreement.
If your business is looking to use any of the methods of online contract, consider the following:
- Clearly displaying the legal agreement in a clear and noticeable location on the website or within the mobile app, before displaying the products or the services.
- Making the method of acceptance or denial unambiguous.
- Clearly indicating that by accepting the agreement, the user is on notice of the legal contract that they explicitly consented to.