If you did read these terms, you often would find that some businesses that operate online attempt to reserve the right to change their online terms at any time, without giving any notice to the user of the site. For example, Yahoo! warns its users in the first paragraph of its Terms of Service that the terms “may be updated by us from time to time without notice to you.” Other sites and services warn that their terms have changed or are about to change, but simply direct users to the new terms without marking or explaining changes.
Traditional contract doctrine clearly forbids the unilateral modification of contracts and treats a proposed modification as an offer that is not binding until accepted. Although state contract law may vary, there generally are three requirements in traditional contract law for modifying contracts. First, the offeree must have proper notice of the proposed modification. It is axiomatic that no offer can be accepted unless the offeree knows that the offer has been made. In addition, the offeree must manifest assent to the proposed modification in some manner, either explicitly or implicitly. Last, in order for a modification to be enforceable, it must be supported by consideration, or, in the case of contracts governed by Article 2 of the Uniform Commercial Code, it must be entered into in good faith. See U.C.C. § 2-209 cmt. 2.
The notice inquiry tends to depend on the facts of a particular case. Cases involving the credit card and telecommunications industries provide helpful insight as to how courts evaluate modifications of standard form paper terms. For example, in one case where a bank attempted to modify credit card terms by adding an arbitration procedure where one was not already part of the contract terms, the court found that the offeree did not receive proper notice of the modification because the proposed change was printed on an insert with the monthly bill and nothing otherwise called the change to anyone’s attention. Badie v. Bank of America, 67 Cal. App. 4th 779 (Cal. Ct. App. 1998). Other companies have found out the hard way that simply providing a complete set of the proposed revised terms, without any indication as to which terms had been changed, was not sufficient notice. DIRECTV, Inc. v. Mattingly, 829 A.2d 626 (Md. 2003). On the other hand, a company that prominently announced modified terms with its monthly bill, and provided an Internet address and telephone number where the customer could access the revised terms, was found to have successfully put the customer on notice of the changed terms. Ozormoor v. T-Mobile USA, Inc., 2008 U.S. Dist. LEXIS 58725 (E.D. Mich. June 19, 2008).
The appearance and placement of the notice also is important. One company was unable to enforce a notice of a contract modification that was printed on its invoice where it was the fifth item on the second page of the invoice, in ordinary type. Manasher v. NECC Telecom, No. 06-10749,2007 U.S. Dist. LEXIS 68795 (E.D. Mich. Sept. 18, 2007). On the other hand, in Briceno v. Sprint Spectrum, L.P., 911 So. 2d 176 (Fla. Dist. Ct. App. 2005), Sprint’s notice was enforceable where it printed “Important Notice Regarding Your PCS Service From Sprint” in bold letters immediately below the amount due on the invoice. The notice also prominently discussed the changes in the contract terms and provided both a telephone number and a website where the revised terms could be found.
Courts also have looked at whether the modification has been accepted by the offeree. For example, in Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332 (D. Kan. 2000), the purchaser of a Gateway computer did not see Gateway’s standard terms (and was not provided notice about the terms) until the computer was shipped to the purchaser and she opened the box. Gateway’s standard terms contained a number of provisions, including an arbitration clause. When Gateway moved to dismiss a class action lawsuit in light of the Federal Arbitration Act, the court refused to enforce the arbitration clause. The court found that the plaintiff offered to purchase the computer and Gateway accepted. Gateway’s standard terms then became either an expression of acceptance or a confirmation of the offer under section 2-207 of the U.C.C. However, the court found that the rest of the provisions in Gateway’s standard terms, including the arbitration clause, were not part of the original purchase agreement and were not enforceable.
More recently, in Knutson v. Sirius XM Radio, 771 F.3d 559 (9th Cir. 2014), the terms regarding an automobile’s trial subscription to a satellite radio service were sent to the owner a month after the purchase of the automobile in an envelope marked “Welcome Kit.” The Ninth Circuit refused to enforce the additional terms because there was no mutual assent to the terms. The Ninth Circuit found no evidence that the purchaser of the automobile knew that he had purchased anything from Sirius or was entering into a relationship with Sirius, let alone had agreed to the terms (which contained an arbitration clause). Therefore, continued use of the service by the purchaser did not manifest assent to the terms.
How have these traditional contract ruled been applied online? The courts that have addressed online modifications generally have respected these traditional contract principles and have held that attempted modifications are unenforceable when the person to whom the modification is offered has no reason to know of the proposed changes to the agreement. As a result, online contract modifications tend to fall for failure to satisfy the notice requirement.
In evaluating notice, the courts that have addressed online contract modification have paid close attention to the differences between electronic and face-to-face or paper communications. This is a refreshing development, given that this is not always the case in opinions addressing online contract formation in the first instance. The opinion in Campbell v. General Dynamics, 407 F.3d 546 (1st Cir. 2005), a dispute involving an attempted modification of an employment handbook, provides an example of judicial awareness that electronic messages can get lost in the electronic shuffle. In Campbell, an employer attempted to modify an employment handbook by sending a mass company-wide e-mail message containing hyperlinks to the proposed changes to its employees. One of the proposed modifications was a binding arbitration clause. In holding that the modification was not effective, the court focused on the expectations of the employee receiving the modification offer. Given that the mass e-mail message did nothing to communicate its importance and that employment changes at General Dynamics were usually communicated in person by means of a signed writing, the court held that the attempted modification was not binding.