Center for Internet Law – Portland

Recent Legal Developments

Enforceability of Terms & Conditions

2016

Global Client Solutions v Ossello. Montana Supreme Court, 2016 WL 825140(2016).
Montana Supreme Court deems claimed online agreement unconscionable contract of adhesion and sets limits to pre-emptive scope of Federal Arbitration Act.

Upholds District Court decision that contract between individual plaintiff and debt-relief provider is unconscionable because it is a contract of adhesion that unreasonably favors the corporate drafter of the agreement. This contract contained an arbitration provision. Court holds that, under specific language of the contract, enforceability of arbitration provision should be determined by the court rather than by the arbitrator. Holds Global’s asserted right to compel Ossello to arbitrate is unconscionable under Montana contract law because, “the contractual term is unreasonably favorable to the drafter, and there is no meaningful choice on the part of the other party but to accept the provision.” The Court reiterates that, “disparities in the rights of contracting parties must not be so one-sided and unreasonably favorable to the drafter… that the agreement becomes unconscionable and oppressive.”

Global Client Solutions v Ossello also focuses extensively on whether judicial examination of the potential unconscionability of the contract is pre-empted by the Federal Arbitration Act (FAA). Citing prior supporting federal and state decisions, Court holds against pre-emption.Global Client Solutions v Ossello is an important extension of previous cases establishing limitations on pre-emptive scope of the FAA. This decision is equally noteworthy, however, in its affirmation of limits on the enforceability of online agreements on the grounds of their being both contracts of adhesion and unconscionable. Here the particular terms deemed to be unreasonably favorable to the drafter are contained within the arbitration provision itself.

Baltazar v. Forever 21, Inc. California Supreme Court. 367 P.3d 6 (2016).
California Supreme Court broadly defines unconscionability rules, especially in employment setting, but enforces arbitration agreement on grounds plaintiff had actual knowledge of its terms.

As precondition of employment, plaintiff was required to sign mandatory binding arbitration agreement. Court holds in California unconscionability will be found when there is, “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” Court holds agreement is a contract of adhesion and thus procedurally unconscionable.

Court, in addition, sets out broadly the kinds of terms unreasonably favorable to the drafter that will create substantive unconscionability as including those that, “attempt to alter in an impermissible manner fundamental duties otherwise imposed by law, fine-print-terms, or provisions that seek to negate the reasonable expectations of the non-drafting party, or unreasonably or unexpectedly harsh terms having to do with price or other central aspects of the transaction.” Contracts of adhesion “that involve surprise or other sharp practices,” the Court emphasizes, call for even stricter scrutiny.

Court looks at whether plaintiff actually had opportunity and ability to inspect specific terms she was agreeing to and to reject them. Court declines to apply strict test of substantive unconscionability here because plaintiff had actual knowledge, not merely constructive or inquiry notice, of mandatory arbitration provisions prior to signing employment agreement.

Court recognizes that the dangers posed by unconscionable agreements are especially high “in the employment setting where economic pressure exerted by employers on all but the most sought-after employees may be particularly acute.” Nonetheless, the court rejects applying strict scrutiny here regarding substantive unconscionability because agreement terms were not “artfully hidden” such as by “incorporating them by reference rather than including them in or attaching them to the arbitration agreement.” Here, however, the Court declares, plaintiffs “challenge concerns only matters that were clearly delineated in the agreement she signed.”

Court turns away from addressing whether awareness of arbitration provision created actual free-choice by plaintiff regarding her signing of agreement when necessity of employment may have created need for her to sign. Court refrains from tackling whether awareness of agreement contents should be legally dispositive even if plaintiff still, despite this knowledge, lacks free choice regarding signing.

Sgouros v. Transunion. U.S. Seventh Circuit. 2016 WL 1169411 (2016)
Seventh Circuit affirms “reasonableness” standard regarding duties of website users and declines enforcement of website terms and conditions.

Plaintiff purchased a “credit score package” from defendants. Court states that central question is whether plaintiff received “reasonable notice” of the terms of this transaction. The Court, however, never fully defines what constitutes such “reasonable notice.” It is noteworthy, however, that the Court affirms a standard of “reasonable notice” rather than of mere notice itself. What, then, makes notice “reasonable”? Under tort principles, “reasonable notice” can only be understood as notice that would lead a reasonably prudent individual, utilizing reasonable care, to take the action that would lead them to acquire the underlying facts or information, the existence of which was the purpose of the notice itself.

The Seventh Circuit takes the significant step of beginning to bring this reasonableness standard, with its conjoined tests of reasonable care, ordinary care , and negligent vs. non-negligent conduct, into the question of the enforceability of online terms and conditions. Just as quickly as it affirms the relevance of this reasonableness standard, however, the court backs away from it, transforming it into the question of whether a “reasonable person in Sgouros’ shoes would have realized he was assenting to the Service agreement” when he clicked, “I Accept.” The pivotal legal issue under the doctrine of constructive notice, however, is whether a “reasonable person” receiving that notice would have actually proceeded to examine the terms and conditions posted on the website for themselves.

The court here finds for plaintiff on the grounds that Transamerica’s exceptionally badly designed website did not state clearly that any of plaintiff’s clicks showed his agreement to the site’s terms and conditions. By bringing in the test of what a “reasonable person” in plaintiff’s shoes would have realized and/or done, however, the Sgouros Court has taken a least a tentative step toward integration of the requirements for legally binding constructive notice in its traditional tort context and application of this same standard to online contracting.

Long v. Provide Commerce, Inc. California Court of Appeal. Filed March 7, 2016.
Court adopts “reasonably prudent user” test regarding enforceability of online terms and conditions.

Concerns enforceability of terms and conditions contained in defendant’s website browsewrap agreement. Court holds that the “hyperlinks and overall design of the Proflowers.com website would not have put a reasonably prudent Internet user on notice of Provide’s Terms of Use” and that plaintiff therefore did not “unambiguously assent to the arbitration provisions (contained within these Terms of Use) simply by placing an order on Proflowers.com.”

It has become well–established that website operators are generally far better protected by click-through, or “click-wrap”, agreements rather than by the kind of browsewrap Terms of Use at issue here. In Long v. Provide Commerce, however, the Court goes further, holding that, “the validity of a browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.”

This “reasonably prudent person standard” regarding notice and examination of website terms and conditions prior to use of the website focuses on whether a plaintiff has taken the prudent actions that the law can reasonably expect, and require, of them. Should a “reasonably prudent internet user”, for example, actually be expected or required to read through closely, and compare, the terms and conditions of all websites used and visited or, if this not done, be legally deemed to have agreed to them? Is the opportunity to do this, combined with notice of this opportunity, legally meaningful if taking the follow-up action of actual close examination and comparison of multiple lengthy, frequently boiler-plate terms and conditions would be extremely impractical and unreasonably burdensome? If, in fact, virtually no one today actually does this? If none of us do this?

Are we all, then, simply refusing to proceed in a “reasonably prudent” manner? Or is such exhaustive and time-consuming comparative analysis neither practical or realistic. If actually reading closely through all website terms before using a site is not viable, should we be held to have agreed to those terms because we are presented with awareness of their existence, though without any specifics, and the theoretical ability to inspect them?

Making such a process, if we were to attempt it, even far more cumbersome is that website terms and conditions can be changed at any time. The site terms we took extensive time to examine closely yesterday or last week might not be the same ones posted the following week or the one after. Not only would the terms of all the dozens of sites we use need to be closely inspected and compared, but this would have to be done again before each use.

Is this at all realistic? If not, is presenting this “opportunity” to the “reasonably prudent internet user” legally meaningful? Constructive or inquiry notice is meaningless if the follow-up step of acquiring the substantive information we are being notified exists is far from being anything almost anyone actually does and, simultaneously, unrealistically burdensome. In Long v. Provide Commerce, Inc., the court does not, unfortunately, address this broader spectrum of questions.

This decision does, however, make repeated reference to whether plaintiff has acted as a “reasonably prudent Internet consumer” regarding awareness and specific knowlege of online posted terms and conditions. The Court observes, for example, that a notice stating simply that “Terms” are posted elsewhere on the site certainly does not put a user on notice of any the specific provisions included in those terms, such as those requiring binding arbitration.

Quoting the U.S. 9th Circuit in Nguyen v. Barnes & Noble, the Court addsthat, “the onus must be on the website owner to put users on notice of the terms to which they wish to bind consumers.” This statement too is, regrettably, more ambiguous than would be optimal. Is the court here edging toward the position that, for the enforceability of online terms and conditions to be upheld, website operators must not only inform users of the existence of such terms elsewhere on the site, but perhaps even with a succinct summation (utilizing brief, readily graspable bullet points perhaps), of some of their most important content as well in quickly understandable form?

Carbajal V. CWPSC, Inc. California Court of Appeal 199 Cal. Rptr. 3d 332 (2016).
Court sets out California unconsc0nability rules in employment context and rejects enforcement of mandatory arbitration clause.

Court cites well-established California rule that contract must be both procedurally and substantively unconscionable for a court to refuse to enforce it on unconscionability grounds. Procedural unconscionability, the court states, “addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.” Oppression, the Court adds, “arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice.” Surprise “involves the extent to which the terms of a bargain are hidden in a ‘prolix printed form’ drafted by the party in the superior bargaining position.”

The Court holds here that, “The agreement and its arbitration provision… contain at least some degree of procedural unconscionability because it is undisputed that the agreement is an adhesion contract in the employment context.” The Court notes that, “in the case of pre-employment arbitration contracts, the economic pressure exerted by employers on all but the most siought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.”

The Court finds, in addition, that the employment contract at issue here is substantively unconscionable, stating that, “the substantive element of unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.” This includes, the Court continues, “consideration of the extent to which the disputed term is outside the reasonable expectation of the non-drafting party or is unduly oppressive.” In this case, the contract is deemed to also be substantively unconscionable because of the different rights of the parties contained within the arbitration provisions themselves. Because  this substantive unconscionability is joined with procedural unconscionability, the Court holds the arbitration provisions to be unenforceable.

Totten v. Kellogg, Brown, and Root. U.S. District Court-California. 2016 WL 316019 (2016).
Court finds binding arbitration and class action waiver as preconditions of employment violation of National Labor Relations Act.

Totten filed complaint against KBR for wages owed, but not paid. KBR responded that Totten’s claim was subject to mandatory binding arbitration under terms of KBR’s Dispute Resolution Program agreement signed by Totten as a precondition of  his employment. Court holds this arbitration agreement is, “procedurally unconscionable because it was imposed on employee as a condition of employment and there was no opportunity to negotiate,” as well as because plaintiff was not given copy of arbitration rules. Court finds Dispute Resolution Program Agreement also substantively unconscionable because it can be unilaterally modified by KBR.

Dispute Resolution Program Agreement contained, as well, a class-action waiver. Court rejects enforcement of this class-action waiver on grounds that doing so would conflict with plaintiff’s right to engage in protected concerted activity under National Labor Relations Act. Court distinguishes between class action waivers in consumer context versus in employment context. Court explains why it is rejecting view of U.S. Fifth Circuit regarding the enforceability of class-action waivers signed as a precondition of employment and affirms its own position that employee collective action is a “core substantive right” and thus cannot be waived, despite preemption provisions of Federal Arbitration Act. Court holds, in addition, that that denial of employee’s right to bring claim under California Private Attorneys General Act would, “disable one of the primary mechanisms for enforcing the labor code.”

2015

Fagerstrom v. Amazon.com. U.S. District Court-California. 2015 WL 6393948 (2015).
Court affirms binding online contract with Amazon on basis that consumer had “meaningful choice.”

Amazon maintains price-fraud claim against Amazon should be arbitrated under provisions of Amazon’s Terms and Conditions. A Washington contract can be judged unconscionable and thus unenforceable if it is either substantively or procedurally unconscionable. District Court holds that, “procedural unconscionability is present when there is a “lack of meaningful choice, considering all the circumstances, surrounding the transaction.” Court determines that Fagerson’s online contract with Amazon is a contract of adhesion. The applicable test is “(1) whether the contract is a standard form contract, (2) whether it was prepared by one party and submitted to the other on a ‘take it or leave it”’ basis, and (3) whether there was no true equality of bargaining power between the parties.” The Court adds, however, that, “the fact that an agreement is an adhesion contract does not necessarily render it procedurally unconscionable’ and that the key question regarding procedural unconscionability is “whether the party challenging the contract lacked meaningful choice.”

The Court states this rule but then, like so many other courts, proceeds immediately to a conclusory finding that plaintiff did have “meaningful choice” because plaintiff could simply have decided to not make use of Amazon’s online service. The lack of any closer judicial examination of this crucial factual issue, however, leaves fundamental questions unanswered. If, for example, plaintiff had attempted to make their purchases from a different website or websites, would they have been presented with significantly different terms and conditions? Or, alternatively, have certain terms and conditions become so pervasive online that, if one wants to make purchases or engage in other online activities, “meaningful choice” regarding the ability to accept these terms or not to accept them has become effectively eliminated.

Judicial examination of whether an online shopper who is asserted to have “agreed” to online terms and conditions would really have been able to obtain the same or very similar products from other websites with significantly different terms and conditions is, however, still rarely, if ever, encountered in the applicable case law. The next question would be whether, if there are in fart significantly different terms and conditions posted on multiple competing websites, how reasonably practical is it for today’s online shopper to read through multiple pages of fine print and legalese on each website and attempt to decipher and compare their differences? With the great number and array of websites many of us visit each, day and each week, how much time would be required for such ongoing close examination and comparison? If we do not actually do this ourselves, how can we expect, or require, this conduct from our hypothetical “reasonable man or woman”? Is complete non-use of the internet, in the world and culture we live in today, a viable alternative?

Collegesource v Academy One. U.S. Third Circuit. 597 Fed. Appx. 116 (2015).
Third Circuit holds notice on website and use of website do not alone create binding contract.

Court holds alleged online contractual agreement between website operator and viewer must comprise actual legal contract between website and viewer agreed to, expressly or impliedly, by both parties. Court holds posted notice of “Copyright and Disclaimer” displayed on website does not constitute such a binding legal agreement. Affirms importance of taking correct steps to show necessary user consent to website terms of use and privacy policy.

Berkson v Gogo LLC, U.S. District Court – New York. 2015 WL 1600755 (2015).
U.S. District Court refuses to enforce online terms because “not adequately presented to user.”

Defendant Gogo sells Wi-Fi connections on air flights that were renewed annually and automatically by Gogo and billed to Plaintiff’s credit card without further notice to Plaintiff or Plaintiff’s consent subsequent to his initial purchase of the services. Defendant maintains Plaintiff consented to additional annual billings and payments in his initial agreement to Gogo’s posted terms of service that specifically provided for such automatic renewal. Court determines that the “central factual-legal question is whether plaintiffs were given effective notice of the need to make inquiry(‘inquiry notice’) of the ‘terms of use’ in what can be characterized as Gogo’s electronic contract of adhesion”,  and that “this question is answered in the negative.”

The Court proceeds to “apply a four-part test to analyze the validity of electronic contracts of adhesion generally” and concludes “this approach casts significant doubt on the validity of those sign-in and click wrap agreements that fail to adequately present material terms to internet users.” Court cites earlier cases holding “the burden is on the offeror to impress upon the offeree the importance of the binding contract being entered into by the latter” and that, in addition, “the duty is on the offeror to explain the relevance of critical terms governing the offeree’s substantive rights contained in the contract.”

Court includes accompanying discussion of law regarding contracts of adhesion and doctrine of unconscionability and applicability to current online browsewrap and clickwap agreements. Advocates more rigorous requirements regarding online posted terms of service and privacy policies, but does not address practicality of detailed review by users of provisions of posted terms and policies on all websites accessed by users. A significant step, however, toward tightening requirements for, and judicial review of, “boilerplate” online terms of service and other standardized online agreements.

DeVito v. Autos Direct Online. Ohio Court of Appeals, 7 NE 3d 194 (2015).
Ohio Court holds “no meeting of the minds” and thus no binding agreement regarding arbitration provisions.

Plaintiff purchased automobile online from Defendants and alleges automobile as delivered was defective and Defendants did not keep promise to make necessary repairs. Defendant had e-mailed accompanying arbitration agreement to Plaintiff. Unclear whether and, if so, in what manner Plaintiff may have consented to this arbitration agreement. Plaintiff challenges mandatory arbitration, that includes mandatory award of attorney fees to losing party, as both unconscionable and contained in a contract of adhesion and therefore invalid.

Court declares “the heart of (this case) is, did the disputing parties herein have a meeting of the minds about each of the terms of the written agreement that is before us? Or, conversely, were certain terms egregiously hidden or purposely obfusticated as to preclude mutual agreement?” Court holds “no true voluntary meeting of the minds existed regarding the loser-pays provision.” Affirms more strict standard of review regarding validity of online agreements in place of frequently used “constructive notice” standard and test.

Small Justice v. Xcentric Ventures. U.S. District Court – Massachusetts, 2015 WL 1431071 (2015).
Court sets out necessary placement of links to terms and conditions in order to provide effective constructive notice.

Court reviews current case law regarding enforceability of online clickwrap and browsewrap agreements. Court holds that “a reasonably prudent user (of Defendant’s website)  would be on inquiry notice of the terms and conditions” posted on the website and therefore provisions of said terms and conditions are legally effective. Court devotes considerable attention to necessary design and placement of links to terms and conditions, but then upholds enforceability under doctrine of “constructive notice”. Does not address legal basis for equating prominence of link to terms and conditions with conspicuousness of actual relevant content of terms and conditions themselves.

2012

Schnabel v. Trilegiant. U.S. Second Circuit. 697 F. 3d 110 (2012).
Second Circuit struggles to define requirements for sufficiency of inquiry notice leading to constructive knowledge of online terms and conditions. 

Involves enforeceability of arbitration provisions contained in defendant’s online terms and conditions. Court holds that, “in cases such as this, where the purported assent is largely passive, the contract formation question will often turn on whether a reasonably prudent offeree would be on notice of the terms at issue.” The Court then re-expresses its holding slightly differently, stating that, “Where there is no actual notice of the terms, an offeree still bound by the provision if he or she is on inquiry notice of the term and assents to it through that conduct that a reasonable person would understand to constitute assent.”

The Court adds, however, that, “Inquiry notice is actual notice of circumstances sufficient to put a prudent man upon inquiry.” In doing so, the Court incorporates the  tort-derived standards and tests regarding constructive notice and constructive knowledge back into its analysis. Constructive knowledge can, however, only be held to exist if the plaintiff has had a meaningful and reasonably practical opportunity to view the actual specific terms themselves and has neglected to do so. Basing creation of an enforceable agreement solely on plaintiff’s clicking an online “I Agree” button, in ignorance of the specific terms being agreed to and even if there no reasonably practical way for plaintiff to learn them for all sites used, would shift defendant’s argument to an assumption of risk theory of liability. This is not, however, a legally adequate basis for agreement formation and enforceability under contract law.

The Court, however, uses phrasing that clouds rather than clarifies this central issue, stating, in one example, that, “the touchstone of the analysis is whether reasonable people in the position of the parties would have known about the terms and the conduct that would be required to assent to them.” The Court thus leaves unclear  whether the test it is affirming is whether a reasonable person would have known, or learned, of the actual specific terms themselves or whether a reasonable person would have known of the existence of such terms, even if they had no knowledge of their specifics.

This is, of course, a pivotal distinction. By not clarifying its position, the Second Circuit in Trilegiant leaves considerable ambiguity in its decision. If, however, a plaintiff has no actual knowledge of online contract terms, and no practical way to gain that specific knowledge and thus no constructive knowledge either, it is difficult to see how the requisite meeting of the minds between the parties can have occurred.

Hill v. Sears Roebuck. Supreme Court of Michigan. 492 Mich. 651 (2012).
Michigan Supreme Court sets out requirements for existence of constructive knowledge based on constructive notice.

Sears’ installed a new washer and dryer in plaintiff’s home, during which a gas line, open and shut by a valve, was exposed but not capped by defendant. Plaintiff subsequently accidentally opened the valve. When she then lit a cigarette, gas in the home exploded. Plaintiff stated she had believed the exposed pipe was a water line. Court holds, however, that, despite this, “plaintiff had constructive notice of the gas line’s existence.”

The Court, citing a preceding Michigan Supreme Court decision, holds that, “A person is chargeable with constructive notice where, having the means of knowledge, he does not use them. If he has knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries, and does not make, but on the contrary studiously avoids making such obvious inquiries, he must be taken to have notice of these facts which, if he had used such ordinary diligence, he would readily have ascertained.”

In this case, the Court finds, plaintiff’s “admission that she was aware of the pipes in the kitchen niche should have lead her, using ‘ordinary caution’, to make further inquiries regarding the nature of the pipes. Instead (however) of making further inquiries or using ordinary diligence, plaintiff assumed Sears did all that.” The Court states the applicable rule regarding the effectiveness of constructive notice succinctly, declaring that, “knowledge of facts putting a person of ordinary prudence on inquiry is equivalent to actual knowledge of the facts which a reasonably diligent inquiry would have disclosed.”

This applicable test regarding the effectiveness of constructive notice is therefore, at root, a negligence standard. The fundamental question is whether the person receiving the constructive notice was negligent in not following up on that notice with their own investigation of the underlying facts or information alluded to, but not spelled out, in the notice itself. If “ordinary prudence” on the part of the recipient of the notice would have actually led them to examine the underlying facts or information for themselves and if reasonable diligence on their part, after receiving the notice, would have revealed these underlying facts, then the recipient is deemed to posses the information that this reasonably diligent inquiry would have yielded. Conversely, if reasonable diligence on their part, after receiving the notice, would not have led to their knowledge of the underlying information, they are not deemed to posses this knowledge merely because of receipt of the notice itself.

Questions involving the enforceability of online terms and conditions based on the user’s clicking an” I Accept” button tend to be virtually always decided, however,  under principles of contract resembling more incorporation by reference than constructive notice. Applicable tort law principles including determinations regarding “reasonable care,” “reasonable diligence”, and plaintiff’s “negligence or non-negligence” in not following up upon notice with actual inspection of the terms and conditions themselves are rarely, if ever, included in the analysis. Substantive statistical support for the proposition that reasonably prudent individuals do, today, read through all or most of a website’s terms and conditions, prior to clicking to accept them is never encountered.

The existence of constructive knowledge is instead deemed to occur automatically once notice of the existence of these terms and conditions is received. Outside the context of enforcement of online terms and conditions, however, and especially if we dig back into the longer and deeper history of applicable tort and contract principles, there is little support for this view. Courts have instead been far too ready to “automatically” enforce online terms and conditions on the alleged basis of constructive notice without actually taking a close look at what the applicability of this standard actually requires.

Fteja v. Facebook U.S. District Court-New York. 891 F. Supp. 2d 829 (2012).
Court rests enforcement of Facebook terms of use based on constructive notice basis on questionable analogies.

A foundational case affirming the enforceability of online terms and conditions based on a user’s clicking the “I Accept” button on a website. At issue is the enforceability of Facebook’s online posted terms  of use following plaintiff’s click of the Facebok site’s  “I Accept” button. The critical issue, according to the Court, is whether Facebook’s terms of use have “been reasonably communicated when a consumer must take further action not only, as in a click-wrap agreement, to assent to the terms but also, as in a browsewrap agreement, to view them.”

Quoting a prior Second Circuit decision, the Court compares the question of the effectiveness of the notice regarding its terms of use provided to a Facebook user to a situation “in which Facebook maintains a roadside fruit stand displaying bins of apples accompanied by signs that say, ‘By picking up this apple, you consent to the terms of sales by this fruit stand. For those terms, turn over this sign.’” In “these circumstances”, the Court declares, “courts have not hesitated in applying the terms against the purchaser.

The two analogies used by the Court in Fteja, involving fruit stand sales and cruise tickets, are frequently encountered and used to uphold the enforceability of online posted terms and conditions where a user has clicked the “ I Accept” button.  Are the courts utilizing these repeated comparisons, however, making valid analogies or misleading ones? In Carnival Cruise Lines v. Shute, cited in support in Fteja, the relevant terms of the cruise ticket sale were appended, on attached pages, to the ticket itself. Purchaser was notified on the front of the ticket of the presence of these terms on the back and on the attached pages.

The Court in Fteja and additional decisions including Effron v. Sunline Cruises (based on similar facts), makes these analogies a cornerstone of its reasoning. The act of simply turning over a sign or ticket saying that applicable terms are found on the back is a an extremely simple one, very readily do-able, and within what a reasonably prudent person, receiving that notice, could normally be expected to do. The non-doing of such a quick and simple act would be regarded, in turn, as careless and negligent.

Under the doctrine of constructive notice, it is when a person does not actually take the action of informing themselves more fully of relevant facts, after being notified of their existence, that knowledge of these facts is imputed to them despite their lack of actual knowledge of the underlying information itself. For this rule to function in practice, the information of which one is notified must be reasonably accessible to the individual notified. If gaining that actual knowledge is not reasonably viable or practical, the acquiring of it is clearly not within what can be expected or demanded of a reasonably prudent person.

If acquiring the underlying facts is not what a reasonably prudent, non-negligent person would actually do, they cannot be deemed to possess constructive knowledge of those facts. If there is no such constructive knowledge and also no actual knowledge, a plaintiff cannot be held to possess that information. If a purported party to an agreement has no knowledge, either actual or constructive of the terms of an agreement, then no legally effective meeting of the minds regarding the terms of the contract and no legally effective acceptance of it has occurred.

Consider, for example, whether the outcome in the fruit stand comparison would be the same if the fruit stand sign pointed to a mountaintop hut four miles and a steep climb away, accessible only by trail, where the fruit stand ‘s terms of sale could be examined. Would the fruit stand purchaser still be deemed to have constructive knowledge of those terms? If the relevant ticket provisions could be viewed only in person in a Carnival Cruises office in a far distant city, rather than on the attached pages of the ticket itself, would constructive knowledge of these terms still be imputed to the plaintiff? The answer, of course, is most likely not.

Under the long evolution of the doctrine, that far pre-dates the existence of the internet, constructive knowledge is deemed to exist when, after receiving notice, one has a reasonably practical, viable, and not excessively burdensome opportunity to learn the underlying facts and yet plaintiff still has not taken the action necessary to learn them. In a world where almost no one today closely examines website terms and conditions before using a site, does it make sense to continue to refuse to apply this same test regarding assertions of agreement to online terms and conditions?

2011

In re Zappos.com. U. S. District Court-Nevada, 893 F. Supp. 2d 1058 (2011).
Court rejects enforcement of website terms not known to user.

Concerns mandatory arbitration provision contained in browsewrap Terms of Use on Zappos.com website. Court holds Terms of Use not enforceable as no actual agreement by Plaintiff proven by Zappos.com. Court holds, in addition, “Terms of Use are inconspicuous, buried in the middle to bottom of every Zappos.com webpage among many other links, and the website never directs a user to the Terms of Use.” The Court finds further that, “No reasonable user would have reason to click on the Terms of Use.” Court supports decision by citing preceding cases refusing to enforce provisions of Terms of Use where links to them are not sufficiently obvious to website user.

Does not address, however, that more prominent link would not itself inform users of actual specific content of Terms of Use or that these terms are often contained in pages of dense legal boilerplate, raising question of viability of actual close inspection of all terms of use on multiple sites by a typical user of many websites each day. Language of prior decisions cited, however, indicates that not merely knowledge of link but also of contents of terms themselves can be crucial in finding terms enforceable.

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