Dallas Bar Association

Pitfalls of Incorporating Online Terms Into Printed Contracts

by Andrew Wallace and Christopher Norcross

The nexus between the physical world and digital space is becoming increasingly stronger and more complex. A relatively recent development in the ever-deepening interrelationship between the two spheres is the use by businesses of a hybrid contractual model that combines printed agreements with terms and conditions (terms) posted online. For various reasons, including the desire to provide uniformity of contractual terms, reduce costs and eliminate waste, businesses are posting standard terms on their website and incorporating them by reference into printed contracts, rather than providing a separate paper copy of the terms and conditions. As these hybrid agreements become increasingly common, they are proving to be fertile ground for disputes. Some of the potential pitfalls inherent in the hybrid contractual model can be avoided by adhering to traditional, well-defined principles of contract law.

The trend is for courts to enforce the terms posted on a company’s website that are incorporated by reference into a written agreement. For example, in Pentecostal v. Streaming Faith, LLC, a Pennsylvania district court found that a church, which contracted with an internet technology service provider to stream the church’s services on the Internet, was constrained to prosecute its lawsuit in a particular state by a forum selection clause posted on the company’s website and incorporated by reference into the purchase order executed by both parties. Likewise, in Beacon v. Crowley Marine Services, the Fifth Circuit Court of Appeals held that a contractor, who was engaged by a barge owner to repair a barge, was obligated to indemnify the barge owner against the contractor’s negligence by the terms and conditions posted on the barge owner’s website and incorporated by reference into the repair service order that governed the scope of the contractor’s work.

Courts utilize traditional principles of contract law when considering enforceability of terms posted on a company’s website and incorporated by reference into written contracts,. Specifically, where a contract expressly refers to and incorporates another instrument in specific terms that show a clear intent to incorporate that instrument into the contract, both instruments are to construed together. Moreover, the primary consideration when determining the validity of contractual terms is whether the party to be bound has reasonable notice of the terms at issue and whether the party manifests assent to those terms. This is particularly true where the contractual terms involve indemnity to a party for damages caused by its own negligence. In such instances, the provisions granting indemnity must be specific and conspicuous.

Applying these general contract principles, the courts in Pentecostal and Beacon held that the online terms and conditions were intended to be incorporated into the written agreements and, further, that the references to the URL address, which identified where the terms were located, provided adequate notice of, and opportunity to review, them. In support of the holdings, the courts pointed to the fact that the language incorporating the online terms was prominently placed on the face of the written documents in all capital letters and that the written documents clearly referenced a particular document on the companies’ websites containing the terms and conditions. Additionally, the courts indicated that the websites were easily navigated, such that a reasonable person would have been able to find the terms and conditions. Once there, the court in Beacon found that the indemnity provision was sufficiently clear and conspicuous to be enforceable.

In evaluating whether to enforce terms and conditions that are incorporated by reference into an agreement, even when the terms and conditions are only available on a company’s website, thePentecostal and Beacon decisions demonstrate that courts must continue to look to traditional contractual principles, such as notice, assent and custom, as guideposts. In order to increase the likelihood that a party’s online terms and conditions are properly incorporated into a written construction contract, the following conventions should be adopted: (1) the inclusion of a party’s online terms and conditions should be noted in clear, specific, and conspicuous language, similar to that required to disclaim one’s own negligence; (2) the location of the terms and conditions should be clearly delineated, such that a reasonably literate Internet-user can find the information; and (3) the other party’s assent to be bound by the online terms and conditions should be manifested either in the written document or by electronically signing the webpage that contains the information.

 

Andrew Wallace is a partner at Gordon & Rees LLP and can be reached at awallace@gordonrees.com. Christopher Norcross is a law student at Texas Wesleyan School of Law and can be reached at csnorcross@yahoo.com.

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