Out-Law News 4 min. read

Contracts cannot be changed online without notice, rules US appeals court

A company cannot change its contract with consumers simply by posting revised conditions on its website, a US appeals court has ruled. The position is similar in the UK, according to an e-commerce legal expert.

Advert: Pinsent Masons is recruiting. Find out more.A customer of Talk America has won a court ruling over a consumer contract which was amended online without his knowledge. The ruling clears the way for the customer to take a class action suit against Talk America.

Joe Douglas signed up for a long-distance telephone service with America Online. Talk America acquired the service from AOL and tried to change the terms of the contract by posting a message on its website. The changes introduced new charges, enforced New York law as the relevant law in relation to the contract, inserted an arbitration clause and inserted a class action suit waiver.

Douglas continued using Talk America's service for four years before he became aware of the additional charges. When he found out, he launched a class action lawsuit against Talk America. Talk America tried to compel an arbitration process based on the new contract and a district court ordered that arbitration begin.

Douglas appealed to the US Court of Appeals for the Ninth Circuit. It found that Talk America could not change the contract without telling Douglas.

The court said that a contract was an agreement between two parties, and that one party could not change it without further acceptance by the other.

"Even if Douglas had visited the website, he would have had no reason to look at the contract posted there," said the judgment, from Judges Kozinski, Gould and Callahan. "Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Indeed, a party can’t unilaterally change the terms of a contract; it must obtain the other party’s consent before doing so."

"This is because a revised contract is merely an offer and does not bind the parties until it is accepted," said the ruling.

The court pointed out that a party could not know when to check a website for possible changes to the contract terms without being notified that the contract has been changed and how. "Douglas would have had to check the contract every day for possible changes," observed the court in a footnote to its judgment. "Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed."

Talk America had argued that the notice amending the contract was on the same website on which Douglas paid his bills and that he therefore should have seen it. Douglas said, though, that he authorised his bills to be paid by credit card and so had no reason to visit the web site.

"Even if Douglas's continued use of Talk America's service could be considered assent," wrote the court, "such assent can only be inferred after he received proper notice of the proposed changes. Douglas claims that no such notice was given."

The Court of Appeals said that the court which granted the arbitration order had made a mistake. "The district court thus erred in holding that Douglas was bound by the terms of the revised contract when he was not notified of the changes," it said. "The error reflects fundamental misapplications of contract law and goes to the heart of petitioner’s claim."

The UK position

Jon Fell, a partner with Pinsent Masons, the law firm behind OUT-LAW.COM, said a UK court would likely come to the same conclusion when faced with these facts.

"I'm not at all surprised by the ruling," he said. "Unilateral changes to a contract, particularly a consumer contract, will always struggle to stand up in court."

"If an e-commerce site wants to change the terms of sale for returning customers, it's quite easy: you display a message on screen that tells customers, before they place an order, that the conditions have changed. You just have to make sure they accept the changes," he said.

Fell also warned against burying the changes in a long page of small print. "Summarise the key changes, to make life easy for the customer, and offer a link to the full terms," he said.

"It's impossible to evade this issue without running a big risk: whether you deal with businesses or consumers, if you want to make changes to a contract, you need the customer to accept them if you want to rely upon them," said Fell. "That acceptance usually can be implied by continued use of your services, but you have to bring the changes to the attention of the consumer."

Fell pointed out that credit card companies typically change their terms by sending a letter with full details and a summary of changes. "These letters often go straight into your bin, but the notification is what counts. Your continued use of the card implies your acceptance and you have a genuine opportunity to cancel if you want to."

He added that the mechanism for notifying any future changes to a contract should be addressed in the contract itself. Again, this must be fair to the customer and should offer an opportunity to cancel.

Last year, UK regulator Ofcom asked UK Online to modify its terms of service. These included a right for the broadband provider to modify its contract at any time by emailing changes to consumers. Ofcom noted that this did not give consumers a right to terminate if the changes were to their disadvantage. The wording was amended to provide that if a consumer reasonably considers he has been disadvantaged by a change, he can cancel.

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