Businesses providing services to consumers should be aware that if they intend to change the terms of a contract, they cannot do so merely by posting new terms on a website. The Ninth Circuit has recently ruled that posting modified contract terms on a website does not create an enforceable contract. Instead, it is necessary to give proper notice, such as mailing the new terms to the customer. Otherwise, the customer will not be bound by the modified terms. The court did not address whether the posted contract modifications could become enforceable if some means of electronic assent, such as a click-wrap agreement, were used.
Joe Douglas was a customer of America Online and received long distance telephone service from AOL. AOL sold its long distance business to Talk America, which continued to provide long distance service to AOL’s former customers. Talk America added four new provisions to the service contract, including additional service charges, a class action waiver, an arbitration clause, and a choice-of-law provision requiring application of New York law. Talk America posted the revised service contract on its website but did not otherwise notify its customers that the contract had changed. Douglas, who was unaware of the new terms, continued to use Talk America’s services for four years. When he learned of additional charges that Talk America had imposed under the new terms, Douglas filed a class action lawsuit against Talk America alleging causes of action for violations of the Federal Communications Act, breach of contract, and violations of California’s consumer protection laws. Talk America moved to compel arbitration based on the modified contract, and the district court granted the motion. Douglas petitioned the Ninth Circuit for a writ of mandamus.
The Ninth Circuit granted the petition and vacated the district court’s order compelling arbitration. The district court apparently assumed that because the new contract terms were available on Talk America’s website, Douglas was aware of them. The Ninth Circuit, however, found that even if Douglas had visited the website, “he would have had no reason to look at the contract posted there.” The court noted that parties to a contract have no obligation to check the terms on a periodic basis to determine if those terms have been changed by the other party. It is well settled that one party cannot unilaterally change the terms of a contract. To change the terms of a contract, the other party’s consent must be obtained. A revised contract is nothing more than an offer, which does not bind the parties until it is accepted. When an offeree is not aware of the new terms, it certainly cannot assent to them.
The court rejected the argument that by continuing to use Talk America’s services, Douglas had agreed to the new terms. The court made it clear that assent could only be inferred if Douglas had received proper notice of the proposed changes. While notification by mail of contract modifications might be enough, posting the new terms on a website was not sufficient to establish proper notice. The court did not address whether giving notice of the new terms themselves by e-mail or advising the customer by e-mail or regular mail to visit the website to see the new terms would constitute proper notice, though this seems sensible. It is also possible that a company could post a click-wrap form on its website, requiring the customer to indicate agreement with the modified terms before using additional services. The key appears to be making certain that each customer receives some sort of individualized notification of the new terms and some activity that is indicative of assent.
Full Opinion text: http://www.ca9.uscourts.gov/ca9/newopinions.nsf/1665312C85BA50868825731C00781F5D/$file/0675424.pdf?openelement