The Software IP Report
Online Terms and Conditions Are Usually Enforceable
By Charles Bieneman
Categories: Software Licenses, The Software IP Report
Many commercial transactions are governed by online terms and conditions provided by one party, to which another party may be bound even if provided only with a reference or link to the online terms and conditions. This truth is illustrated by the recent case of Tuscany S. Am. v. Pentagon Freight Sys., No. 4:12-CV-1309 (S.D. Tex. Sept. 24, 2014). In fact, an affirmative assent to or acceptance of terms and conditions is not even required.
Tuscany, the plaintiff, had contracted with Pentagon, the defendant, “to provide freight forwarding services for . . . cargo, including customs clearance in Brazil.” After the cargo was seized in Brazil, and some sold at auction (the rest was released), Tuscany sued for damages.
Pentagon argued that its damages were limited by a provision in “the Terms and Conditions of Service promulgated by the National Customs Brokers and Forwarders Association of America, Inc. [NCBFAA],” which the court referred to simply as “the Terms.”
Pentagon had sent Tuscany an email confirming the parties’ oral agreement. That email included “[a] sentence referring to the Terms . . . the signature block.” Further, numerous agreements before the agreement, and after the agreement but before the cargo was shipped, included the same reference to the Terms. Moreover, Tuscany executed a customs form referring to the Terms, and paid invoices that referred to the Terms. Nonetheless, Tuscany claimed that “it did not consider the references part of its contract with Pentagon.”
The court cited a Fifth Circuit case in which a URL to terms and conditions were prominently provided on a “Repair Service Order,” whereupon the Fifth Circuit upheld the terms and conditions, explaining that
under both general contract and admiralty law a contract will incorporate terms from another document by reference when (1) a particular document is described in such terms that its identity may be ascertained beyond doubt, (2) the parties had reasonable notice of the terms, and (3) the parties manifested assent to the terms.
Tuscany argued that it did not have reasonable notice of the Terms. The court agreed that it could not “rely on Pentagon’s hearsay statement that the Terms were available at all times on the NCBFAA website.” However, “reasonable notice” does not require “continuous or instant availability,” but instead requires notice to be “reasonable under the particular facts of this case.” The Terms were referred to in “a stream of email communications during negotiation of the contract,” and Tuscany could have easily contacted either the NCBFAA or Pentagon to obtain them. Further, Tuscany assented to the terms by “not objecting to the Terms in its response to the email confirming the agreement.”
In sum, the references to the terms were not hidden or “submerged,” but were “visible in every email.” Further, references to the Terms “were displayed directly below a similar notice explicitly warning of limitation of liability by carriers, which should alert a reasonable person in Tuscany’s position of the existence of terms which he or she ‘must read at his or her peril.’” Therefore, “[b]y replying to the emails, by not objecting, and by paying invoices attached to emails with references to the Terms, Tuscany manifested assent to the Terms.”