Evaluation of Contract Law and The Forming of Online Contracts

Abstract

This paper discusses contract law and forming contracts on the Internet. It summarizes the basic tenets of forming a binding contract, as well as the appropriate method for achieving this on the web. The case Hines v. Overstock.com is also referenced, with an analysis of what Overstock.com could have done to avoid litigation.

It is common knowledge that binding contracts were usually signed by hand before the Internet. The rise of the Internet led to legislature such as the Uniform Electronic Transactions Act to be adopted by a majority of states, and the Electronic Signatures in Global and National Commerce Act federally, both essentially making electronic contracts just as enforceable as written ones (Craig, 2013, p. 71-72). As expected, making contract law apply to an entirely new medium (where both parties usually are not physically present) raised some new questions and issues. Even though the requirements of creating a binding contract stay the same, how would one do this effectively over the Internet? In the context of Hines v. Overstock.com, Overstock.com lost the case due to failing to sufficiently exercise the answer to the question. What Overstock.com could have done, in addition to a brief overview of contract law and what’s required on the Internet will be covered in the following sections of this paper.

There are 2 basic requirements in contract law to enter into a contract, whether it is formed online or not. According to Craig (2013), “The basic requirements for an agreement are mutual agreement and consideration” (p. 73). Craig continues to explain that both parties’ capacity to enter a contract and a legal purpose for the contract is needed, as well (p.73). Those requirements, although important, will not be discussed further as this paper focuses primarily on the mutual agreement requirement. That being said, the concept of mutual agreement by offering and accepting contracts electronically – especially when there is a large entity forming hundreds of thousands of binding contracts per day in the form of end users or customers – needs a way for this to be done efficiently. It could be argued that both large and small online retailers can’t offer and look over a specific contract every time a customer makes a purchase. According to Craig, this is addressed by using clickwrap agreements and browsewrap agreements to establish the mutual agreement in an electronic contract (p. 77). Summarizing Craig, clickwrap agreements are when a program or website prompts a user with a contract (often called an End User License Agreement or Terms of Use Agreement), and the user must purposely click a button that says “I Agree” to continue. This paper, however, is more concerned with browsewrap agreements, and will be discussed in the next section.

An alternative to clickwrap agreements, browsewrap agreements are also used to form mutual agreement between the website and user. According to Craig (2013), “With a browsewrap agreement, users do not need to “click” to accept the website terms. Instead, browsewraps indicate in some fashion that use of the site constitutes acceptance of its terms of service” (p. 78). This initially presented an issue to the courts, as at first glance, a website could seemingly hide away their terms of use. However, there is one primary consideration that the courts use when determining the validity of a browsewrap. According to Craig, the visitor needs to have either actual or constructive notice of the browsewraps’ terms prior to using it and entering into a contract (p. 78). Craig continues to explain that a browsewraps’ terms must give actual notice to users by prominently displaying it (p. 78).

The issue of browsewrap agreements was brought up in the case Hines v. Overstock. Craig elaborates that the Plaintiff in the case purchased an item from Overstock.com and subsequently returned it, and was charged a restocking fee (p. 78). Craig continues to explain that the Plaintiff sued, claiming a breach of contract in imposing the fee, and Overstock.com lost the case because the Plaintiff did not have actual notice of the terms and conditions of the sale. In my opinion, Overstock could have easily avoided this by prominently displaying the terms of the sale and return policy when the Plaintiff placed the order. That way, they would have had actual notice of the restocking fee if returned.

Conclusion

As usual, the Internet brings new rules and complications to a facet of law – this time, contract law. By using clickwrap and browsewrap agreement, websites can satisfy the mutual agreement requirement of forming a binding contract online. Attention needs to be paid to using browsewrap agreements correctly, however, as the user needs to have actual notice of the terms for it to be enforceable.