Practical Ecommerce

Website Terms and Conditions: Overstock.com Case Highlights Enforceability

Using terms and conditions on your website can be an effective way to protect your business from lawsuits, set shipping terms, and describe additional charges. Generally, website terms and conditions, or terms of use, state that users of the website are bound by such terms just by their use of the website without further action. However, this requires that the users be on notice that they are agreeing to the terms. Some courts require additional interaction by the user in order to bind the user to such terms and conditions.

Restocking Fee Fueled Lawsuit

In U.S. District Court, the Eastern District of New York was recently asked to look at the issue of whether website terms and conditions could be binding on a customer who purchased from Overstock.com, the online retailer. In Hines v. Overstock.com, the customer initiated a class action suit against Overstock.com because she was charged a $30 restocking fee for returning the items she had purchased from the website. The restocking fee was clearly set forth in the terms and conditions, which were available on the website. The terms and conditions also stated that “Entering this Site will constitute your acceptance of these terms and conditions.” In addition, the terms and conditions contained a “choice of law clause,” by which the parties agreed to be subject to arbitration in Utah.

The federal judge refused to dismiss the case. The judge determined that the case could proceed in New York because Overstock.com did not demonstrate that customers had notice of the terms and conditions, or that a reasonable user of the website would have had notice of the terms and conditions.

How to Make Website Terms and Conditions Binding

In order to be binding, a contract requires a “meeting of the minds” and “a manifestation of mutual assent.” The judge in the Overstock.com case determined that because of the following factors, the customer, or any other user of the website, would not be on notice of Overstock.com’s terms and conditions:

  • The link to the terms and conditions was at the bottom of the page “below the fold”;
  • The user was not required to scroll past the link to the terms and conditions in order to complete a transaction on the website; and
  • The user was not required to take any affirmative action to agree to the terms and conditions (i.e., a “browsewrap” agreement was used).

Overstock.com was unable to prove to the Court that its customers received actual or constructive notice. The Court concluded that a user of the website did not necessarily have to see the link to the terms and conditions in order to interact with the website or complete a transaction on the website. Therefore, none of its terms and conditions is binding on its customers, and its request to move the case to Utah was denied.

Checking a Box Creates Enforceability

Using terms and conditions on your website will give you protection if they are used properly. The Eastern District of New York recently decided in Scherillo v. Dun & Bradstreet, Inc. (February 2010) that the terms and conditions used on the Dun & Bradstreet website were binding on the user who checked a box agreeing to be bound by such terms even though he never actually read the terms. The Court stated that “A person who checks the box agreeing to the terms and conditions of a purchase on an internet site without scrolling down to read all of the terms and conditions is in the same position as a person who turns to the last page of a paper contract and signs it without reading the terms–namely, the clause is still valid.”

Using terms and conditions is key on websites because of the broad customer base. In both of these cases companies were trying to defend against lawsuits in other states. Overstock.com must fight its case in New York because it did not properly place its terms and conditions to give notice to customers. Mr. Scherillo was required to click a box to agree to Dun & Bradstreet’s terms. Therefore, he will lose his home state advantage in New York, and must sue in Dun & Bradstreet’s home state.

Summary

Requiring some affirmative action to agree to your terms and conditions is the best way to make sure your customers have proper notice of your website’s terms and conditions. By taking simple steps to give customers notice, you can avoid the costly the mistakes made in the Overstock.com case. This may also help you avoid getting sued for breach of contract and fraud based on your website’s terms.

Jeff Jacobson, Jd, Llm

Jeff Jacobson, Jd, Llm

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  1. Carlos Rivera May 20, 2010 Reply

    Great advice on a topic that deserves some serious attention. Thanks!

  2. Alex Mulin May 28, 2010 Reply

    IMO you do not have to show all the terms and conditions, but it is a "must have" to display the most important conditions to a customer in an obvious manner otherwise you can get tons of problems.