Lucy v. Zehmer

Supreme Court of Appeals of Virginia  

196 Va. 493 (1954)

BUCHANAN, J., delivered the opinion of the court.

This suit was instituted by W. O. Lucy and J. C. Lucy, complainants, against A. H. Zehmer and Ida S. Zehmer, his wife, defendants, to have specific performance of a contract by which it was alleged the Zehmers had sold to W. O. Lucy a tract of land owned by A. H. Zehmer in Dinwiddie county containing 471.6 acres, more or less, known as the Ferguson farm, for $50,000. J. C. Lucy, the other complainant, is a brother of W. O. Lucy, to whom W. O. Lucy transferred a half interest in his alleged purchase.

The instrument sought to be enforced was written by A. H. Zehmer on December 20, 1952, in these words: ‘We hereby agree to sell to W. O. Lucy the Ferguson Farm complete for $50,000.00, title satisfactory to buyer,’ and signed by the defendants, A. H. Zehmer and Ida S. Zehmer.

The answer of A. H. Zehmer admitted that at the time mentioned W. O. Lucy offered him $50,000 cash for the farm, but that he, Zehmer, considered that the offer was made in jest; that so thinking, and both he and Lucy having had several drinks, he wrote out ‘the memorandum’ quoted above and induced his wife to sign it; that he did not deliver the memorandum to Lucy, but that Lucy picked it up, read it, put it in his pocket, attempted to offer Zehmer $5 to bind the bargain, which Zehmer refused to accept, and realizing for the first time that Lucy was serious, Zehmer assured him that he had no intention of selling the farm and that the whole matter was a joke. Lucy left the premises insisting that he had purchased the farm.

Depositions were taken and the decree appealed from was entered holding that the complainants had failed to establish their right to specific performance, and dismissing their bill. The assignment of error is to this action of the court.

Lucy, a lumberman and farmer, thus testified in substance: He had known Zehmer for fifteen or twenty years and had been familiar with the Ferguson farm for ten years. Seven or eight years ago he had offered Zehmer $20,000 for the farm which Zehmer had accepted, but the agreement was verbal and Zehmer backed out. On the night of December 20, 1952, around eight o’clock, he took an employee to McKenney, where Zehmer lived and operated a restaurant, filling station and motor court. While there he decided to see Zehmer and again try to buy the Ferguson farm. He entered the restaurant and talked to Mrs. Zehmer until Zehmer came in. He asked Zehmer if he had sold the Ferguson farm. Zehmer replied that he had not. Lucy said, ‘I bet you wouldn't take $50,000.00 for that place.’ Zehmer replied, ‘Yes, I would too; you wouldn't give fifty.’ Lucy said he would and told Zehmer to write up an agreement to that effect. Zehmer took a restaurant check and wrote on the back of it, ‘I do hereby agree to sell to W. O. Lucy the Ferguson Farm for $50,000 complete.’ Lucy told him he had better change it to ‘We’ because Mrs. Zehmer would have to sign it too. Zehmer then tore up what he had written, wrote the agreement quoted above and asked Mrs. Zehmer, who was at the other end of the counter ten or twelve feet away, to sign it. Mrs. Zehmer said she would for $50,000 and signed it. Zehmer brought it back and gave it to Lucy, who offered him $5 which Zehmer refused, saying, ‘You don't need to give me any money, you got the agreement there signed by both of us.’

The discussion leading to the signing of the agreement, said Lucy, lasted thirty or forty minutes, during which Zehmer seemed to doubt that Lucy could raise $50,000. Lucy suggested the provision for having the title examined and Zehmer made the suggestion that he would sell it ‘complete, everything there,’ and stated that all he had on the farm was three heifers.

Lucy took a partly filled bottle of whiskey into the restaurant with him for the purpose of giving Zehmer a drink if he wanted it. Zehmer did, and he and Lucy had one or two drinks together. Lucy said that while he felt the drinks he took he was not intoxicated, and from the way Zehmer handled the transaction he did not think he was either.

December 20 was on Saturday. Next day Lucy telephoned to J. C. Lucy and arranged with the latter to take a half interest in the purchase and pay half of the consideration. On Monday he engaged an attorney to examine the title. The attorney reported favorably on December 31 and on January 2 Lucy wrote Zehmer stating that the title was satisfactory, that he was ready to pay the purchase price in cash and asking when Zehmer would be ready to close the deal. Zehmer replied by letter, mailed on January 13, asserting that he had never agreed or intended to sell.

Mr. and Mrs. Zehmer were called by the complainants as adverse witnesses. Zehmer testified in substance as follows:

He bought this farm more than ten years ago for $11,000. He had had twenty-five offers, more or less, to buy it, including several from Lucy, who had never offered any specific sum of money. He had given them all the same answer, that he was not interested in selling it. On this Saturday night before Christmas it looked like everybody and his brother came by there to have a drink. He took a good many drinks during the afternoon and had a pint of his own. When he entered the restaurant around eight-thirty Lucy was there and he could see that he was ‘pretty high.’ He said to Lucy, ‘Boy, you got some good liquor, drinking, ain’t you?‘ Lucy then offered him a drink. ‘I was already high as a Georgia pine, and didn’t have any more better sense than to pour another great big slug out and gulp it down, and he took one too.’

After they had talked a while Lucy asked whether he still had the Ferguson farm. He replied that he had not sold it and Lucy said, ‘I bet you wouldn’t take $50,000.00 for it.’ Zehmer asked him if he would give $50,000 and Lucy said yes. Zehmer replied, ‘You haven’t got $50,000 in cash.’ Lucy said he did and Zehmer replied that he did not believe it. They argued ‘pro and con for a long time,’ mainly about ‘whether he had $50,000 in cash that he could put up right then and buy that farm.’

Finally, said Zehmer, Lucy told him if he didn’t believe he had $50,000, ‘you sign that piece of paper here and say you will take $50,000.00 for the farm.’ He, Zehmer, ‘just grabbed the back off of a guest check there’ and wrote on the back of it. At that point in his testimony Zehmer asked to see what he had written to ‘see if I recognize my own handwriting.’ He examined the paper and exclaimed, ‘Great balls of fire, I got ‘Firgerson’ for Ferguson. I have got satisfactory spelled wrong. I don’t recognize that writing if I would see it, wouldn’t know it was mine.’

After Zehmer had, as he described it, ‘scribbled this thing off,’ Lucy said, ‘Get your wife to sign it.’ Zehmer walked over to where she was and she at first refused to sign but did so after he told her that he ‘was just needling him [Lucy], and didn’t mean a thing in the world, that I was not selling the farm.’ Zehmer then ‘took it back over there * * * and I was still looking at the dern thing. I had the drink right there by my hand, and I reached over to get a drink, and he said, ‘Let me see it.’ He reached and picked it up, and when I looked back again he had it in his pocket and he dropped a five dollar bill over there, and he said, ‘Here is five dollars payment on it. * * * I said, ‘Hell no, that is beer and liquor talking. I am not going to sell you the farm. I have told you that too many times before.’

Mrs. Zehmer testified that when Lucy came into the restaurant he looked as if he had had a drink. When Zehmer came in he took a drink out of a bottle that Lucy handed him. She went back to help the waitress who was getting things ready for next day. Lucy and Zehmer were talking but she did not pay too much attention to what they were saying. She heard Lucy ask Zehmer if he had sold the Ferguson farm, and Zehmer replied that he had not and did not want to sell it. Lucy said, ‘I bet you wouldn't take $50,000 cash for that farm,’ and Zehmer replied, ‘You haven’t got $50,000 cash.‘ Lucy said, ‘I can get it.’ Zehmer said he might form a company and get it, ‘but you haven’t got $50,000.00 cash to pay me tonight.’ Lucy asked him if he would put it in writing that he would sell him this farm. Zehmer then wrote on the back of a pad, ‘I agree to sell the Ferguson Place to W. O. Lucy for $50,000.00 cash.’ Lucy said, ‘All right, get your wife to sign it.’ Zehmer came back to where she was standing and said, ‘You want to put your name to this?’ She said ‘No,’ but he said in an undertone, ‘It is nothing but a joke,’ and she signed it.

She said that only one paper was written and it said: ‘I hereby agree to sell,’ but the ‘I’ had been changed to ‘We.’ However, she said she read what she signed and was then asked, ‘When you read ‘We hereby agree to sell to W. O. Lucy,’ what did you interpret that to mean, that particular phrase?’ She said she thought that was a cash sale that night; but she also said that when she read that part about ‘title satisfactory to buyer’ she understood that if the title was good Lucy would pay $50,000 but if the title was bad he would have a right to reject it, and that that was her understanding at the time she signed her name.

On examination by her own counsel she said that her husband laid this piece of paper down after it was signed; that Lucy said to let him see it, took it, folded it and put it in his wallet, then said to Zehmer, ‘Let me give you $5.00,’ but Zehmer said, ‘No, this is liquor talking. I don't want to sell the farm, I have told you that I want my son to have it. This is all a joke.’ Lucy then said at least twice, ‘Zehmer, you have sold your farm,’ wheeled around and started for the door. He paused at the door and said, ‘I will bring you $50,000.00 tomorrow. * * * No, tomorrow is Sunday. I will bring it to you Monday.’ She said you could tell definitely that he was drinking and she said to her husband, ‘You should have taken him home,’ but he said, ‘Well, I am just about as bad off as he is.’

The waitress referred to by Mrs. Zehmer testified that when Lucy first came in ‘he was mouthy.’ When Zehmer came in they were laughing and joking and she thought they took a drink or two. She was sweeping and cleaning up for next day. She said she heard Lucy tell Zehmer, ‘I will give you so much for the farm,’ and Zehmer said, ‘You haven’t got that much.’ Lucy answered, ‘Oh, yes, I will give you that much.’ Then ‘they jotted down something on paper * * * and Mr. Lucy reached over and took it, said let me see it.’ He looked at it, put it in his pocket and in about a minute he left. She was asked whether she saw Lucy offer Zehmer any money and replied, ‘He had five dollars laying up there, they didn’t take it.’ She said Zehmer told Lucy he didn't want his money ‘because he didn't have enough money to pay for his property, and wasn’t going to sell his farm.’ Both of them appeared to be drinking right much, she said.

She repeated on cross-examination that she was busy and paying no attention to what was going on. She was some distance away and did not see either of them sign the paper. She was asked whether she saw Zehmer put the agreement down on the table in front of Lucy, and her answer was this: ‘Time he got through writing whatever it was on the paper, Mr. Lucy reached over and said, ‘Let’s see it.’ He took it and put it in his pocket,’ before showing it to Mrs. Zehmer. Her version was that Lucy kept raising his offer until it got to $50,000.

The defendants insist that the evidence was ample to support their contention that the writing sought to be enforced was prepared as a bluff or dare to force Lucy to admit that he did not have $50,000; that the whole matter was a joke; that the writing was not delivered to Lucy and no binding contract was ever made between the parties.

It is an unusual, if not bizarre, defense. When made to the writing admittedly prepared by one of the defendants and signed by both, clear evidence is required to sustain it.

In his testimony Zehmer claimed that he ‘was high as a Georgia pine,’  and that the transaction ‘was just a bunch of two doggoned drunks bluffing to see who could talk the biggest and say the most.’ That claim is inconsistent with his attempt to testify in great detail as to what was said and what was done. It is contradicted by other evidence as to the condition of both parties, and rendered of no weight by the testimony of his wife that when Lucy left the restaurant she suggested that Zehmer drive him home. The record is convincing that Zehmer was not intoxicated to the extent of being unable to comprehend the nature and consequences of the instrument he executed, and hence that instrument is not to be invalidated on that ground. … It was in fact conceded by defendants’ counsel in oral argument that under the evidence Zehmer was not too drunk to make a valid contract.

The evidence is convincing also that Zehmer wrote two agreements, the first one beginning ‘I hereby agree to sell.’ Zehmer first said he could not remember about that, then that ‘I don't think I wrote but one out.’ Mrs. Zehmer said that what he wrote was ‘I hereby agree,’ but that the ‘I’ was changed to ‘We’ after that night. The agreement that was written and signed is in the record and indicates no such change. Neither are the mistakes in spelling that Zehmer sought to point out readily apparent.

The appearance of the contract, the fact that it was under discussion for forty minutes or more before it was signed; Lucy’s objection to the first draft because it was written in the singular, and he wanted Mrs. Zehmer to sign it also; the rewriting to meet that objection and the signing by Mrs. Zehmer; the discussion of what was to be included in the sale, the provision for the examination of the title, the completeness of the instrument that was executed, the taking possession of it by Lucy with no request or suggestion by either of the defendants that he give it back, are facts which furnish persuasive evidence that the execution of the contract was a serious business transaction rather than a casual, jesting matter as defendants now contend.

On Sunday, the day after the instrument was signed on Saturday night, there was a social gathering in a home in the town of McKenney at which there were general comments that the sale had been made. Mrs. Zehmer testified that on that occasion as she passed by a group of people, including Lucy, who were talking about the transaction, $50,000 was mentioned, whereupon she stepped up and said, ‘Well, with the high-price whiskey you were drinking last night you should have paid more. That was cheap.’ Lucy testified that at that time Zehmer told him that he did not want to ‘stick’ him or hold him to the agreement because he, Lucy, was too tight and didn't know what he was doing, to which Lucy replied that he was not too tight; that he had been stuck before and was going through with it. Zehmer’s version was that he said to Lucy: ‘I am not trying to claim it wasn't a deal on account of the fact the price was too low. If I had wanted to sell $50,000.00 would be a good price, in fact I think you would get stuck at $50,000.00.’ A disinterested witness testified that what Zehmer said to Lucy was that ‘he was going to let him up off the deal, because he thought he was too tight, didn’t know what he was doing. Lucy said something to the effect that ‘I have been stuck before and I will go through with it.’

If it be assumed, contrary to what we think the evidence shows, that Zehmer was jesting about selling his farm to Lucy and that the transaction was intended by him to be a joke, nevertheless the evidence shows that Lucy did not so understand it but considered it to be a serious business transaction and the contract to be binding on the Zehmers as well as on himself. The very next day he arranged with his brother to put up half the money and take a half interest in the land. The day after that he employed an attorney to examine the title. The next night, Tuesday, he was back at Zehmer’s place and there Zehmer told him for the first time, Lucy said, that he wasn’t going to sell and he told Zehmer, ‘You know you sold that place fair and square.’ After receiving the report from his attorney that the title was good he wrote to Zehmer that he was ready to close the deal.

Not only did Lucy actually believe, but the evidence shows he was warranted in believing, that the contract represented a serious business transaction and a good faith sale and purchase of the farm.

In the field of contracts, as generally elsewhere, ‘We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. ‘The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.’’ First Nat. Bank v. Roanoke Oil Co., 169 Va. 99, 114. 

At no time prior to the execution of the contract had Zehmer indicated to Lucy by word or act that he was not in earnest about selling the farm. They had argued about it and discussed its terms, as Zehmer admitted, for a long time. Lucy testified that if there was any jesting it was about paying $50,000 that night. The contract and the evidence show that he was not expected to pay the money that night. Zehmer said that after the writing was signed he laid it down on the counter in front of Lucy. Lucy said Zehmer handed it to him. In any event there had been what appeared to be a good faith offer and a good faith acceptance, followed by the execution and apparent delivery of a written contract. Both said that Lucy put the writing in his pocket and then offered Zehmer $5 to seal the bargain. Not until then, even under the defendants’ evidence, was anything said or done to indicate that the matter was a joke. Both of the Zehmers testified that when Zehmer asked his wife to sign he whispered that it was a joke so Lucy wouldn’t hear and that it was not intended that he should hear.

The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.

“* * * The law, therefore, judges of an agreement between two persons exclusively from those expressions of their intentions which are communicated between them. * * *.” Clark on Contracts, 4 ed., § 3, p. 4.

An agreement or mutual assent is of course essential to a valid contract but the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind.

So a person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement.

Whether the writing signed by the defendants and now sought to be enforced by the complainants was the result of a serious offer by Lucy and a serious acceptance by the defendants, or was a serious offer by Lucy and an acceptance in secret jest by the defendants, in either event it constituted a binding contract of sale between the parties.

Defendants contend further, however, that even though a contract was made, equity should decline to enforce it under the circumstances. These circumstances have been set forth in detail above. They disclose some drinking by the two parties but not to an extent that they were unable to understand fully what they were doing. There was no fraud, no misrepresentation, no sharp practice and no dealing between unequal parties. The farm had been bought for $11,000 and was assessed for taxation at $6,300. The purchase price was $50,000. Zehmer admitted that it was a good price. There is in fact present in this case none of the grounds usually urged against specific performance.

* * *

The complainants are entitled to have specific performance of the contracts sued on. The decree appealed from is therefore reversed and the cause is remanded for the entry of a proper decree requiring the defendants to perform the contract in accordance with the prayer of the bill.

Problem

Thomas Embry worked for Hargadine Dry Goods as a manager of the sales team. He had a written employment contract with the company that expired on December 15, 2024. He alleges that multiple times before December 2024, he had attempted to speak with his supervisor regarding renewal of his contract. On December 20, he finally found his supervisor in the office and said that if his contract with Hargadine was not renewed for an additional year, he would need to resign immediately so that he could look for a new position. Embry indicated that he had been trying to reach his supervisor for quite some time, and he needed the issue resolved so he would not worry. The supervisor asked him how things were going, and Embry said that they were very busy, given the holiday season. The supervisor responded by saying: “Go ahead, you’re all right. Get your men out, and don’t let that worry you.” Embry took the supervisor at his word and continued working through the holiday season and into the new year. On February 15, however,  he was told that his employment would be terminated on March 1.

Embry sued for breach of contract, alleging that the employment agreement had been renewed for an additional year. Hargadine Dry Goods asserted that there was no agreement between the parties after the written contract expired. Assume that the jury finds that the conversation on December 20 occurred as described by Embry. If you represented Embry, what arguments would you make that there was an agreement between the parties? What if you represented the defendant? How should the court rule?

Based on Embry v. Hargadine, McKittrick Dry Goods Co., 127 Mo.App. 383 (Mo. Ct. App. 1907)

Lonergan v. Skolnik

129 Cal.App.2d 179 (1954)

BARNARD, Presiding Justice.

This is an action for specific performance or for damages in the event specific performance was impossible.

The complaint alleged that on April 15, 1952, the parties entered into a contract whereby the defendant agreed to sell, and plaintiff agreed to buy a 40-acre tract of land for $2,500; that this was a fair, just and reasonable value of the property; that on April 28, 1952, the defendant repudiated the contract and refused to deliver a deed; that on April 28, 1952, the property was worth $6,081; and that plaintiff has been damaged in the amount of $3,581. The answer denied that any contract had been entered into, or that anything was due to the plaintiff.

* * *

The stipulated facts are as follows: During March, 1952, the defendant placed an ad in a Los Angeles paper reading, so far as material here, “Joshua Tree vic. 40 acres, … need cash, will sacrifice.” In response to an inquiry resulting from this ad the defendant, who lived in New York, wrote a letter to the plaintiff dated March 26, briefly describing the property, giving directions as to how to get there, stating that his rock-bottom price was $2,500 cash, and further stating that “This is a form letter.” On April 7, the plaintiff wrote a letter to the defendant saying that he was not sure he had found the property, asking for its legal description, asking whether the land was all level or whether it included certain jutting rock hills, and suggesting a certain bank as escrow agent “should I desire to purchase the land.” On April 8, the defendant wrote to the plaintiff saying “From your description you have found the property;” that this bank “is O.K. for escrow agent;” that the land was fairly level; giving the legal description; and then saying, “If you are really interested, you will have to decide fast, as I expect to have a buyer in the next week or so.” On April 12, the defendant sold the property to a third party for $2,500. The plaintiff received defendant’s letter of April 8 on April 14. On April 15 he wrote to the defendant thanking him for his letter “confirming that I was on the right land,” stating that he would immediately proceed to have the escrow opened and would deposit $2,500 therein “in conformity with your offer,” and asking the defendant to forward a deed with his instructions to the escrow agent. On April 17, 1952, the plaintiff started an escrow and placed in the hands of the escrow agent $100, agreeing to furnish an additional $2,400 at an unspecified time… It was further stipulated that the plaintiff was ready and willing at all times to deposit the $2,400.

The matter was submitted on June 11, 1953. On July 10, 1953, the judge filed a memorandum opinion stating that it was his opinion that the letter of April 8, 1952, when considered with the previous correspondence, constituted an offer of sale which offer was, however, qualified and conditioned upon prompt acceptance by the plaintiff; that in spite of the condition thus imposed, the plaintiff delayed more than a week before notifying the defendant of his acceptance; and that since the plaintiff was aware of the necessity of promptly communicating his acceptance to the defendant his delay was not the prompt action required by the terms of the offer. Findings of fact were filed on October 2, 1953, finding that each and all of the statements in the agreed statement are true, and that all allegations to the contrary in the complaint are untrue. As conclusions of law, it was found that the plaintiff and defendant did not enter into a contract as alleged in the complaint or otherwise, and that the defendant is entitled to judgment against the plaintiff. Judgment was entered accordingly, from which the plaintiff has appealed.

The appellant contends that the judgment is contrary to the evidence and to the law since the facts, as found, do not support the conclusions of law upon which the judgment is based. It is argued that there is no conflict in the evidence, and this court is not bound by the trial court’s construction of the written instruments involved; that the evidence conclusively shows that an offer was made to the plaintiff by the defendant, which offer was accepted by the mailing of plaintiff’s letter of April 15; that upon receipt of defendant’s letter of April 8 the plaintiff had a reasonable time within which to accept the offer that had been made; that by his letter of April 15 and his starting of an escrow the plaintiff accepted said offer; and that the agreed statement of facts establishes that a valid contract was entered into between the parties. In his briefs the appellant assumes that an offer was made by the defendant, and confined his argument to contending that the evidence shows that he accepted that offer within a reasonable time.

There can be no contract unless the minds of the parties have met and mutually agreed upon some specific thing. This is usually evidenced by one party making an offer which is accepted by the other party. Section 25 of the Restatement of the Law on Contracts reads:

“If from a promise, or manifestation of intention, or from the circumstances existing at the time, the person to whom the promise or manifestation is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further expression of assent, he has not made an offer.”

* * * The correspondence here indicates an intention on the part of the defendant to find out whether the plaintiff was interested, rather than an intention to make a definite offer to the plaintiff. The language used by the defendant in his letters of March 26 and April 8 rather clearly discloses that they were not intended as an expression of fixed purpose to make a definite offer, and was sufficient to advise the plaintiff that some further expression of assent on the part of the defendant was necessary.

The advertisement in the paper was a mere request for an offer. The letter of March 26 contains no definite offer, and clearly states that it is a form letter. It merely gives further particulars, in clarification of the advertisement, and tells the plaintiff how to locate the property if he was interested in looking into the matter. The letter of April 8 added nothing in the way of a definite offer. It merely answered some questions asked by the plaintiff, and stated that if the plaintiff was really interested he would have to act fast. The statement that he expected to have a buyer in the next week or so indicated that the defendant intended to sell to the first-comer, and was reserving the right to do so. From this statement, alone, the plaintiff knew or should have known that he was not being given time in which to accept an offer that was being made, but that some further assent on the part of the defendant was required. Under the language used the plaintiff was not being given a right to act within a reasonable time after receiving the letter; he was plainly told that the defendant intended to sell to another, if possible, and warned that he would have to act fast if he was interested in buying the land.

Regardless of any opinion previously expressed, the court found that no contract had been entered into between these parties, and we are in accord with the court’s conclusion on that controlling issue. The court’s construction of the letters involved was a reasonable one, and we think the most reasonable one, even if it be assumed that another construction was possible.

The judgment is affirmed.

Kearney v. Equilon

65 F.Supp.3d 1033 (D. Or. 2014)

HERNÁNDEZ, District Judge:

Plaintiffs bring a proposed class action with a nationwide breach of contract claim, and substantially similar state subclass claims based on state unlawful trade practice statutes. * * *

BACKGROUND

At the heart of Plaintiffs’ claims is an advertisement allegedly displayed by Defendant at Shell-brand service stations. Plaintiffs allege the advertisement looked like this:

This advertisement was part of Defendant’s “Ski Free” promotion. Under this promotion, after individuals purchased ten gallons of fuel and requested a voucher for a free lift ticket, they received a voucher with their purchase receipt. This voucher could not be exchanged directly for a free lift ticket, but rather was a “two for one” coupon that allowed the individual to obtain a free lift ticket only after purchasing a lift ticket at full price at a participating ski resort. Moreover, the voucher contained various other restrictions.

Plaintiffs assert that Defendant’s advertisement created a contract, the terms of which entitled Plaintiffs to a free ski resort lift ticket in exchange for buying ten gallons of gas at a participating Shell station. Plaintiffs argue Defendant breached the terms of the contract…when Defendant failed to provide a voucher that could be directly exchanged for a free lift ticket at a participating resort, but instead provided a “two for one” voucher that required the purchase of a second lift ticket in order to receive a “free” lift ticket.

* * * 

DISCUSSION

* * *

Defendant moves to dismiss the ... breach of contract claim for failure to state a claim. ... 

1. Breach of Contract

Defendant contends that any offer proposed by the “Ski Free” advertisement lacks specificity, and since “[a] contract requires a clear and unequivocal acceptance of a certain and definite offer” the advertisement cannot constitute an offer. Defendant argues that without necessary details—and the specificity these details would convey—there can be no offer, no acceptance, and no meeting of the minds, all of which are necessary for a contract to exist.

Overall, “[t]he general rule is that an advertisement does not constitute an offer.” Leonard v. Pepsico. This is because “advertisements are understood to be mere requests to consider and examine and negotiate; and no one can reasonably regard them as otherwise unless the circumstances are exceptional and the words used are very plain and clear.” Leonard. Additionally, advertisements do not generally constitute offers due to the incompleteness of terms. Restatement (Second) of Contracts § 33 cmt. c.

However, there are exceptions to this general rule. For instance, if an advertisement is “clear, definite, and explicit, and leaves nothing open for negotiation,” then the advertisement “constitutes an offer, acceptance of which will complete the contract.” Lefkowitz, [251 Minn. 188 (1957)]. Additionally, there is another exception to the general rule for “an offer of a reward.”

A. Sateriale v. R.J. Reynolds Tobacco Co.

The Ninth Circuit recently addressed when an advertisement may constitute an offer in Sateriale, 697 F.3d 777 (2012). Sateriale concerned a customer rewards program operated by R.J. Reynolds Tobacco Company that encouraged the purchase of Camel cigarettes by providing “C–Notes” along with the cigarettes. These “C–Notes” could later be redeemed for merchandise after participants enrolled in the customer rewards program and redeemed their certificates for goods featured in a catalog. After customers had been amassing “C–Notes” for years, R.J. Reynolds announced that it was ending the customer rewards program, and that participants had approximately six months to redeem their “C–Notes” before the program’s termination. However, when the plaintiffs attempted to redeem their “C–Notes” before the termination of the rewards program, R.J. Reynolds did not allow them to do so. ...

On appeal, the Sateriale court found that “[t]he determination of whether a particular communication constitutes an operative offer, rather than an inoperative step in the preliminary negotiation of a contract, depends upon all the surrounding circumstances.” Sateriale, 697 F.3d at 784 (internal quotation marks omitted). Furthermore, the court explained that “the pertinent inquiry is whether the individual to whom the communication was made had reason to believe that it was intended as an offer.”

* * *

The court was careful to note that it reached this conclusion, “in light of the totality of the circumstances surrounding [the defendant’s] communication to consumers.” The court noted “the repeated use of the word ‘offer’ in the C–Notes; the absence of any language disclaiming the intent to be bound; the inclusion of specific restrictions in the C–Notes; the formal enrollment process ...; and the substantial reliance expected from consumers.” Further, the court emphasized that “[t]he plaintiffs’ substantial reliance distinguishes this case from cases involving garden-variety advertisements ... as a member of the public is unlikely to undertake substantial reliance in the absence of a binding commitment from the offeror—i.e., on the mere chance that the offeror will perform.” Id. at 788 n. 3. 

B. Whether the “Ski Free” Advertisement is an Offer in a Unilateral Contract Capable of Acceptance Through Performance

Again, the common law’s general rule is that “[a]dvertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell.” Sateriale, 697 F.3d at 785. However, there is “an exception for offers of a reward, including offers of a reward for the redemption of coupons.” This is because the common law rule “arose to address a specific problem—the potential for over-acceptance.” The ultimate question is—based on “the totality of the circumstances” surrounding the advertisement—“whether the advertiser, in clear and positive terms, promised to render performance in exchange for something requested by the advertiser, and whether the recipient of the advertisement reasonably might have concluded that by acting in accordance with the request a contract would be formed.”

* * *

Construing the alleged facts in the light most favorable to Plaintiffs, the only advertisement the consumer saw was the sign stating, “buy 10 gallons of fuel, get a voucher for a free lift ticket!” Based on this allegation, Defendant, in clear and positive terms, promised to render performance in exchange for the purchase of ten gallons of fuel. Namely, if one purchases ten gallons of fuel at a Shell Station participating in the “Ski Free” promotion, then the purchaser is rewarded with a voucher for a free lift ticket. Additionally, Plaintiff, as the recipient of the advertisement, “reasonably might have concluded that by acting in accordance with the request a contract would be formed.” Sateriale, 697 F.3d at 787. The clear offer in the advertisement established a unilateral contract, and Plaintiffs accepted the offer through performance by purchasing ten gallons of fuel at a Shell station participating in the “Ski Free” promotion.

I emphasize the fact that my ruling is based on the allegations contained in the Amended Complaint. “Whether the plaintiffs’ allegations are true has not been decided,” but to deny Plaintiffs’ claim at this stage of the pleadings would be premature. Such a fact-based determination is more appropriately made at the summary judgment stage. Therefore, Defendant’s motion to dismiss for failure to state a claim with regard to the national class breach of contract claim, based on the premise that the advertisement cannot constitute an offer, is denied.

Lefkowitz v. Great Minneapolis Surplus Store, 251 Minn. 188 (1957), involved ads published by the defendant on two consecutive Saturdays in a Minneapolis newspaper:

The first one read as follows:

“Saturday 9 A.M. Sharp 3 Brand New Fur Coats Worth to $100.00

First Come First Served $1 Each”

The second stated:

“Saturday 9 A.M. 2 Brand New Pastel Mink 3-Skin Scarfs Selling for $89.50

Out they go Saturday. Each ... $1.00

1 Black Lapin Stole Beautiful, worth $139.50 ... $1.00

First Come First Served”

According to the court, “on each of the Saturdays following the publication of the above-described ads the plaintiff was the first to present himself at the appropriate counter in the defendant’s store and on each occasion demanded the coat and the stole so advertised and indicated his readiness to pay the sale price of $1. On both occasions, the defendant refused to sell the merchandise to the plaintiff, stating on the first occasion that by a “house rule” the offer was intended for women only and sales would not be made to men, and on the second visit that plaintiff knew defendant’s house rules.”

The court went on to say:

On the facts before us we are concerned with whether the advertisement constituted an offer, and, if so, whether the plaintiff’s conduct constituted an acceptance.

The authorities above cited emphasize that, where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.

Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances. We are of the view on the facts before us that the offer by the defendant of the sale of the Lapin fur was clear, definite, and explicit, and left nothing open for negotiation. The plaintiff having successfully managed to be the first one to appear at the seller’s place of business to be served, as requested by the advertisement, and having offered the stated purchase price of the article, he was entitled to performance on the part of the defendant.

Dickinson v. Dodds

2 Ch. Div. 463 (1874)

On Wednesday, the 10th of June, 1874, the Defendant John Dodds signed and delivered to the Plaintiff, George Dickinson, a memorandum, of which the material part was as follows:—

I hereby agree to sell to Mr. George Dickinson the whole of the dwelling-houses, garden ground, stabling, and outbuildings thereto belonging, situate at Croft, belonging to me, for the sum of £800. As witness my hand this tenth day of June, 1874.

£800. (Signed) John Dodds.

P.S.—This offer to be left over until Friday, 9 o’clock, A.M. J. D. (the twelfth), 12th June, 1874.

(Signed) J. Dodds.

The bill alleged that Dodds understood and intended that the Plaintiff should have until Friday 9 a.m. within which to determine whether he would or would not purchase, and that he should absolutely have until that time the refusal of the property at the price of £800, and that the Plaintiff in fact determined to accept the offer on the morning of Thursday, the 11th of June, but did not at once signify his acceptance to Dodds, believing that he had the power to accept it until 9 A.M. on the Friday.

In the afternoon of the Thursday the Plaintiff was informed by a Mr. Berry that Dodds had been offering or agreeing to sell the property to Thomas Allan, the other Defendant. Thereupon the Plaintiff, at about half-past seven in the evening, went to the house of Mrs. Burgess, the mother-in-law of Dodds, where he was then staying, and left with her a formal acceptance in writing of the offer to sell the property. According to the evidence of Mrs. Burgess this document never in fact reached Dodds, she having forgotten to give it to him.

On the following (Friday) morning, at about seven o’clock, Berry, who was acting as agent for Dickinson, found Dodds at the Darlington railway station, and handed to him a duplicate of the acceptance by Dickinson, and explained to Dodds its purport. He replied that it was too late, as he had sold the property. A few minutes later Dickinson himself found Dodds entering a railway carriage, and handed him another duplicate of the notice of acceptance, but Dodds declined to receive it, saying, “You are too late. I have sold the property.”

It appeared that on the day before, Thursday, the 11th of June, Dodds had signed a formal contract for the sale of the property to the Defendant Allan for £800, and had received from him a deposit of £40.

The bill in this suit prayed that the Defendant Dodds might be decreed specifically to perform the contract of the 10th of June, 1874; …

* * *

JAMES, L. J., …

The document, though beginning “I hereby agree to sell,” was nothing but an offer, and was only intended to be an offer, for the Plaintiff himself tells us that he required time to consider whether he would enter into an agreement or not. Unless both parties had then agreed there was no concluded agreement then made; it was in effect and substance only an offer to sell. The Plaintiff, being minded not to complete the bargain at that time, added this memorandum – “This offer to be left over until Friday, 9 o’clock A.M., 12th June, 1874.” That shows it was only an offer. There was no consideration given for the undertaking or promise, to whatever extent it may be considered binding, to keep the property unsold until 9 o’clock on Friday morning; but apparently Dickinson was of opinion, and probably Dodds was of the same opinion, that he (Dodds) was bound by that promise, and could not in any way withdraw from it, or retract it, until 9 o’clock on Friday morning, and this probably explains a good deal of what afterwards took place. But it is clear settled law, on one of the clearest principles of law, that this promise, being a mere nudum pactum, was not binding, and that at any moment before a complete acceptance by Dickinson of the offer, Dodds was as free as Dickinson himself. Well, that being the state of things, it is said that the only mode in which Dodds could assert that freedom was by actually and distinctly saying to Dickinson, “Now I withdraw my offer.” It appears to me that there is neither principle nor authority for the proposition that there must be an express and actual withdrawal of the offer, or what is called a [retraction]. It must, to constitute a contract, appear that the two minds were at one, at the same moment of time, that is, that there was an offer continuing up to the time of the acceptance. If there was not such a continuing offer, then the acceptance comes to nothing. Of course it may well be that the one man is bound in some way or other to let the other man know that his mind with regard to the offer has been changed; but in this case, beyond all question, the Plaintiff knew that Dodds was no longer minded to sell the property to him as plainly and clearly as if Dodds had told him in so many words, “I withdraw the offer.” This is evident from the Plaintiff’s own statements in the bill.

The Plaintiff says in effect that, having heard and knowing that Dodds was no longer minded to sell to him, and that he was selling or had sold to some one else, thinking that he could not in point of law withdraw his offer, meaning to fix him to it, and endeavouring to bind him, “I went to the house where he was lodging, and saw his mother-in-law, and left with her an acceptance of the offer, knowing all the while that he had entirely changed his mind. I got an agent to watch for him at 7 o’clock the next morning, and I went to the train just before 9 o’clock, in order that I might catch him and give him my notice of acceptance just before 9 o’clock, and when that occurred he told my agent, and he told me, you are too late, and he then threw back the paper.” It is to my mind quite clear that before there was any attempt at acceptance by the Plaintiff, he was perfectly well aware that Dodds had changed his mind, and that he had in fact agreed to sell the property to Allan. It is impossible, therefore, to say there was ever that existence of the same mind between the two parties which is essential in point of law to the making of an agreement. I am of opinion, therefore, that the Plaintiff has failed to prove that there was any binding contract between Dodds and himself.

MELLISH, L.J.:

I am of the same opinion. The first question is, whether this document of the 10th of June, 1874, which was signed by Dodds, was an agreement to sell, or only an offer to sell, the property therein mentioned to Dickinson; and I am clearly of opinion that it was only an offer, although it is in the first part of it, independently of the postscript, worded as an agreement. I apprehend that, until acceptance, so that both parties are bound, even though an instrument is so worded as to express that both parties agree, it is in point of law only an offer, and, until both parties are bound, neither party is bound. … But, if there be no agreement, either verbally or in writing, then, until acceptance, it is in point of law an offer only, although worded as if it were an agreement. But it is hardly necessary to resort to that doctrine in the present case, because the postscript calls it an offer, and says, “This offer to be left over until Friday, 9 o’clock A.M.” Well, then, this being only an offer, the law says – and it is a perfectly clear rule of law – that, although it is said that the offer is to be left open until Friday morning at 9 o’clock, that did not bind Dodds. He was not in point of law bound to hold the offer over until 9 o’clock on Friday morning. ... 

Then Dickinson is informed by Berry that the property has been sold by Dodds to Allan. Berry does not tell us from whom he heard it, but he says that he did hear it, that he knew it, and that he informed Dickinson of it. Now, stopping there, the question which arises is this—If an offer has been made for the sale of property, and before that offer is accepted, the person who has made the offer enters into a binding agreement to sell the property to somebody else, and the person to whom the offer was first made receives notice in some way that the property has been sold to another person, can he after that make a binding contract by the acceptance of the offer? I am of opinion that he cannot. The law may be right or wrong in saying that a person who has given to another a certain time within which to accept an offer is not bound by his promise to give that time; but, if he is not bound by that promise, and may still sell the property to someone else, and if it be the law that, in order to make a contract, the two minds must be in agreement at some one time, that is, at the time of the acceptance, how is it possible that when the person to whom the offer has been made knows that the person who has made the offer has sold the property to someone else, and that, in fact, he has not remained in the same mind to sell it to him, he can be at liberty to accept the offer and thereby make a binding contract? It seems to me that would be simply absurd. … If the rule of law is that a mere offer to sell property, which can be withdrawn at any time, and which is made dependent on the acceptance of the person to whom it is made, is a mere nudum pactum, how is it possible that the person to whom the offer has been made can by acceptance make a binding contract after he knows that the person who has made the offer has sold the property to someone else? … I am clearly of opinion that … once the person to whom the offer was made knows that the property has been sold to someone else, it is too late for him to accept the offer, and on that ground I am clearly of opinion that there was no binding contract for the sale of this property by Dodds to Dickinson, and even if there had been, it seems to me that the sale of the property to Allan was first in point of time. However, it is not necessary to consider, if there had been two binding contracts, which of them would be entitled to priority in equity, because there is no binding contract between Dodds and Dickinson.

Minnesota Linseed Oil v. Collier

4 Dill. 431 (Circuit Court, D. Minn. 1876)

* * *

The plaintiff seeks to recover the sum of $2,151.50, with interest from September 20, 1875—a balance claimed to be due for oil sold to the defendant. The defendant, in its answer, alleges that on August 3d, 1875, a contract was entered into between the parties, whereby the plaintiff agreed to sell and deliver to the defendant, at the city of St. Louis, during the said month of August, twelve thousand four hundred and fifty (12,450) gallons of linseed oil for the price of fifty-eight (58) cents per gallon, and that the plaintiff has neglected and refused to deliver the oil according to the contract; that the market value of oil after August 3d and during the month was not less than seventy (70) cents per gallon, and therefore claims a set-off or counter-claim to plaintiff’s cause of action. The reply of the plaintiff denies that any contract was entered into between it and defendant.

The plaintiff resided at Minneapolis, Minnesota, and the defendant was the resident agent of the plaintiff, at St. Louis, Missouri. The contract is alleged to have been made by telegraph.

The plaintiff sent the following dispatch to the defendant: “Minneapolis, July 29, 1875. To Alex. Easton, Secretary Collier White Lead Company, St. Louis, Missouri: Account of sales not enclosed in yours of 27th. Please wire us best offer for round lot named by you—one hundred barrels shipped. Minnesota Linseed Oil Company.”

The following answer was received: “St. Louis, Mo., July 30, 1875. To the Minnesota Linseed Oil Company: Three hundred barrels fifty-five cents here, thirty days, no commission, August delivery. Answer. Collier Company.”

The following reply was returned: “Minneapolis, July 31, 1875. Will accept fifty-eight cents (58c), on terms named in your telegram. Minnesota Linseed Oil Company.”

This dispatch was transmitted Saturday, July 31, 1875, at 9:15 p. m., and was not delivered to the defendant in St. Louis, until Monday morning, August 2, between eight and nine o’clock.

On Tuesday, August 3, at 8:53 a. m., the following dispatch was deposited for transmission in the telegraph office: “St. Louis, Mo., August 3, 1875. To Minnesota Linseed Oil Company, Minneapolis: Offer accepted—ship three hundred barrels as soon as possible. Collier Company.”

The following telegrams passed between the parties after the last one was deposited in the office at St. Louis: “Minneapolis, August 3, 1875. To Collier Company, St. Louis: We must withdraw our offer wired July 31st. Minnesota Linseed Oil Company.”

Answered: “St. Louis, August 3, 1875. Minnesota Linseed Oil Company: Sale effected before your request to withdraw was received. When will you ship? Collier Company.”

It appeared that the market was very much unsettled, and that the price of oil was subject to sudden fluctuations during the month previous and at the time of this negotiation, varying from day to day, and ranging between fifty-five and seventy-five cents per gallon. It is urged by the defendant that the dispatch of Tuesday, August 3d, 1875, accepting the offer of the plaintiff transmitted July 31st, and delivered Monday morning, August 2d, concluded a contract for the sale of the twelve thousand four hundred and fifty gallons of oil. The plaintiff, on the contrary, claims, 1st, that the dispatch accepting the proposition made July 31st, was not received until after the offer had been withdrawn; 2d, that the acceptance of the offer was not in due time; that the delay was unreasonable, and therefore no contract was completed.

Opinion

NELSON, District Judge.

* * *

[T]here remains only one question to decide, which will determine the issues: Was the acceptance of defendant deposited in the telegraph office Tuesday, August 3d, within a reasonable time, so as to consummate a contract binding upon the plaintiff?

It is undoubtedly the rule that when a proposition is made under the circumstances in this case, an acceptance concludes the contract if the offer is still open, and the mutual consent necessary to convert the offer of one party into a binding contract by the acceptance of the other is established, if such acceptance is within a reasonable time after the offer was received.

The better opinion is, that what is, or is not, a reasonable time, must depend upon the circumstances attending the negotiation, and the character of the subject matter of the contract, and in no better way can the intention of the parties be determined. If the negotiation is in respect to an article stable in price, there is not so much reason for an immediate acceptance of the offer, and the same rule would not apply as in a case where the negotiation related to an article subject to sudden and great fluctuations in the market.

The rule in regard to the length of the time an offer shall continue, and when an acceptance completes the contract, is laid down in Parsons on Contracts. He says: “It may be said that whether the offer be made for a time certain or not, the intention or understanding of the parties is to govern. … If no definite time is stated, then the inquiry as to a reasonable time resolves itself into an inquiry as to what time it is rational to suppose the parties contemplated; and the law will decide this to be that time which as rational men they ought to have understood each other to have had in mind.” Applying this rule, it seems clear that the intention of the plaintiff, in making the offer by telegraph, to sell an article which fluctuates so much in price, must have been upon the understanding that the acceptance, if at all, should be immediate, and as soon after the receipt of the offer as would give a fair opportunity for consideration. The delay here was too long, and manifestly unjust to the plaintiff, for it afforded the defendant an opportunity to take advantage of a change in the market, and accept or refuse the offer as would best subserve its interests.

Judgment will be entered in favor of the plaintiff for the amount claimed.

Restatement (Second) of Contracts § 36: Methods of Termination of the Power of Acceptance

(1) An offeree’s power of acceptance may be terminated by

       (a) rejection or counter-offer by the offeree, or

       (b) lapse of time, or

       (c) revocation by the offeror, or

       (d) death or incapacity of the offeror or offeree.

...

Uniform Commercial Code § 2-102. Scope

Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

* * *

Uniform Commercial Code § 2-105. Definitions: Transferability; “Goods”; “Future” Goods; “Lot”; “Commercial Unit”.

(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Sectiomn 2-107).

(2) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.

* * *

OFFICIAL COMMENT

Subsection (1) on “goods”: The phraseology of the prior uniform statutory provision has been changed so that:

The definition of goods is based on the concept of movability and the term “chattels personal” is not used. It is not intended to deal with things which are not fairly identifiable as movables before the contract is performed.

Growing crops are included within the definition of goods since they are frequently intended for sale. The concept of “industrial” growing crops has been abandoned, for under modern practices fruit, perennial hay, nursery stock and the like must be brought within the scope of this Article. The young of animals are also included expressly in this definition since they, too, are frequently intended for sale and may be contracted for before birth. The period of gestation of domestic animals is such that the provisions of the section on identification can apply as in the case of crops to be planted. The reason of this definition also leads to the inclusion of a wool crop or the like as “goods” subject to identification under this Article.

* * *

Uniform Commercial Code § 2-204. Formation in General.

Hendricks v. Behee

786 S.W.2d 610 (Missouri Ct. App. 1990)

FLANIGAN, Presiding Judge.

Plaintiff Steve L. Hendricks instituted this interpleader action against defendants Eugene Behee, Artice Smith, and Pearl Smith. Plaintiff was the escrowee of $5,000 which had been paid by defendant Behee as a deposit accompanying Behee’s offer to purchase real estate owned by defendants Artice Smith and Pearl Smith, husband and wife, in Stockton, Missouri. A dispute between Behee and the Smiths as to whether their dealings resulted in a binding contract prompted the interpleader action. Behee filed a crossclaim against the Smiths.

* * *

In essence the Smiths contend that the dealings between them and Behee ripened into a contract and entitled the Smiths to the balance of $4,002.50, and that the trial court erred in ruling otherwise.

After Behee, as prospective buyer, and the Smiths, as prospective sellers, had engaged in unproductive negotiations, Behee, on March 2, 1987, made a written offer of $42,500 for the real estate and $250 for a dinner bell and flower pots. On March 3 that offer was mailed to the Smiths, who lived in Mississippi, by their real estate agent. There were two real estate agents involved. The trial court found that both were the agents of the Smiths, and that finding has not been disputed by the Smiths in this appeal. For simplicity, the two agents will be considered in this opinion as one agent who acted on behalf of the Smiths.

On March 4 the Smiths signed the proposed agreement in Mississippi. Before Behee was notified that the Smiths had accepted the offer, Behee withdrew the offer by notifying the real estate agent of the withdrawal. That paramount fact is conceded by this statement in the Smiths’ brief: “On either March 5, 6 or 7, 1987, Behee contacted [the Smiths’ real estate agent] and advised her that he desired to withdraw his offer to purchase the real estate. Prior to this communication, Behee had received no notice that his offer had been accepted by the Smiths.”

There is no contract until acceptance of an offer is communicated to the offeror.

An uncommunicated intention to accept an offer is not an acceptance. When an offer calls for a promise, as distinguished from an act, on the part of the offeree, notice of acceptance is always essential. A mere private act of the offeree does not constitute an acceptance. Communication of acceptance of a contract to an agent of the offeree is not sufficient and does not bind the offeror.

Unless the offer is supported by consideration an offeror may withdraw his offer at any time “before acceptance and communication of that fact to him.” Sokol v. Hill.  To be effective, revocation of an offer must be communicated to the offeree before he has accepted.

Notice to the agent, within the scope of the agent’s authority, is notice to the principal, and the agent’s knowledge is binding on the principal.

Before Behee was notified that the Smiths had accepted his offer, Behee notified the agent of the Smiths that Behee was withdrawing the offer. The notice to the agent, being within the scope of her authority, was binding upon the Smiths. Behee’s offer was not supported by consideration and his withdrawal of it was proper. …

La Salle National Bank v. Vega

167 Ill.App.3d 154 (1988)

Presiding Justice LINDBERG delivered the opinion of the court:

Plaintiff, La Salle National Bank, as trustee, …appeals from two … orders of the circuit court …

Plaintiff’s first amended complaint alleged the existence of a contract for the sale of real estate between it and Mel [Vega] and sought specific performance of the alleged contract and damages from defendants for willfully and intentionally breaching it. Borg was permitted to intervene and filed a counterclaim naming plaintiff and defendants as counterdefendants. As finally amended, the counterclaim sought specific performance of a different contract for sale of the same real estate to Borg; …

* * *

In its verified first amended complaint, plaintiff alleged, inter alia:

“The Defendant, MEL VEGA, on March 12, 1985, in his own behalf and in behalf of all the owners of record, entered into a Real Estate Sale Contract (herein ‘Contract’) with the Plaintiff, a true and correct copy of said Contract is attached hereto and incorporated herein as Exhibit A.”

Exhibit A is a document, drafted by counsel for plaintiff, entitled “Real Estate Sale Contract.” On the first page of this document appears the date March 12, 1985, and the statement that “Attached Rider is part of this Contract.” One of the Rider’s provisions states:

“This contract has been executed and presented by an authorized agent for the purchaser, the beneficiaries of the La Salle National Bank, under Trust No. 109529, as Trustee aforesaid for the benefit of the Trust only and not personally. Upon execution of this contract by the Seller, this contract shall be presented to the trust for full execution. Upon the trust’s execution, this contract will then be in full force and a copy of a fully executed contract along with evidence of the earnest money deposit will be delivered back to Seller.”

The document was signed by Bernard Ruekberg as the purchaser’s purchasing agent and by Mel Vega (on March 19, 1985, according to the date by his signature on the Rider) as the seller but not by the trustee for the purchaser.

James Clark, an assistant vice-president in plaintiff trustee’s land trust department, gave a deposition. Clark testified that there was no copy of the March 1985 contract in the relevant land trust file. Moreover, the real estate record kept by the department, which was intended to be a complete record of every document executed by the trustee (except for check endorsements), did not contain any notation of the presentation to, or the execution by, the trustee of the March 1985 contract. The trust in question was one for the Alter Group, and Clark estimated that there were 125 open trust files for the Alter Group at that time. It was conceivable that the March 1985 document had been executed and misfiled. However, counsel for plaintiff had never requested that Clark search other trust files for an executed copy of the document and had never suggested that a contract was missing from the file. On Borg’s counsel’s request, Clark had searched the trust department for any missing document and was unable to locate any missing contract.

  * * *

The parties’ statements of the issues are not very informative. It suffices here to note that they make arguments concerning whether there was a genuine issue as to a material fact in essentially two respects: (1) whether a contract between plaintiff and Mel was ever formed and (2) whether, if a contract was formed, it was nonetheless unenforceable. We believe that the trial court correctly held that there was no genuine issue as to any material fact that no contract was ever formed between plaintiff and Mel. …

* * *

Whether a contract was formed without execution of the document by the trust may now be considered. …

The pertinent provision of the document stated:

“This contract has been executed and presented by an authorized agent for the purchaser, the beneficiaries of the La Salle National Bank, under Trust No. 109529, as Trustee aforesaid for the benefit of the Trust only and not personally. Upon execution of this contract by the Seller, this contract shall be presented to the trust for full execution. Upon the trust’s execution, this contract will then be in full force and a copy of a fully executed contract along with evidence of the earnest money deposit will be delivered back to Seller.”

Thus, a specific order of events was contemplated, after which the contract would be in full force. Ruekberg (the purchasing agent) was to execute the document and present it to Mel (the seller). Then Mel was to execute it. After Mel executed it, the document was to be presented to the trust for execution. Finally, “upon the trust’s execution,” the contract would be in full force.

An offer is an act on the part of one person giving another person the legal power of creating the obligation called a contract. Where “the so-called offer is not intended to give the so-called offeree the power to make a contract there is no offer.” From the provisions contained in the document at bar, particularly the language quoted, it is apparent that there was to be no contract (i.e., the “contract” was not to be in full force) until it was executed by the trust. Thus, Ruekberg’s presentation of the document he had executed to Mel was not an offer because it did not give Mel the power to make a contract by accepting it. On the other hand, when Mel executed the document and gave it back to Ruekberg he made an offer which could be accepted by execution of the document by the trust.

An offeror has complete control over an offer and may condition acceptance to the terms of the offer. The language of an offer may moreover govern the mode of acceptance required, and, where an offer requires a written acceptance, no other mode may be used. In the case at bar, the document at issue stated clearly that the contract would be in full force upon the trust’s execution. This indicates that the only mode by which Mel’s offer could be accepted was execution of the document by the trust. The trust not having executed the document, there was no acceptance of the offer, and so there was no contract.

* * *

The judgment of the circuit court of Du Page County is accordingly affirmed.

Ever-Tite Roofing v. Green

83 So.2d 449 (1955)

AYRES, Judge.

This is an action for damages allegedly sustained by plaintiff as the result of the breach by the defendants of a written contract for the re-roofing of defendants’ residence. Defendants denied that their written proposal or offer was ever accepted by plaintiff in the manner stipulated therein for its acceptance, and hence contended no contract was ever entered into. The trial court sustained defendants’ defense and rejected plaintiff’s demands and dismissed its suit at its costs. From the judgment thus rendered and signed, plaintiff appealed.

Defendants executed and signed an instrument June 10, 1953, for the purpose of obtaining the services of plaintiff in re-roofing their residence situated in Webster Parish, Louisiana. The document set out in detail the work to be done and the price therefor to be paid in monthly installments. This instrument was likewise signed by plaintiff’s sale representative, who, however, was without authority to accept the contract for and on behalf of the plaintiff. This alleged contract contained these provisions:

“This agreement shall become binding only upon written acceptance hereof, by the principal or authorized officer of the Contractor, or upon commencing performance of the work. This contract is Not Subject to Cancellation. It is understood and agreed that this contract is payable at office of Ever-Tite Roofing Corporation, 5203 Telephone, Houston, Texas. It is understood and agreed that this Contract provides for attorney’s fees and in no case less than ten per cent attorney’s fees in the event same is placed in the hands of an attorney for collecting or collected through any court, and further provides for accelerated maturity for failure to pay any installment of principal or interest thereon when due.” (Emphasis supplied.)

Inasmuch as this work was to be performed entirely on credit, it was necessary for plaintiff to obtain credit reports and approval from the lending institution which was to finance said contract. With this procedure defendants were more or less familiar and knew their credit rating would have to be checked and a report made. On receipt of the proposed contract in plaintiff’s office on the day following its execution, plaintiff requested a credit report, which was made after investigation and which was received in due course and submitted by plaintiff to the lending agency. Additional information was requested by this institution, which was likewise in due course transmitted to the institution, which then gave its approval.

The day immediately following this approval, which was either June 18 or 19, 1953, plaintiff engaged its workmen and two trucks, loaded the trucks with the necessary roofing materials and proceeded from Shreveport to defendants’ residence for the purpose of doing the work and performing the services allegedly contracted for the defendants. Upon their arrival at defendants’ residence, the workmen found others in the performance of the work which plaintiff had contracted to do. Defendants notified plaintiff’s workmen that the work had been contracted to other parties two days before and forbade them to do the work.

Formal acceptance of the contract was not made under the signature and approval of an agent of plaintiff. It was, however, the intention of plaintiff to accept the contract by commencing the work, which was one of the ways provided for in the instrument for its acceptance, as will be shown by reference to the extract from the contract quoted hereinabove. Prior to this time, however, defendants had determined on a course of abrogating the agreement and engaged other workmen without notice thereof to plaintiff.

The basis of the judgment appealed was that defendants had timely notified plaintiff before “commencing performance of work.” The trial court held that notice to plaintiff’s workmen upon their arrival with the materials that defendants did not desire them to commence the actual work was sufficient and timely to signify their intention to withdraw from the contract. With this conclusion we find ourselves unable to agree.

Defendants’ attempt to justify their delay in thus notifying plaintiff for the reason they did not know where or how to contact plaintiff is without merit. The contract itself, a copy of which was left with them, conspicuously displayed plaintiff’s name, address and telephone number. Be that as it may, defendants at no time, from June 10, 1953, until plaintiff’s workmen arrived for the purpose of commencing the work, notified or attempted to notify plaintiff of their intention to abrogate, terminate or cancel the contract.

Defendants evidently knew this work was to be processed through plaintiff’s Shreveport office. The record discloses no unreasonable delay on plaintiff’s part in receiving, processing or accepting the contract or in commencing the work contracted to be done. No time limit was specified in the contract within which it was to be accepted or within which the work was to be begun. It was nevertheless understood between the parties that some delay would ensue before the acceptance of the contract and the commencement of the work, due to the necessity of compliance with the requirements relative to financing the job through a lending agency. The evidence as referred to hereinabove shows that plaintiff proceeded with due diligence.

The general rule of law is that an offer proposed may be withdrawn before its acceptance and that no obligation is incurred thereby. This is, however, not without exceptions. For instance, Restatement of the Law of Contracts stated:

“(1) The power to create a contract by acceptance of an offer terminates at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.

“What is a reasonable time is a question of fact depending on the nature of the contract proposed, the usages of business and other circumstances of the case which the offeree at the time of his acceptance either knows or has reason to know.”

* * *

Therefore, since the contract did not specify the time within which it was to be accepted or within which the work was to have been commenced, a reasonable time must be allowed therefor in accordance with the facts and circumstances and the evident intention of the parties. A reasonable time is contemplated where no time is expressed. What is a reasonable time depends more or less upon the circumstances surrounding each particular case. The delays to process defendants’ application were not unusual. The contract was accepted by plaintiff by the commencement of the performance of the work contracted to be done. This commencement began with the loading of the trucks with the necessary materials in Shreveport and transporting such materials and the workmen to defendants’ residence. Actual commencement or performance of the work therefore began before any notice of dissent by defendants was given plaintiff. The proposition and its acceptance thus became a completed contract.

By their aforesaid acts defendants breached the contract. They employed others to do the work contracted to be done by plaintiff and forbade plaintiff’s workmen to engage upon that undertaking. By this breach defendants are legally bound to respond to plaintiff in damages. …

Plaintiff expended the sum of $85.37 in loading the trucks in Shreveport with materials and in transporting them to the site of defendants’ residence in Webster Parish and in unloading them on their return, and for wages for the workmen for the time consumed. Plaintiff’s Shreveport manager testified that the expected profit on this job was $226. None of this evidence is controverted or contradicted in any manner. …

Reversed and rendered.

Adams v. Lindsell

Kings Bench, 106 ER 250 (1818)

Action for non-delivery of wool according to agreement. At the trial at the last Lent Assizes for the county of Worcester, before Burrough J. it appeared that the defendants, who were dealers in wool, at St. Ives, in the county of Huntingdon, had, on Tuesday the 2d of September 1817, written the following letter to the plaintiffs, who were woollen manufacturers residing in Bromsgrove, Worcestershire: “We now offer you eight hundred tods of wether fleeces, of a good fair quality of our country wool, at 35s. 6d. per tod, to be delivered at Leicester, and to be paid for by two months’ bill in two months, and to be weighed up by your agent within fourteen days, receiving your answer in course of post.”

This letter was misdirected by the defendants, to Bromsgrove, Leicestershire, in consequence of which it was not received by the plaintiffs in Worcestershire till 7 p.m. on Friday, September 5^th. On that evening the plaintiffs wrote an answer, agreeing to accept the wool on the terms proposed. The course of the post between St. Ives and Bromsgrove is through London, and consequently this answer was not received by the defendants till Tuesday, September 9^th. On the Monday September 8^th, the defendants not having, as they expected, received an answer on Sunday September 7^th, (which in case their letter had not been misdirected, would have been in the usual course of the post,) sold the wool in question to another person. Under these circumstances, the learned Judge held, that the delay having been occasioned by the neglect of the defendants, the jury must take it, that the answer did come back in due course of post; and that then the defendants were liable for the loss that had been sustained: and the plaintiffs accordingly recovered a verdict.

[The defendants argue that] [t]ill the plaintiffs’ answer was actually received, there could be no binding contract between the parties; and before then, the defendants had retracted their offer, by selling the wool to other persons.

But the Court said, that if that were so, no contract could ever be completed by the post. For if the defendants were not bound by their offer when accepted by the plaintiffs till the answer was received, then the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their answer and assented to it. And so it might go on ad infinitum. The defendants must be considered in law as making, during every instant of the time their letter was travelling, the same identical offer to the plaintiffs; and then the contract is completed by the acceptance of it by the latter. Then as to the delay in notifying the acceptance, that arises entirely from the mistake of the defendants, and it therefore must be taken as against them, that the plaintiffs’ answer was received in course of post.

Review problems:

Suppose that on January 15 Lark sends a letter to Maureen, offering Maureen $20 per day to housesit and dog sit for her for a week over spring break. Due to the government shut-down, mail delivery is delayed and Maureen does not receive the letter until January 22. Maureen immediately responds, sending a letter accepting Lark’s offer on January 23. In the meantime, Lark has found another house and dog sitter. When Lark receives Maureen’s acceptance on January 25, she calls her to say that the job is no longer available.

1. Is there a contract between Lark and Maureen?

2. If so, when did it form?

3. Would your answers change if Lark and Maureen had been communicating by email (and Lark’s offer had been caught in Maureen’s spam filter for several days)?

4. If Lark had wanted to avoid problems like this, how should she have drafted her original letter/email to Maureen?

5. What if, on January 20, Lark had called Maureen and told her that she (Lark) had found someone else to take care of the house and the dog?

6. What if Maureen had waited until January 30 to respond to Lark’s letter?

Carlill v. Carbolic Smoke Ball Co.

1 QB 256 (1893)

Lindley, L.J.: [The Lord Justice stated the facts, and proceeded:—] …

The first observation I will make is that we are not dealing with any inference of fact. We are dealing with an express promise to pay 100£ in certain events. Read the advertisement how you will, and twist it about as you will, here is a distinct promise expressed in language which is perfectly unmistakable — “100£ reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball.”

We must first consider whether this was intended to be a promise at all, or whether it was a mere puff which meant nothing. Was it a mere puff? My answer to that question is No, and I base my answer upon this passage: “1000£ is deposited with the Alliance Bank, shewing our sincerity in the matter.” Now, for what was that money deposited or that statement made except to negative the suggestion that this was a mere puff and meant nothing at all? The deposit is called in aid by the advertiser as proof of his sincerity in the matter — that is, the sincerity of his promise to pay this 100£ in the event which he has specified. I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise, as plain as words can make it.

Then it is contended that it is not binding. In the first place, it is said that it is not made with anybody in particular. Now that point is common to the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay 100£ to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer. …

But then it is said, “Supposing that the performance of the conditions is an acceptance of the offer, that acceptance ought to have been notified.” Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified. But is that so in cases of this kind? I apprehend that they are an exception to that rule, or, if not an exception, they are open to the observation that the notification of the acceptance need not precede the performance. This offer is a continuing offer. It was never revoked, and if notice of acceptance is required … the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that in principle is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance.

We, therefore, find here all the elements which are necessary to form a binding contract enforceable in point of law, subject to two observations. First of all it is said that this advertisement is so vague that you cannot really construe it as a promise — that the vagueness of the language shews that a legal promise was never intended or contemplated. The language is vague and uncertain in some respects, and particularly in this, that the 100£ is to be paid to any person who contracts the increasing epidemic after having used the balls three times daily for two weeks. It is said, When are they to be used? According to the language of the advertisement no time is fixed, and, construing the offer most strongly against the person who has made it, one might infer that any time was meant. I do not think that was meant, and to hold the contrary would be pushing too far the doctrine of taking language most strongly against the person using it. I do not think that business people or reasonable people would understand the words as meaning that if you took a smoke ball and used it three times daily for two weeks you were to be guaranteed against influenza for the rest of your life, and I think it would be pushing the language of the advertisement too far to construe it as meaning that. But if it does not mean that, what does it mean? It is for the defendants to shew what it does mean; and it strikes me that there are two, and possibly three, reasonable constructions to be put on this advertisement, any one of which will answer the purpose of the plaintiff. Possibly it may be limited to persons catching the “increasing epidemic” (that is, the then prevailing epidemic), or any colds or diseases caused by taking cold, during the prevalence of the increasing epidemic. That is one suggestion; but it does not commend itself to me. Another suggested meaning is that you are warranted free from catching this epidemic, or colds or other diseases caused by taking cold, whilst you are using this remedy after using it for two weeks. If that is the meaning, the plaintiff is right, for she used the remedy for two weeks and went on using it till she got the epidemic. Another meaning, and the one which I rather prefer, is that the reward is offered to any person who contracts the epidemic or other disease within a reasonable time after having used the smoke ball. Then it is asked, What is a reasonable time? It has been suggested that there is no standard of reasonableness; that it depends upon the reasonable time for a germ to develop! I do not feel pressed by that. It strikes me that a reasonable time may be ascertained in a business sense and in a sense satisfactory to a lawyer, in this way; find out from a chemist what the ingredients are; find out from a skilled physician how long the effect of such ingredients on the system could be reasonably expected to endure so as to protect a person from an epidemic or cold, and in that way you will get a standard to be laid before a jury, or a judge without a jury, by which they might exercise their judgment as to what a reasonable time would be. It strikes me, I confess, that the true construction of this advertisement is that 100£ will be paid to anybody who uses this smoke ball three times daily for two weeks according to the printed directions, and who gets the influenza or cold or other diseases caused by taking cold within a reasonable time after so using it; and if that is the true construction, it is enough for the plaintiff.

* * *

It appears to me, therefore, that the defendants must perform their promise, and, if they have been so unwary as to expose themselves to a great many actions, so much the worse for them.

BOWEN, L.J. I am of the same opinion. We were asked to say that this document was a contract too vague to be enforced.

*

* * *

It seems to me that in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it? It was intended unquestionably to have some effect, and I think the effect which it was intended to have, was to make people use the smoke ball, because the suggestions and allegations which it contains are directed immediately to the use of the smoke ball as distinct from the purchase of it. It did not follow that the smoke ball was to be purchased from the defendants directly, or even from agents of theirs directly. The intention was that the circulation of the smoke ball should be promoted, and that the use of it should be increased. The advertisement begins by saying that a reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic after using the ball. It has been said that the words do not apply only to persons who contract the epidemic after the publication of the advertisement, but include persons who had previously contracted the influenza. I cannot so read the advertisement. It is written in colloquial and popular language, and I think that it is equivalent to this: “100£ will be paid to any person who shall contract the increasing epidemic after having used the carbolic smoke ball three times daily for two weeks.” And it seems to me that the way in which the public would read it would be this, that if anybody, after the advertisement was published, used three times daily for two weeks the carbolic smoke ball, and then caught cold, he would be entitled to the reward. Then again it was said: “How long is this protection to endure? Is it to go on for ever, or for what limit of time?” I think that there are two constructions of this document, each of which is good sense, and each of which seems to me to satisfy the exigencies of the present action. It may mean that the protection is warranted to last during the epidemic, and it was during the epidemic that the plaintiff contracted the disease. I think, more probably, it means that the smoke ball will be a protection while it is in use. That seems to me the way in which an ordinary person would understand an advertisement about medicine, and about a specific against influenza. It could not be supposed that after you have left off using it you are still to be protected for ever, as if there was to be a stamp set upon your forehead that you were never to catch influenza because you had once used the carbolic smoke ball. I think the immunity is to last during the use of the ball. That is the way in which I should naturally read it, and it seems to me that the subsequent language of the advertisement supports that construction. It says: “During the last epidemic of influenza many thousand carbolic smoke balls were sold, and in no ascertained case was the disease contracted by those using” (not “who had used”) “the carbolic smoke ball,” and it concludes with saying that one smoke ball will last a family several months (which imports that it is to be efficacious while it is being used), and that the ball can be refilled at a cost of 5s. I, therefore, have myself no hesitation in saying that I think, on the construction of this advertisement, the protection was to enure during the time that the carbolic smoke ball was being used. …

Was it intended that the 100£ should, if the conditions were fulfilled, be paid? The advertisement says that 1000£ is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that 100£ would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon.

But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise 100£ to a person who used the smoke ball unless you could check or superintend his manner of using it. The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them.

It was also said that the contract is made with all the world — that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to any one who, before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate — offers to receive offers — offers to chaffer, as, I think, some learned judge in one of the cases has said. If this is an offer to be bound, then it is a contract the moment the person fulfils the condition.

* * *

Then it was said that there was no notification of the acceptance of the contract. One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary according to the English law — I say nothing about the laws of other countries — to make a contract. But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose there can be no doubt that where a person in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification.

* * *

Now, if that is the law, how are we to find out whether the person who makes the offer does intimate that notification of acceptance will not be necessary in order to constitute a binding bargain? In many cases you look to the offer itself. In many cases you extract from the character of the transaction that notification is not required, and in the advertisement cases it seems to me to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with. It seems to me that from the point of view of common sense no other idea could be entertained. If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal? Why, of course, they at once look after the dog, and as soon as they find the dog they have performed the condition. The essence of the transaction is that the dog should be found, and it is not necessary under such circumstances, as it seems to me, that in order to make the contract binding there should be any notification of acceptance. It follows from the nature of the thing that the performance of the condition is sufficient acceptance without the notification of it, and a person who makes an offer in an advertisement of that kind makes an offer which must be read by the light of that common sense reflection. He does, therefore, in his offer impliedly indicate that he does not require notification of the acceptance of the offer.

* * *

Appeal dismissed.

Carlill is an old case, and it is an English case, but it is still good law. And it provides an opportunity to review several of the doctrines we have covered. You'll recall that the court in Leonard v. Pepsico cited Carlill in its discussion about when ads are offers. Do you agree with the court in Carlill that this ad is an offer? What is the best argument you can make that it should not be deemed an offer?

Sigrist v. Century 21 Corp.

Colorado Court of Appeals

519 P.2d 362 (1974)

ENOCH, Judge.

This is an action for breach of contract which was tried to the court. Century 21 Corporation, defendant-appellant, appeals from a judgment entered for J. David Sigrist, plaintiff-appellee. We affirm.

Century 21 owns and operates the Century 21 Speedway race track in Arapahoe County. Sigrist is the owner and driver of a Figure 8 racing car. Sometime prior to July 4, 1971, Century 21 distributed a letter to various race drivers including Sigrist which stated among other things that the point leader at the end of the racing season in each division would be awarded a cash bonus. The point leader in the Figure 8 division was to receive $2,000. In expectation of prize money given at the end of each race plus the possibility of winning the bonus prize, Sigrist entered his car in all of the Figure 8 races that were held at Century 21 Speedway from the opening of the season on or about July 4, 1971, until August 13, 1971. On that date, Century 21 terminated the Figure 8 races because in its opinion there were insufficient entries to put on a good show for the spectators. As of August 13, Sigrist was the point leader in the Figure 8 division. Century 21 continued the races in the other divisions until the early part of September. When the racing season ended a trophy and award banquet was held, and Sigrist was publicly acknowledged as the Figure 8 Champion for 1971 at the Century 21 Speedway and was given the championship trophy. Subsequently Sigrist initiated this lawsuit to collect the $2,000 bonus which Century 21 had refused to pay.

Century 21 contends that the bonus was an offer for a unilateral contract and that it had the right to and did in fact revoke the offer before performance was completed by Sigrist. Century 21 further contends that even if revocation of the offer was impermissible or ineffective, Sigrist is not entitled to the bonus because, since the bonus was to be awarded to the point leader at the end of the season and the Figure 8 races were terminated prior to completion of the normal season, he did not complete performance. We do not agree with these contentions.

Offers to enter into either bilateral or unilateral contracts may not be revoked after acceptance. In the case of an offer for a unilateral contract (an offer which requests return performance rather than a promise to perform), the offer is accepted when substantial performance has been rendered by the offeree.

“Where one party makes a promissory offer in such form that it can be accepted by the rendition of the performance that is requested in exchange, without any express return promise or notice of acceptance in words, the offeror is bound by a contract just as soon as the offeree has rendered a substantial part of that requested performance.” 1 A. Corbin, Contracts § 49.

In this case the trial court, on competent evidence found that Sigrist had more than substantially performed the required acts. Such performance resulted in the formation of a unilateral contract binding on Century 21.

When an offer for a unilateral contract has been accepted, the offeror is not bound to pay the full contract price until the performance requested in the offer has been completed. 1 A. Corbin, Contracts § 63. Century 21 contends that Sigrist’s performance was not completed because the ‘season’ was cut short. The trial court found that the word ‘season’ was never defined by Century 21, nor did the offer state a minimum number of races which had to be run in order to collect the bonus. The trial court concluded that the 1971 ‘season’ for Figure 8 races at Century 21 consisted of the six races actually held. Therefore, Sigrist had completely performed his part of the contract and was entitled to the bonus.

We agree with the trial court’s conclusions on this issue. Century 21 had complete control in determining the length of the season and by its own action terminated Figure 8 racing prior to completion of the season for the other racing divisions. To hold otherwise would permit Century 21 to obtain all it bargained for, the entry of Sigrist and other drivers, and yet to relieve itself of any liability for payment of the bonus by cancelling even the last race of the year.

We find no merit in Century 21’s argument regarding the effectiveness of its alleged letter of revocation, and, in any event, in light of our disposition of the acceptance issue, the question is moot.

Judgment affirmed.

Questions and problems on acceptance by performance:

1. Recall the facts of Kearney v. Equilon. Assuming the ad was an offer (as the court concluded), when did acceptance occur in that case?

2. Marceau offers $500 to Packrone to weed the lawn and garden at Marceau’s house. Packrone starts the work and then Smith says he’ll do it for $400. Can Marceau revoke his offer to Packrone?

3. What if Marceau offers $500 to Packrone to do the weeding, and Packrone says “I’ll do it!” Do they have a deal?

4. What if Marceau says “I’ll pay you $500 weed my lawn and garden, and you can accept only by starting work.” If Packrone says, “I accept!” do they have a deal?

5. What should Century 21 have done differently to avoid the outcome in the Sigrist case?

6. Some cases reference "unilateral" and "bilateral" contracts. What do those terms mean?

Ardente v. Horan

Supreme Court of Rhode Island

117 R.I. 254 (1976)

DORIS, Justice.

Ernest P. Ardente, the plaintiff, brought this civil action in Superior Court to specifically enforce an agreement between himself and William A. and Katherine L. Horan, the defendants, to sell certain real property. The defendants filed an answer together with a motion for summary judgment pursuant to Super.R.Civ.P. 56. Following the submission of affidavits by both the plaintiff and the defendants and a hearing on the motion, judgment was entered by a Superior Court justice for the defendants. The plaintiff now appeals.

In August 1975, certain residential property in the city of Newport was offered for sale by defendants. The plaintiff made a bid of $250,000 for the property which was communicated to defendants by their attorney. After defendants’ attorney advised plaintiff that the bid was acceptable to defendants, he prepared a purchase and sale agreement at the direction of defendants and forwarded it to plaintiff’s attorney for plaintiff’s signature. After investigating certain title conditions, plaintiff executed the agreement. Thereafter plaintiff’s attorney returned the document to defendants along with a check in the amount of $20,000 and a letter dated September 8, 1975, which read in relevant part as follows:

“My clients are concerned that the following items remain with the real estate: a) dining room set and tapestry wall covering in dining room; b) fireplace fixtures throughout; c) the sun parlor furniture. I would appreciate your confirming that these items are a part of the transaction, as they would be difficult to replace.”

The defendants refused to agree to sell the enumerated items and did not sign the purchase and sale agreement. They directed their attorney to return the agreement and the deposit check to plaintiff and subsequently refused to sell the property to plaintiff. This action for specific performance followed.

In Superior Court, defendants moved for summary judgment on the ground that the facts were not in dispute and no contract had been formed as a matter of law.¹ The trial justice ruled that the letter quoted above constituted a conditional acceptance of defendants’ offer to sell the property and consequently must be construed as a counteroffer. Since defendants never accepted the counteroffer, it followed that no contract was formed, and summary judgment was granted.

Summary judgment is a drastic remedy and should be cautiously applied; nevertheless, where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law, summary judgment properly issues. On appeal this court is bound by the same rules as the trial court.  With these rules is mind we address ourselves to the facts.

The plaintiff assigns several grounds for appeal in his brief. He urges first that summary judgment was improper because there existed a genuine issue of fact. The factual question, according to plaintiff, was whether the oral agreement which preceded the drafting of the purchase and sale agreement was intended by the parties to take effect immediately to create a binding oral contract for the sale of the property.

We cannot agree with plaintiff’s position. A review of the record shows that the issue was never raised before the trial justice. The plaintiff did not, in his affidavit in opposition to summary judgment or by any other means, bring to the attention of the trial court any facts which established the existence of a relevant factual dispute. Indeed, at the hearing on the motion plaintiff did not even mention the alleged factual dispute which he now claims the trial justice erred in overlooking. The only issue plaintiff addressed was the proper interpretation of the language used in plaintiff’s letter of acceptance. This was solely a question of law.

It is well-settled that one who opposes a motion for summary judgment may not rest upon the mere allegations or denials of his pleading. He has an affirmative duty to set forth specific facts which show that there is a genuine issue of fact to be resolved at trial. If he does not do so, summary judgment, if appropriate, will be entered against him. Accordingly, since no genuine issue of fact was presented to the trial justice, we hold that he did not err in ruling that summary judgment was appropriate.²

The plaintiff’s second contention is that the trial justice incorrectly applied the principles of contract law in deciding that the facts did not disclose a valid acceptance of defendants’ offer. Again we cannot agree.

The trial justice proceeded on the theory that the delivery of the purchase and sale agreement to plaintiff constituted an offer by defendants to sell the property. Because we must view the evidence in the light most favorable to the party against whom summary judgment was entered, in this case plaintiff, we assume as the trial justice did that the delivery of the agreement was in fact an offer.³

The question we must answer next is whether there was an acceptance of that offer. The general rule is that where, as here, there is an offer to form a bilateral contract, the offeree must communicate his acceptance to the offeror before any contractual obligation can come into being. A mere mental intent to accept the offer, no matter how carefully formed, is not sufficient. The acceptance must be transmitted to the offeror in some overt manner. A review of the record shows that the only expression of acceptance which was communicated to defendants was the delivery of the executed purchase and sale agreement accompanied by the letter of September 8. Therefore it is solely on the basis of the language used in these two documents that we must determine whether there was a valid acceptance. Whatever plaintiff’s unexpressed intention may have been in sending the documents is irrelevant. We must be concerned only with the language actually used, not the language plaintiff thought he was using or intended to use.

There is no doubt that the execution and delivery of the purchase and sale agreement by plaintiff, without more, would have operated as an acceptance. The terms of the accompanying letter, however, apparently conditioned the acceptance upon the inclusion of various items of personalty. In assessing the effect of the terms of that letter we must keep in mind certain generally accepted rules. To be effective, an acceptance must be definite and unequivocal. “An offeror is entitled to know in clear terms whether the offeree accepts his proposal. It is not enough that the words of a reply justify a probable inference of assent.” 1 Restatement Contracts § 58, comment a (1932). The acceptance may not impose additional conditions on the offer, nor may it add limitations. “An acceptance which is equivocal or upon condition or with a limitation is a counteroffer and requires acceptance by the original offeror before a contractual relationship can exist.” John Hancock Mut. Life Ins. Co. v. Dietlin, 97 R.I. 515, 518 (1964).

However, an acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition. Many cases have so held. Williston states the rule as follows:

“Frequently an offeree, while making a positive acceptance of the offer, also makes a request or suggestion that some addition or modification be made. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer whether such request is granted or not, a contract is formed.” 1 Williston, Contracts § 79 at 261-62 (3d ed. 1957).

Corbin is in agreement with the above view. 1 Corbin, supra, § 84 at 363-65. Thus our task is to decide whether plaintiff’s letter is more reasonably interpreted as a qualified acceptance or as an absolute acceptance together with a mere inquiry concerning a collateral matter.

In making our decision we recognize that, as one text states, “The question whether a communication by an offeree is a conditional acceptance or counter-offer is not always easy to answer. It must be determined by the same common-sense process of interpretation that must be applied in so many other cases.” 1 Corbin, supra § 82 at 353. In our opinion the language used in plaintiff’s letter of September 8 is not consistent with an absolute acceptance accompanied by a request for a gratuitous benefit. We interpret the letter to impose a condition on plaintiff’s acceptance of defendants’ offer. The letter does not unequivocally state that even without the enumerated items plaintiff is willing to complete the contract. In fact, the letter seeks “confirmation” that the listed items “are a part of the transaction.” Thus, far from being an independent, collateral request, the sale of the items in question is explicitly referred to as a part of the real estate transaction. Moreover, the letter goes on to stress the difficulty of finding replacements for these items. This is a further indication that plaintiff did not view the inclusion of the listed items as merely collateral or incidental to the real estate transaction.

A review of the relevant case law discloses that those cases in which an acceptance was found valid despite an accompanying conditional term generally involved a more definite expression of acceptance than the one in the case at bar. [string cite omitted]

Accordingly, we hold that since the plaintiff’s letter of acceptance dated September 8 was conditional, it operated as a rejection of the defendants’ offer and no contractual obligation was created.

The plaintiff’s appeal is denied and dismissed, the judgment appealed from is affirmed and the case is remanded to the Superior Court.

Restatement (Second) of Contracts § 58: Necessity of Acceptance Complying with Terms of Offer.

An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered.

Comment:

a. This rule applies to the substance of the bargain the basic principle that the offeror is the master of his offer. That principle rests on the concept of private autonomy underlying contract law. It is mitigated by the interpretation of offers, in accordance with common understanding, as inviting acceptance in any reasonable manner unless there is contrary indication. …

Illustrations:

1. A offers to sell a book to B for $5 and states that no other acceptance will be honored but the mailing of B’s personal check for exactly $5. B personally tenders $5 in legal tender, or mails a personal check for $10. There is no contract.

2. A offers to pay B $100 for plowing Flodden field, and states that acceptance is to be made only by posting a letter before beginning work and before the next Monday noon. Before Monday noon B completes the requested plowing and mails to A a letter stating that the work is complete. There is no contract.

 

Restatement (Second) of Contracts § 59: Purported Acceptance Which Adds Qualifications

A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.

Restatement (Second) of Contracts § 61: Acceptance Which Requests Change of Terms

An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms.

Comment:

a. Interpretation of acceptance. An acceptance must be unequivocal. But the mere inclusion of words requesting a modification of the proposed terms does not prevent a purported acceptance from closing the contract unless, if fairly interpreted, the offerees assent depends on the offeror’s further acquiescence in the modification. See Uniform Commercial Code § 2-207(1).

Illustrations:

1. A offers to sell B 100 tons of steel at a certain price. B replies, “I accept your offer. I hope that if you can arrange to deliver the steel in weekly installments of 25 tons you will do so.” There is a contract, but A is not bound to deliver in installments.

2. A offers to sell specified hardware to B on stated terms. B replies: “I accept your offer; ship in accordance with your statement. Please send me also one No. 5 hand saw at your list price.” The request for the saw is a separate offer, not a counter-offer.

Imperfect Acceptance problem:

After reviewing Seller’s carpet catalog, a buyer for Carpet Mart called Seller and ordered 100 small carpets. Over the telephone, Seller’s representative confirmed the price of the carpets and said that they would be delivered within a week. After the order was placed, Seller’s representative conducted a credit check and then sent a written confirmation form to Carpet Mart. The confirmation form included Seller’s standard terms, among them an arbitration clause and a clause stating that Seller disclaimed all warranties to the buyer. The first term on the confirmation form stated:

The acceptance of your order is subject to all of the terms and conditions of this confirmation form, including arbitration and the exclusion of warranties.

Seller delivered the carpets, and Carpet Mart paid for them. Carpet Mart later discovered that the carpets were not made of 100% recycled wool, as was represented by Seller. Carpet Mart sues Seller, claiming breach of warranty. Seller responds by stating that the agreement between the parties provided for arbitration and for an exclusion of warranties.

Question: Do the parties have an agreement? What would the common law rule say about that question?

Uniform Commercial Code § 2-207. Additional Terms in Acceptance or Confirmation.

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

       (a) the offer expressly limits acceptance to the terms of the offer;

       (b) they materially alter it; or

       (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

OFFICIAL COMMENT

Purposes of Changes:

1. This section is intended to deal with two typical situations. The one is the written confirmation, where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is offer and acceptance, in which a wire or letter expressed and intended as an acceptance or the closing of an agreement adds further minor suggestions or proposals such as “ship by Tuesday,” “rush,” “ship draft against bill of lading inspection allowed,” or the like. A frequent example of the second situation is the exchange of printed purchase order and acceptance (sometimes called “acknowledgment”) forms. Because the forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond. Often the seller's form contains terms different from or additional to those set forth in the buyer's form. Nevertheless, the parties proceed with the transaction. [Comment 1 was amended in 1966.]

2. Under this Article a proposed deal which in commercial understanding has in fact been closed is recognized as a contract. Therefore, any additional matter contained in the confirmation or in the acceptance falls within subsection (2) and must be regarded as a proposal for an added term unless the acceptance is made conditional on the acceptance of the additional or different terms. [Comment 2 was amended in 1966.]

3. Whether or not additional or different terms will become part of the agreement depends upon the provisions of subsection (2). If they are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party. If, however, they are terms which would not so change the bargain they will be incorporated unless notice of objection to them has already been given or is given within a reasonable time.

4. Examples of typical clauses which would normally “materially alter” the contract and so result in surprise or hardship if incorporated without express awareness by the other party are: a clause negating such standard warranties as that of merchantability or fitness for a particular purpose in circumstances in which either warranty normally attaches; a clause requiring a guaranty of 90% or 100% deliveries in a case such as a contract by cannery, where the usage of the trade allows greater quantity leeways; a clause reserving to the seller the power to cancel upon the buyer's failure to meet any invoice when due; a clause requiring that complaints be made in a time materially shorter than customary or reasonable.

5. Examples of clauses which involve no element of unreasonable surprise and which therefore are to be incorporated in the contract unless notice of objection is seasonably given are: a clause setting forth and perhaps enlarging slightly upon the seller's exemption due to supervening causes beyond his control, similar to those covered by the provision of this Article on merchant's excuse by failure of presupposed conditions or a clause fixing in advance any reasonable formula of proration under such circumstances; a clause fixing a reasonable time for complaints within customary limits, or in the case of a purchase for sub-sale, providing for inspection by the sub-purchaser; a clause providing for interest on overdue invoices or fixing the seller's standard credit terms where they are within the range of trade practice and do not limit any credit bargained for; a clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance “with adjustment” or otherwise limiting remedy in a reasonable manner (see Sections 2-718 and 2-719).

6. If no answer is received within a reasonable time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to. Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act, including subsection (2). The written confirmation is also subject to Section 2-201. Under that section a failure to respond permits enforcement of a prior oral agreement; under this section a failure to respond permits additional terms to become part of the agreement. [Comment 6 was amended in 1966.]

7. In many cases, as where goods are shipped, accepted and paid for before any dispute arises, there is no question whether a contract has been made. In such cases, where the writings of the parties do not establish a contract, it is not necessary to determine which act or document constituted the offer and which the acceptance. See Section 2-204. The only question is what terms are included in the contract, and subsection (3) furnishes the governing rule. [Comment 7 was added in 1966.]

8. Pursuant to the 2022 Amendments, some references in this Article to the terms “writing,” “writings,” or “written” have been changed to refer to a “record.” These changes are made in provisions where an affected party may be assumed to have assented to the use of a record that is not a writing. For example, Section 2-201 involves a record signed by an affected party and Section 2-202 refers to a record intended by parties to be a final expression of their agreement. However, in this section and some other sections in this Article references to these terms remain. Where such references remain in this Article, the use by parties of a record other than a writing may be given effect for purposes of this Article under law other than the Uniform Commercial Code, such as the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001, et seq., and the Uniform Electronic Transactions Act.

Dorton v. Collins & Aikman Corp.

453 F.2d 1161 (6th Cir. 1972)

CELEBREZZE, Circuit Judge.

This is an appeal from the District Court’s denial of Defendant-Appellant’s motion for a stay pending arbitration, pursuant to Section 3 of the United States Arbitration Act. The suit arose after a series of over 55 transactions during 1968, 1969, and 1970 in which Plaintiffs-Appellees [hereinafter The Carpet Mart], carpet retailers in Kingsport, Tennessee, purchased carpets from Defendant-Appellant [hereinafter Collins & Aikman], …owner of a carpet manufacturing plant located in Dalton, Georgia. The Carpet Mart originally brought this action in a Tennessee state trial court, seeking compensatory and punitive damages in the amount of $450,000 from Collins & Aikman for the latter’s alleged fraud, deceit, and misrepresentation in the sale of what were supposedly carpets manufactured from 100% Kodel polyester fiber. The Carpet Mart maintains that in May, 1970, in response to a customer complaint, it learned that not all of the carpets were manufactured from 100% Kodel polyester fiber but rather some were composed of a cheaper and inferior carpet fiber. After the cause was removed to the District Court on the basis of diversity of citizenship, Collins & Aikman moved for a stay pending arbitration, asserting that The Carpet Mart was bound to an arbitration agreement which appeared on the reverse side of Collins & Aikman’s printed sales acknowledgment forms. Holding that there existed no binding arbitration agreement between the parties, the District Court denied the stay. For the reasons set forth below, we remand the case to the District Court for further findings.

* * *

II

The primary question before us on appeal is whether the District Court, in denying Collins & Aikman’s motion for a stay pending arbitration, erred in holding that The Carpet Mart was not bound by the arbitration agreement appearing on the back of Collins & Aikman’s acknowledgment forms. In reviewing the District Court’s determination, we must look closely at the procedures which were followed in the sales transactions which gave rise to the present dispute over the arbitration agreement.

In each of the more than 55 transactions, one of the partners in The Carpet Mart, or, on some occasions, Collins & Aikman’s visiting salesman, telephoned Collins & Aikman’s order department in Dalton, Georgia, and ordered certain quantities of carpets listed in Collins & Aikman’s catalogue. There is some dispute as to what, if any, agreements were reached through the telephone calls and through the visits by Collins & Aikman’s salesman. After each oral order was placed, the price, if any, quoted by the buyer was checked against Collins & Aikman’s price list, and the credit department was consulted to determine if The Carpet Mart had paid for all previous shipments. After it was found that everything was in order, Collins & Aikman’s order department typed the information concerning the particular order on one of its printed acknowledgment forms. Each acknowledgment form bore one of three legends: “Acknowledgment,” “Customer Acknowledgment,” or “Sales Contract.” The following provision was printed on the face of the forms bearing the “Acknowledgment” legend:

“The acceptance of your order is subject to all of the terms and conditions on the face and reverse side hereof, including arbitration, all of which are accepted by buyer; it supersedes buyer’s order form, if any. It shall become a contract either (a) when signed and delivered by buyer to seller and accepted in writing by seller, or (b) at Seller’s option, when buyer shall have given to seller specification of assortments, delivery dates, shipping instructions, or instructions to bill and hold as to all or any part of the merchandise herein described, or when buyer has received delivery of the whole or any part thereof, or when buyer has otherwise assented to the terms and conditions hereof.”

Similarly, on the face of the forms bearing the “Customer Acknowledgment” or “Sales Contract” legends the following provision appeared:

“This order is given subject to all of the terms and conditions on the face and reverse side hereof, including the provisions for arbitration and the exclusion of warranties, all of which are accepted by Buyer, supersede Buyer’s order form, if any, and constitute the entire contract between Buyer and Seller. This order shall become a contract as to the entire quantity specified either (a) when signed and delivered by Buyer to Seller and accepted in writing by Seller or (b) when Buyer has received and retained this order for ten days without objection, or (c) when Buyer has accepted delivery of any part of the merchandise specified herein or has furnished to Seller specifications or assortments, delivery dates, shipping instructions, or instructions to bill and hold, or when Buyer has otherwise indicated acceptance of the terms hereof.”

The small print on the reverse side of the forms provided, among other things, that all claims arising out of the contract would be submitted to arbitration in New York City. Each acknowledgment form was signed by an employee of Collins & Aikman’s order department and mailed to The Carpet Mart on the day the telephone order was received or, at the latest, on the following day.The carpets were thereafter shipped to The Carpet Mart, with the interval between the mailing of the acknowledgment form and shipment of the carpets varying from a brief interval to a period of several weeks or months. Absent a delay in the mails, however, The Carpet Mart always received the acknowledgment forms prior to receiving the carpets. In all cases The Carpet Mart took delivery of and paid for the carpets without objecting to any terms contained in the acknowledgment form.

In holding that no binding arbitration agreement was created between the parties through the transactions above, the District Court relied on [UCC § 2-207], which provides:

“(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

“(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

“(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of chapters 1 through 9 of this title.”

The District Court found that Subsection 2-207(3) controlled the instant case, …

Under this authority alone the District Court concluded that the arbitration clause on the back of Collins & Aikman’s sales acknowledgment had not become a binding term in the 50-odd transactions with The Carpet Mart.

In reviewing this determination by the District Court, we are aware of the problems which courts have had in interpreting Section 2-207. This section of the UCC has been described as a “murky bit of prose,”  as “not too happily drafted,” and as “one of the most important, subtle, and difficult in the entire Code, and well it may be said that the product as it finally reads is not altogether satisfactory.” Despite the lack of clarity in its language, Section 2-207 manifests definite objectives which are significant in the present case.

As Official Comment No. 1 indicates, UCC § 2-207 was intended to apply to two situations:

“The one is where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal acknowledgments or memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation is one in which a wire or letter expressed and intended as the closing or confirmation of an agreement adds further minor suggestions or proposals such as ‘ship by Tuesday,’ ‘rush,’ ‘ship draft against bill of lading inspection allowed,’ or the like.”  [UCC § 2-207], Official Comment 1.

Although Comment No. 1 is itself somewhat ambiguous, it is clear that Section 2-207, and specifically Subsection 2-207(1), was intended to alter the “ribbon matching” or “mirror” rule of common law, under which the terms of an acceptance or confirmation were required to be identical to the terms of the offer or oral agreement, respectively. Under the common law, an acceptance or a confirmation which contained terms additional to or different from those of the offer or oral agreement constituted a rejection of the offer or agreement and thus became a counter-offer. The terms of the counter-offer were said to have been accepted by the original offeror when he proceeded to perform under the contract without objecting to the counter-offer. Thus, a buyer was deemed to have accepted the seller’s counter-offer if he took receipt of the goods and paid for them without objection.

Under Section 2-207 the result is different. This section of the Code recognizes that in current commercial transactions, the terms of the offer and those of the acceptance will seldom be identical. Rather, under the current “battle of the forms,” each party typically has a printed form drafted by his attorney and containing as many terms as could be envisioned to favor that party in his sales transactions. Whereas under common law the disparity between the fineprint terms in the parties’ forms would have prevented the consummation of a contract when these forms are exchanged, Section 2-207 recognizes that in many, but not all, cases the parties do not impart such significance to the terms on the printed forms. Subsection 2-207(1) therefore provides that “[a] definite and seasonable expression of acceptance or a written confirmation . . . operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.” Thus, under Subsection (1), a contract is recognized notwithstanding the fact that an acceptance or confirmation contains terms additional to or different from those of the offer or prior agreement, provided that the offeree’s intent to accept the offer is definitely expressed, see Sections 2-204 and 2-206, and provided that the offeree’s acceptance is not expressly conditioned on the offeror’s assent to the additional or different terms. When a contract is recognized under Subsection (1), the additional terms are treated as “proposals for addition to the contract” under Subsection (2), which contains special provisions under which such additional terms are deemed to have been accepted when the transaction is between merchants. Conversely, when no contract is recognized under Subsection 2-207(1)–either because no definite expression of acceptance exists or, more specifically, because the offeree’s acceptance is expressly conditioned on the offeror’s assent to the additional or different terms–the entire transaction aborts at this point. If, however, the subsequent conduct of the parties–particularly, performance by both parties under what they apparently believe to be a contract–recognizes the existence of a contract, under Subsection 2-207(3) such conduct by both parties is sufficient to establish a contract, notwithstanding the fact that no contract would have been recognized on the basis of their writings alone. Subsection 2-207(3) further provides how the terms of contracts recognized thereunder shall be determined.

With the above analysis and purposes of Section 2-207 in mind, we turn to their application in the present case. We initially observe that the affidavits and the acknowledgment forms themselves raise the question of whether Collins & Aikman’s forms constituted acceptances or confirmations under Section 2-207. The language of some of the acknowledgment forms (“The acceptance of your order is subject to . . .”) and the affidavit of Mr. William T. Hester, Collins & Aikman’s marketing operations manager, suggest that the forms were the only acceptances issued in response to The Carpet Mart’s oral offers. However, in his affidavit Mr. J. A. Castle, a partner in The Carpet Mart, asserted that when he personally called Collins & Aikman to order carpets, someone from the latter’s order department would agree to sell the requested carpets, or, alternatively, when Collins & Aikman’s visiting salesman took the order, he would agree to the sale, on some occasions after he had used The Carpet Mart’s telephone to call Collins & Aikman’s order department. Absent the District Court’s determination of whether Collins & Aikman’s acknowledgment forms were acceptances or, alternatively, confirmations of prior oral agreements, we will consider the application of Section 2-207 to both situations for the guidance of the District Court on remand.

Viewing Collins & Aikman’s acknowledgment forms as acceptances under Subsection 2-207(1), we are initially faced with the question of whether the arbitration provision in Collins & Aikman’s acknowledgment forms were in fact “additional to or different from” the terms of The Carpet Mart’s oral offers. In the typical case under Section 2-207, there exist both a written purchase order and a written acknowledgment, and this determination can be readily made by comparing the two forms. In the present case, where the only written forms were Collins & Aikman’s sales acknowledgments, we believe that such a comparison must be made between the oral offers and the written acceptances. Although the District Court apparently assumed that The Carpet Mart’s oral orders did not include in their terms the arbitration provision which appeared in Collins & Aikman’s acknowledgment forms, we believe that a specific finding on this point will be required on remand.

Assuming, for purposes of analysis, that the arbitration provision was an addition to the terms of The Carpet Mart’s oral offers, we must next determine whether or not Collins & Aikman’s acceptances were “expressly made conditional on assent to the additional . . . terms” therein, within the proviso of Subsection 2-207(1). As set forth in full above, the provision appearing on the face of Collins & Aikman’s acknowledgment forms stated that the acceptances (or orders) were “subject to all of the terms and conditions on the face and reverse side hereof, including arbitration, all of which are accepted by buyer.” The provision on the “Acknowledgment” forms further stated that Collins & Aikman’s terms would become the basis of the contract between the parties

“either (a) when signed and delivered by buyer to seller and accepted in writing by seller, or (b) at Seller’s option, when buyer shall have given to seller specification of assortments, delivery dates, shipping instructions, or instructions to bill and hold as to all or any part of the merchandise herein described, or when buyer has received delivery of the whole or any part thereof, or when buyer has otherwise assented to the terms and conditions hereof.”

Similarly, the provision on the “Customer Acknowledgment” and “Sales Contract” forms stated that the terms therein would become the basis of the contract

“either (a) when signed and delivered by Buyer to Seller and accepted in writing by Seller or (b) when Buyer has received and retained this order for ten days without objection, or (c) when Buyer has accepted delivery of any part of the merchandise specified herein or has furnished to Seller specifications or assortments, delivery dates, shipping instructions to bill and hold, or when Buyer has otherwise indicated acceptance of the terms hereof.”

Although Collins & Aikman’s use of the words “subject to” suggests that the acceptances were conditional to some extent, we do not believe the acceptances were “expressly made conditional on [the buyer’s] assent to the additional or different terms,” as specifically required under the Subsection 2-207(1) proviso. In order to fall within this proviso, it is not enough that an acceptance is expressly conditional on additional or different terms; rather, an acceptance must be expressly conditional on the offeror’s assent to those terms. Viewing the Subsection (1) proviso within the context of the rest of that Subsection and within the policies of Section 2-207 itself, we believe that it was intended to apply only to an acceptance which clearly reveals that the offeree is unwilling to proceed with the transaction unless he is assured of the offeror’s assent to the additional or different terms therein. That the acceptance is predicated on the offeror’s assent must be “directly and distinctly stated or expressed rather than implied or left to inference.” Webster’s Third International Dictionary (defining “express”).

Although the UCC does not provide a definition of “assent,” it is significant that Collins & Aikman’s printed acknowledgment forms specified at least seven types of action or inaction on the part of the buyer which–sometimes at Collins & Aikman’s option–would be deemed to bind the buyer to the terms therein. These ranged from the buyer’s signing and delivering the acknowledgment to the seller–which indeed could have been recognized as the buyer’s assent to Collins & Aikman’s terms–to the buyer’s retention of the acknowledgment for ten days without objection–which could never have been recognized as the buyer’s assent to the additional or different terms where acceptance is expressly conditional on that assent.

To recognize Collins & Aikman’s acceptances as “expressly conditional on [the buyer’s] assent to the additional . . . terms” therein, within the proviso of Subsection 2-207(1), would thus require us to ignore the specific language of that provision. Such an interpretation is not justified in view of the fact that Subsection 2-207(1) is clearly designed to give legal recognition to many contracts where the variance between the offer and acceptance would have precluded such recognition at common law.

Because Collins & Aikman’s acceptances were not expressly conditional on the buyer’s assent to the additional terms within the proviso of Subsection 2-207(1), a contract is recognized under Subsection (1), and the additional terms are treated as “proposals” for addition to the contract under Subsection 2-207(2). Since both Collins & Aikman and The Carpet Mart are clearly “merchants” as that term is defined in Subsection 2-104(1), the arbitration provision will be deemed to have been accepted by The Carpet Mart under Subsection 2-207(2) unless it materially altered the terms of The Carpet Mart’s oral offers. [ UCC § 2-207(2)(b)]. We believe that the question of whether the arbitration provision materially altered the oral offer under Subsection 2-207(2) (b) is one which can be resolved only by the District Court on further findings of fact in the present case. If the arbitration provision did in fact materially alter The Carpet Mart’s offer, it could not become a part of the contract “unless expressly agreed to” by The Carpet Mart. [UCC § 2-207], Official Comment No. 3.

We therefore conclude that if on remand the District Court finds that Collins & Aikman’s acknowledgments were in fact acceptances and that the arbitration provision was additional to the terms of The Carpet Mart’s oral orders, contracts will be recognized under Subsection 2-207(1). The arbitration clause will then be viewed as a “proposal” under Subsection 2-207(2) which will be deemed to have been accepted by The Carpet Mart unless it materially altered the oral offers.

If the District Court finds that Collins & Aikman’s acknowledgment forms were not acceptances but rather were confirmations of prior oral agreements between the parties, an application of Section 2-207 similar to that above will be required. Subsection 2-207(1) will require an initial determination of whether the arbitration provision in the confirmations was “additional to or different from” the terms orally agreed upon. Assuming that the District Court finds that the arbitration provision was not a term of the oral agreements between the parties, the arbitration clause will be treated as a “proposal” for addition to the contract under Subsection 2-207(2), as was the case when Collins & Aikman’s acknowledgments were viewed as acceptances above. The provision for arbitration will be deemed to have been accepted by The Carpet Mart unless the District Court finds that it materially altered the prior oral agreements, in which case The Carpet Mart could not become bound thereby absent an express agreement to that effect.

As a result of the above application of Section 2-207 to the limited facts before us in the present case, we find it necessary to remand the case to the District Court for the following findings: (1) whether oral agreements were reached between the parties prior to the sending of Collins & Aikman’s acknowledgment forms; if there were no such oral agreements, (2) whether the arbitration provision appearing in Collins & Aikman’s “acceptances” was additional to the terms of The Carpet Mart’s oral offers; and, if so, (3) whether the arbitration provision materially altered the terms of The Carpet Mart’s oral offers. Alternatively, if the District Court does find that oral agreements were reached between the parties before Collins & Aikman’s acknowledgment forms were sent in each instance, it will be necessary for the District Court to make the following findings: (1) whether the prior oral agreements embodied the arbitration provision appearing in Collins & Aikman’s “confirmations”; and, if not, (2) whether the arbitration provision materially altered the prior oral agreements. Regardless of whether the District Court finds Collins & Aikman’s acknowledgment forms to have been acceptances or confirmations, if the arbitration provision was additional to, and a material alteration of, the offers or prior oral agreements, The Carpet Mart will not be bound to that provision absent a finding that it expressly agreed to be bound thereby.

* * *

UCC hypotheticals

1. The Carpet Mart problem:

After reviewing Collins & Aikman’s catalog, a buyer for Carpet Mart called C&A and ordered 100 small carpets. Over the telephone, the C&A representative confirmed the price of the carpets and said that they would be delivered within a week. After the order was placed, the C&A representative conducted a credit check. After completing the credit check, C&A sent a written confirmation form to Carpet Mart. The confirmation form included C&A’s standard terms, among them an arbitration clause and a clause stating that C&A disclaimed all warranties to the buyer. The first term on the confirmation form stated:

The acceptance of your order is subject to all of the terms and conditions of this confirmation form, including arbitration and the exclusion of warranties.

C&A delivered the carpets, and Carpet Mart paid for them. Carpet Mart later discovered that the carpets were not made of 100% recycled wool, as was represented by C&A.  Carpet Mart sues C&A, claiming breach of warranty.  C&A responds by stating that the agreement between the parties provided for arbitration and for an exclusion of warranties.

Question 1A: Do the parties have an agreement? If there is an agreement, is the arbitration provision part of the agreement? The disclaimer of warranties term? [based on Dorton v. Collins & Aikman, 453 F.2d 1161 (6^th Cir. 1972)]

Question 1B: How would your analysis change if, after placing its order by phone, Carpet Mart had sent an email with an “Acknowledgement” form attached that included a provision stating:

“Carpet Mart’s acceptance of seller’s offer or its offer to seller is hereby expressly made conditional on seller’s acceptance of the terms and provisions of this acknowledgment form.”

[based on Diamond Fruit Growers v. Krack Corp., 794 F.2d 1440 (9^th Cir. 1986); SFEG Corp. v. Blendtec, 2017 WL 395041 (M.D. Tenn. 2017)]

2. The Gateway problem

William Klocek, a Colorado resident, bought a computer from Gateway. When he opened the box, it included a set of documents, one of which was labeled “Terms and Conditions.” That document had the following provision:

NOTE TO THE CUSTOMER: This document contains Gateway 2000's Standard Terms and Conditions. By keeping your Gateway 2000 computer system beyond five (5) days after the date of delivery, you accept these Terms and Conditions.

The notice was in italics and located inside a printed box which set it apart from other provisions of the document. The Standard Terms were four pages long and contain 16 numbered paragraphs. Paragraph 10 provided the following arbitration clause:

DISPUTE RESOLUTION. Any dispute or controversy arising out of or relating to this Agreement or its interpretation shall be settled exclusively and finally by arbitration. The arbitration shall be conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The arbitration shall be conducted in Chicago, Illinois, U.S.A. before a sole arbitrator. Any award rendered in any such arbitration proceeding shall be final and binding on each of the parties, and judgment may be entered thereon in a court of competent jurisdiction.

Klocek opened the computer and used it for a month before it began to malfunction. He sued Gateway in state court in Colorado. Gateway filed a motion to compel arbitration in Chicago, as provided in the dispute resolution provision.

Question 2A: Is there an agreement between the parties? If so, is the arbitration provision part of the agreement? [Klocek v. Gateway, 104 F.Supp.2d 1332 (D. Kansas 2000)]; see also Hill v. Gateway, 105 F.3d 1147 (7^th Cir. 1996)]

Question 2B: What if, instead of including the terms and conditions in a document with the computer, Gateway includes the terms and conditions as part of the set-up process for the computer? Klocek clicked “I Agree” for the “Terms and Conditions” page (as well as for the “Privacy Policy). Is the outcome different in this circumstance? Should it be? How should the law deal with this problem? Do you think it is a problem?

Diamond Fruit Growers, Inc. v. Krack Corp. v. Metal-Matic, Inc.

United States Court of Appeals, Ninth Circuit.

794 F.2d 1440 (1986)

Opinion

WIGGINS, Circuit Judge:

Metal-Matic, Inc. (Metal-Matic) appeals from judgment entered after a jury verdict in favor of Krack Corporation (Krack) on Krack’s third-party complaint against Metal-Matic. Metal-Matic also appeals from the district court’s denial of its motion for judgment n.o.v. We have jurisdiction under 28 U.S.C. § 1291 (1982) and affirm.

FACTS AND PROCEEDINGS BELOW

Krack is a manufacturer of cooling units that contain steel tubing it purchases from outside suppliers. Metal-Matic is one of Krack’s tubing suppliers. At the time this dispute arose, Metal-Matic had been supplying tubing to Krack for about ten years. The parties followed the same course of dealing during the entire ten years. At the beginning of each year, Krack sent a blanket purchase order to Metal-Matic stating how much tubing Krack would need for the year. Then, throughout the year as Krack needed tubing, it sent release purchase orders to Metal-Matic requesting that tubing be shipped. Metal-Matic responded to Krack’s release purchase orders by sending Krack an acknowledgment form and then shipping the tubing.¹

Metal-Matic’s acknowledgment form disclaimed all liability for consequential damages and limited Metal-Matic’s liability for defects in the tubing to refund of the purchase price or replacement or repair of the tubing. As one would expect, these terms were not contained in Krack’s purchase order. The following statement was printed on Metal-Matic’s form: “Metal-Matic, Inc.’s acceptance of purchaser’s offer or its offer to purchaser is hereby expressly made conditional to purchaser’s acceptance of the terms and provisions of the acknowledgment form.” This statement and the disclaimer of liability were on the back of the acknowledgment form. However, printed at the bottom of the front of the form in bold-face capitals was the following statement: “SEE REVERSE SIDE FOR TERMS AND CONDITIONS OF SALE.”

On at least one occasion during the ten-year relationship between Metal-Matic and Krack, Allen Zver, Krack’s purchasing manager, discussed the limitation of warranty and disclaimer of liability terms contained in Metal-Matic’s acknowledgment form with Robert Van Krevelen, Executive Vice President of Metal-Matic. Zver told Van Krevelen that Krack objected to the terms and tried to convince him to change them, but Van Krevelen refused to do so. After the discussions, Krack continued to accept and pay for tubing from Metal-Matic.²

In February 1981, Krack sold one of its cooling units to Diamond Fruit Growers, Inc. (Diamond) in Oregon, and in September 1981, Diamond installed the unit in a controlled-atmosphere warehouse. In January 1982, the unit began leaking ammonia from a cooling coil made of steel tubing.

After Diamond discovered that ammonia was leaking into the warehouse, Joseph Smith, the engineer who had been responsible for building Diamond’s controlled-atmosphere warehouses, was called in to find the source of the leak. Smith testified that he found a pinhole leak in the cooling coil of the Krack cooling unit. Smith inspected the coil while it was still inside the unit. He last inspected the coil on April 23, 1982. The coil then sat in a hall at Diamond’s warehouse until May, 1984, when John Myers inspected the coil for Metal-Matic.

Myers cut the defective tubing out of the unit and took it to his office. At his office, he did more cutting on the tubing. After Myers inspected the tubing, it was also inspected by Bruce Wong for Diamond and Paul Irish for Krack.

Diamond sued Krack to recover the loss in value of fruit that it was forced to remove from the storage room as a result of the leak. Krack in turn brought a third-party complaint against Metal-Matic and Van Huffel Tube Corporation (Van Huffel), another of its tubing suppliers, seeking contribution or indemnity in the event it was held liable to Diamond. At the close of the evidence, both Metal-Matic and Van Huffel moved for a directed verdict on the third party complaint. The court granted Van Huffel’s motion based on evidence that the failed tubing was not manufactured by Van Huffel. The court denied Metal-Matic’s motion.

The jury returned a verdict in favor of Diamond against Krack. It then found that Krack was entitled to contribution from Metal-Matic for thirty percent of Diamond’s damages. Metal-Matic moved for judgment n.o.v. The court denied that motion and entered judgment on the jury verdict.

Metal-Matic raises two grounds for reversal. First, Metal-Matic contends that as part of its contract with Krack, it disclaimed all liability for consequential damages and specifically limited its liablity for defects in the tubing to refund of the purchase price or replacement or repair of the tubing. Second, Metal-Matic asserts that the evidence does not support a finding that it manufactured the tubing in which the leak developed or that it caused the leak. We address each of these contentions in turn.

STANDARD OF REVIEW

Metal-Matic’s contention that its disclaimers are part of its contract with Krack presents questions of statutory and contract interpretation, which are questions of law reviewed de novo. United States v. Binder, 769 F.2d 595, 600 (9th Cir.1985); Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 417 (9th Cir.1984); see United States v. McConney, 728 F.2d 1195, 1202 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). The jury verdict and the district court’s denial of Metal-Matic’s motion for judgment n.o.v. will not be reversed by this court if there is substantial evidence to support a finding for Krack. See Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d 873, 877 (9th Cir.), cert. denied, 469 U.S. 932, 105 S.Ct. 329, 83 L.Ed.2d 265 (1984).

DISCUSSION

A. Metal-Matic’s Disclaimer of Liability for Consequential Damages

If the contract between Metal-Matic and Krack contains Metal-Matic’s disclaimer of liability, Metal-Matic is not liable to indemnify Krack for part of Diamond’s damages. Therefore, the principal issue before us on this appeal is whether Metal-Matic’s disclaimer of liability became part of the contract between these parties.

Relying on Uniform Commercial Code (U.C.C.) § 2–207, Or.Rev.Stat. § 72.2070 (1985),³ Krack argues that Metal-Matic’s disclaimer did not become part of the contract. Metal-Matic, on the other hand, argues that section 2–207 is inapplicable to this case because the parties discussed the disclaimer, and Krack assented to it.

Krack is correct in its assertion that section 2–207 applies to this case. One intended application of section 2–207 is to commercial transactions in which the parties exchange printed purchase order and acknowledgment forms. See U.C.C. § 2–207 comment 1.⁴ The drafters of the U.C.C. recognized that “[b]ecause the [purchase order and acknowledgment] forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond.” Id. Section 2–207 is an attempt to provide rules of contract formation in such cases. In this case, Krack and Metal-Matic exchanged purchase order and acknowledgment forms that contained different or additional terms. This, then, is a typical section 2–207 situation. The fact that the parties discussed the terms of their contract after they exchanged their forms does not put this case outside section 2–207. See 3 R. Duesenburg & L. King, Sales and Bulk Transfers under the Uniform Commercial Code (Bender’s U.C.C. Service) § 3.05 [2] (1986). Section 2–207 provides rules of contract formation in cases such as this one in which the parties exchange forms but do not agree on all the terms of their contract.

A brief summary of section 2–207 is necessary to an understanding of its application to this case.⁵ Section 2–207 changes the common law’s mirror-image rule for transactions that fall within article 2 of the U.C.C. At common law, an acceptance that varies the terms of the offer is a counteroffer and operates as a rejection of the original offer. See Idaho Power Co. v. Westinghouse Electric Corp., 596 F.2d 924, 926 (9th Cir.1979). If the offeror goes ahead with the contract after receiving the counteroffer, his performance is an acceptance of the terms of the counteroffer. See C. Itoh & Co. v. Jordan International Co., 552 F.2d 1228, 1236 (7th Cir.1977); J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code, § 1–2 at 34 (2d ed. 1980).

Generally, section 2–207(1) “converts a common law counteroffer into an acceptance even though it states additional or different terms.” Idaho Power, 596 F.2d at 926; see U.C.C. § 2–207(1). The only requirement under section 2–207(1) is that the responding form contain a definite and seasonable expression of acceptance. The terms of the responding form that correspond to the offer constitute the contract. Under section 2–207(2), the additional terms of the responding form become proposals for additions to the contract. Between merchants the additional terms become part of the contract unless the offer is specifically limited to its terms, the offeror objects to the additional terms, or the additional terms materially alter the terms of the offer. U.C.C. § 2–207(2); see J. White & R. Summers, § 1–2 at 32.

However, section 2–207(1) is subject to a proviso. If a definite and seasonable expression of acceptance expressly conditions acceptance on the offeror’s assent to additional or different terms contained therein, the parties’ differing forms do not result in a contract unless the offeror assents to the additional terms. See J. White & R. Summers, § 1–2 at 32–33. If the offeror assents, the parties have a contract and the additional terms are a part of that contract. If, however, the offeror does not assent, but the parties proceed with the transaction as if they have a contract, their performance results in formation of a contract. U.C.C. § 2–207(3). In that case, the terms of the contract are those on which the parties’ forms agree plus any terms supplied by the U.C.C. Id.;  see Boise Cascade Corp. v. Etsco, Ltd., 39 U.C.C.Rep.Serv. (Callaghan) 410, 414 (D.Or.1984); J. White & R. Summers, § 1–2 at 34.

In this case, Metal-Matic expressly conditioned its acceptance on Krack’s assent to the additional terms contained in Metal-Matic’s acknowledgment form. That form tracks the language of the section 2–207(1) proviso, stating that “Metal-Matic, Inc.’s acceptance ... is hereby expressly made conditional to purchaser’s acceptance of the terms and provisions of the acknowledgment form.” (emphasis added). See C. Itoh & Co., 552 F.2d at 1235. Therefore, we must determine whether Krack assented to Metal-Matic’s limitation of liability term.

Metal-Matic argues that Krack did assent to the limitation of liability term. This argument is based on the discussions between Zver for Krack and Van Krevelen for Metal-Matic. Some time during the ten-year relationship between the companies, these two men discussed Krack’s objections to the warranty and liability limitation terms in Metal-Matic’s acknowledgment form. Krack attempted to persuade Metal-Matic to change its form, but Metal-Matic refused to do so. After the discussions, the companies continued to do business as in the past. Metal-Matic contends that Krack assented to the limitation of liability term when it continued to accept and pay for tubing after Metal-Matic insisted that the contract contain its terms.

To address Metal-Matic’s argument, we must determine what constitutes assent to additional or different terms for purposes of section 2–207(1). The parties have not directed us to any cases that analyze this question and our research has revealed none.⁶ We therefore look to the language and structure of section 2–207 and to the purposes behind that section to determine the correct standard.

One of the principles underlying section 2–207 is neutrality. If possible, the section should be interpreted so as to give neither party to a contract an advantage simply because it happened to send the first or in some cases the last form. See J. White & R. Summers, § 1–2 at 26–27. Section 2–207 accomplishes this result in part by doing away with the common law’s “last shot” rule. See 3 R. Duesenberg & L. King, § 3.05[1][a][iii] at 3–73. At common law, the offeree/counterofferor gets all of its terms simply because it fired the last shot in the exchange of forms. Section 2–207(3) does away with this result by giving neither party the terms it attempted to impose unilaterally on the other. See id. at 3–71. Instead, all of the terms on which the parties’ forms do not agree drop out, and the U.C.C. supplies the missing terms.

Generally, this result is fair because both parties are responsible for the ambiguity in their contract. The parties could have negotiated a contract and agreed on its terms, but for whatever reason, they failed to do so. Therefore, neither party should get its terms. See 3 R. Duesenberg & L. King, § 3.05 [2] at 3–88. However, as White and Summers point out, resort to section 2–207(3) will often work to the disadvantage of the seller because he will “wish to undertake less responsibility for the quality of his goods than the Code imposes or else wish to limit his damages liability more narrowly than would the Code.” J. White & R. Summers, § 1–2 at 34. Nevertheless, White and Summers recommend that section 2–207(3) be applied in such cases. Id. We agree. Application of section 2–207(3) is more equitable than giving one party its terms simply because it sent the last form. Further, the terms imposed by the code are presumably equitable and consistent with public policy because they are statutorily imposed. See 3 R. Duesenberg & L. King, § 3.05[2] at 3–88.

With these general principles in mind, we turn now to Metal-Matic’s argument that Krack assented to the disclaimer when it continued to accept and pay for tubing once Metal-Matic indicated that it was willing to sell tubing only if its warranty and liability terms were part of the contract. Metal-Matic’s argument is appealing. Sound policy supports permitting a seller to control the terms on which it will sell its products, especially in a case in which the seller has indicated both in writing and orally that those are the only terms on which it is willing to sell the product. Nevertheless, we reject Metal-Matic’s argument because we find that these considerations are outweighed by the public policy reflected by Oregon’s enactment of the U.C.C.

If we were to accept Metal-Matic’s argument, we would reinstate to some extent the common law’s last shot rule. To illustrate, assume that the parties in this case had sent the same forms but in the reverse order and that Krack’s form contained terms stating that Metal-Matic is liable for all consequential damages and conditioning acceptance on Metal-Matic’s assent to Krack’s terms. Assume also that Metal-Matic objected to Krack’s terms but Krack refused to change them and that the parties continued with their transaction anyway. If we applied Metal-Matic’s argument in that case, we would find that Krack’s term was part of the contract because Metal-Matic continued to ship tubing to Krack after Krack reaffirmed that it would purchase tubing only if Metal-Matic were fully liable for consequential damages. Thus, the result would turn on which party sent the last form, and would therefore be inconsistent with section 2–207‘s purpose of doing away with the last shot rule.

That result is avoided by requiring a specific and unequivocal expression of assent on the part of the offeror when the offeree conditions its acceptance on assent to additional or different terms. If the offeror does not give specific and unequivocal assent but the parties act as if they have a contract, the provisions of section 2–207(3) apply to fill in the terms of the contract. Application of section 2–207(3) is appropriate in that situation because by going ahead with the transaction without resolving their dispute, both parties are responsible for introducing ambiguity into the contract. Further, in a case such as this one, requiring the seller to assume more liability than it intends is not altogether inappropriate. The seller is most responsible for the ambiguity because it inserts a term in its form that requires assent to additional terms and then does not enforce that requirement. If the seller truely does not want to be bound unless the buyer assents to its terms, it can protect itself by not shipping until it obtains that assent. See C. Itoh & Co., 552 F.2d at 1238.

We hold that because Krack’s conduct did not indicate unequivocally that Krack intended to assent to Metal-Matic’s terms, that conduct did not amount to the assent contemplated by section 2–207(1). See 3 R. Duesenberg & L. King, § 3.05[1][a][iii] at 3–74.⁷

* * *

AFFIRMED.

Klocek v, Gateway, Inc.

United States District Court, D. Kansas

104 F.Supp.2d 1332 (2000)

VRATIL, District Judge.

William S. Klocek brings suit against Gateway, Inc. and Hewlett–Packard, Inc. on claims arising from purchases of a Gateway computer and a Hewlett–Packard scanner. This matter comes before the Court on the Motion to Dismiss (Doc. # 6) which Gateway filed November 22, 1999 and Defendant Hewlett–Packard, Inc.’s Motion To Dismiss, Or In The Alternative For Stay Of Proceedings (Doc. # 16) filed December 22, 1999, the Motion (Doc. # 2) to certify a class which plaintiff filed October 29, 1999, the Motion For Sanctions, Expenses and Punitives [sic] (Doc. # 11) which plaintiff filed December 3, 1999, the Motion for a Writ of Certiorari (Doc. # 12) which plaintiff filed December 6, 1999, and the Motion for Verification (Doc. # 24) which plaintiff filed January 25, 2000. For reasons stated below, the Court overrules Gateway’s motion to dismiss, sustains Hewlett–Packard’s motion to dismiss, and overrules the motions filed by plaintiff.

A. Gateway’s Motion to Dismiss

Plaintiff brings individual and class action claims against Gateway, alleging that it induced him and other consumers to purchase computers and special support packages by making false promises of technical support. Complaint, ¶¶ 3 and 4. Individually, plaintiff also claims breach of contract and breach of warranty, in that Gateway breached certain warranties that its computer would be compatible with standard peripherals and standard internet services. Complaint, ¶¶ 2, 5, and 6.

Gateway asserts that plaintiff must arbitrate his claims under Gateway’s Standard Terms and Conditions Agreement (“Standard Terms”). Whenever it sells a computer, Gateway includes a copy of the Standard Terms in the box which contains the computer battery power cables and instruction manuals. At the top of the first page, the Standard Terms include the following notice:

NOTE TO THE CUSTOMER:

This document contains Gateway 2000’s Standard Terms and Conditions. By keeping your Gateway 2000 computer system beyond five (5) days after the date of delivery, you accept these Terms and Conditions.

The notice is in emphasized type and is located inside a printed box which sets it apart from other provisions of the document. The Standard Terms are four pages long and contain 16 numbered paragraphs. Paragraph 10 provides the following arbitration clause:

DISPUTE RESOLUTION. Any dispute or controversy arising out of or relating to this Agreement or its interpretation shall be settled exclusively and finally by arbitration. The arbitration shall be conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The arbitration shall be conducted in Chicago, Illinois, U.S.A. before a sole arbitrator. Any award rendered in any such arbitration proceeding shall be final and binding on each of the parties, and judgment may be entered thereon in a court of competent jurisdiction.¹

Gateway urges the Court to dismiss plaintiff’s claims under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. The FAA ensures that written arbitration agreements in maritime transactions and transactions involving interstate commerce are “valid, irrevocable, and enforceable.” 9 U.S.C. § 2.² Federal policy favors arbitration agreements and requires that we “rigorously enforce” them. Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158, (1985)); Moses, 460 U.S. at 24, 103 S.Ct. 927. “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses, 460 U.S. at 24–25, 103 S.Ct. 927.

FAA Section 3 states:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. § 3. Although the FAA does not expressly provide for dismissal, the Tenth Circuit has affirmed dismissal where the applicant did not request a stay. See Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 797 (10th Cir.1995). Here, neither Gateway nor plaintiff requests a stay. Accordingly, the Court concludes that dismissal is appropriate if plaintiff’s claims are arbitrable.³ Accord Fedmet Corp. v. M/V BUYALYK, 194 F.3d 674, 678 (5th Cir.1999) (dismissal appropriate if all issues raised before court are arbitrable); Sparling v. Hoffman Constr. Co., 864 F.2d 635, 638 (9th Cir.1988); (district court had discretion to dismiss arbitrable claims); see also Black & Veatch Int’l Co. v. Wartsila NSD North Am., Inc., 1998 WL 953966, Case No. 97–2556–GTV (D.Kan. Dec. 17, 1998) (dismissing case and compelling arbitration).

Gateway bears an initial summary-judgment-like burden of establishing that it is entitled to arbitration. See, e.g., Par–Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n.9 (3d Cir.1980) (standard on motion to compel arbitration is same as summary judgment standard); Doctor’s Assoc., Inc. v. Distajo, 944 F.Supp. 1010, 1014 (D.Conn.1996), aff’d, 107 F.3d 126 (2d Cir.1997) (same); Dougherty v. Mieczkowski, 661 F.Supp. 267, 270 n. 1 (D.Del.1987). Thus, Gateway must present evidence sufficient to demonstrate the existence of an enforceable agreement to arbitrate. See, e.g., Oppenheimer & Co. v. Neidhardt, 56 F.3d 352, 358 (2d Cir.1995). If Gateway makes such a showing, the burden shifts to plaintiff to submit evidence demonstrating a genuine issue for trial. Id.; see also Naddy v. Piper Jaffray, Inc., 88 Wash.App. 1033, 1997 WL 749261, *2, Case Nos. 15431–9–III, 15681–8–III (Wash.App. Dec.4, 1997). In this case, Gateway fails to present evidence establishing the most basic facts regarding the transaction. The gaping holes in the evidentiary record preclude the Court from determining what state law controls the formation of the contract in this case and, consequently, prevent the Court from agreeing that Gateway’s motion is well taken.

Before granting a stay or dismissing a case pending arbitration, the Court must determine that the parties have a written agreement to arbitrate. See 9 U.S.C. §§ 3 and 4; Avedon Engineering, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir.1997). When deciding whether the parties have agreed to arbitrate, the Court applies ordinary state law principles that govern the formation of contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The existence of an arbitration agreement “is simply a matter of contract between the parties; [arbitration] is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.” Avedon, 126 F.3d at 1283 (quoting Kaplan, 514 U.S. at 943–945, 115 S.Ct. 1920). If the parties dispute making an arbitration agreement, a jury trial on the existence of an agreement is warranted if the record reveals genuine issues of material fact regarding the parties’ agreement. See Avedon, 126 F.3d at 1283.

Before evaluating whether the parties agreed to arbitrate, the Court must determine what state law controls the formation of the contract in this case. See id. at 1284. In diversity actions, the Court applies the substantive law, including choice of law rules, that Kansas state courts would apply. See Moore v. Subaru of Am., 891 F.2d 1445, 1448 (10th Cir.1989). Kansas courts apply the doctrine of lex loci contractus, which requires that the Court interpret the contract according to the law of the state in which the parties performed the last act necessary to form the contract. See Missouri Pac. R.R. Co. v. Kansas Gas and Elec. Co., 862 F.2d 796, 798 n. 1 (10th Cir.1988) (citing Simms v. Metropolitan Life Ins. Co., 9 Kan.App.2d 640, 642–43, 685 P.2d 321 (1984)).

The parties do not address the choice of law issue, and the record is unclear where they performed the last act necessary to complete the contract. Gateway presents affidavit testimony that it shipped a computer to plaintiff on or about August 31, 1997, Affidavit of David Blackwell, ¶ 5 (attached to Memorandum in Support of Motion to Dismiss (Doc. # 8)), but it provides no details regarding the transaction. Plaintiff’s complaint alleges that plaintiff lives in Missouri and, if Gateway shipped his computer, it presumably shipped it to Missouri. See Complaint, p. 1 (Doc. # 1). In his response to Gateway’s motion, however, plaintiff states that on August 27, 1997 he purchased the computer in person at the Gateway store in Overland Park, Kansas, and took it with him at that time. Response to Motion to Dismiss, ¶¶ 2(b) and 2(d) (Doc. # 9). Depending on which factual version is correct, it appears that the parties may have performed the last act necessary to form the contract in Kansas (with plaintiff purchasing the computer in Kansas), Missouri (with Gateway shipping the computer to plaintiff in Missouri), or some unidentified other states (with Gateway agreeing to ship plaintiff’s catalog order and/or Gateway actually shipping the order).⁴

The Court discerns no material difference between the applicable substantive law in Kansas and Missouri and—as to those two states—it perhaps would not need to resolve the choice of law issue at this time. See Avedon, 126 F.3d at 1284 (choice of law analysis unnecessary if relevant states have enacted identical controlling statutes); see also Missouri Pacific, 862 F.2d at 798 n. 1 (applying Kansas law where record did not indicate where final act occurred and parties did not raise issue); Phillips Petrol. Co. v. Shutts, 472 U.S. 797, 816, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985) (“There can be no injury in applying Kansas law if it is not in conflict with that of any other jurisdiction connected to this suit”).⁵

The Uniform Commercial Code (“UCC”) governs the parties’ transaction under both Kansas and Missouri law. See K.S.A. § 84–2–102; V.A.M.S. § 400.2–102 (UCC applies to “transactions in goods.”); Kansas Comment 1 (main thrust of Article 2 is limited to sales); K.S.A. § 84–2–105(1) V.A.M.S. § 400.2–105(1) (“ ‘Goods’ means all things ... which are movable at the time of identification to the contract for sale ....”). Regardless whether plaintiff purchased the computer in person or placed an order and received shipment of the computer, the parties agree that plaintiff paid for and received a computer from Gateway. This conduct clearly demonstrates a contract for the sale of a computer. See, e.g., Step–Saver Data Sys., Inc. v. Wyse Techn., 939 F.2d 91, 98 (3d Cir.1991). Thus the issue is whether the contract of sale includes the Standard Terms as part of the agreement.

State courts in Kansas and Missouri apparently have not decided whether terms received with a product become part of the parties’ agreement. Authority from other courts is split. Compare Step–Saver, 939 F.2d 91 (printed terms on computer software package not part of agreement); Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F.Supp. 759 (D.Ariz.1993) (license agreement shipped with computer software not part of agreement); and U.S. Surgical Corp. v. Orris, Inc., 5 F.Supp.2d 1201 (D.Kan.1998) (single use restriction on product package not binding agreement); with Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.), cert. denied, 522 U.S. 808, 118 S.Ct. 47, 139 L.Ed.2d 13 (1997) (arbitration provision shipped with computer binding on buyer); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.1996) (shrinkwrap license binding on buyer);⁶ and M.A. Mortenson Co., Inc. v. Timberline Software Corp., 140 Wash.2d 568, 998 P.2d 305 (2000) (following Hill and ProCD on license agreement supplied with software).⁷ It appears that at least in part, the cases turn on whether the court finds that the parties formed their contract before or after the vendor communicated its terms to the purchaser. Compare Step–Saver, 939 F.2d at 98 (parties’ conduct in shipping, receiving and paying for product demonstrates existence of contract; box top license constitutes proposal for additional terms under § 2–207 which requires express agreement by purchaser); Arizona Retail, 831 F.Supp. at 765 (vendor entered into contract by agreeing to ship goods, or at latest by shipping goods to buyer; license agreement constitutes proposal to modify agreement under § 2–209 which requires express assent by buyer); and Orris, 5 F.Supp.2d at 1206 (sales contract concluded when vendor received consumer orders; single-use language on product’s label was proposed modification under § 2–209 which requires express assent by purchaser); with ProCD, 86 F.3d at 1452 (under § 2–204 vendor, as master of offer, may propose limitations on kind of conduct that constitutes acceptance; § 2–207 does not apply in case with only one form); Hill, 105 F.3d at 1148–49 (same); and Mortenson, 998 P.2d at 311–314 (where vendor and purchaser utilized license agreement in prior course of dealing, shrinkwrap license agreement constituted issue of contract formation under § 2–204, not contract alteration under § 2–207).

Gateway urges the Court to follow the Seventh Circuit decision in Hill. That case involved the shipment of a Gateway computer with terms similar to the Standard Terms in this case, except that Gateway gave the customer 30 days—instead of 5 days—to return the computer. In enforcing the arbitration clause, the Seventh Circuit relied on its decision in ProCD, where it enforced a software license which was contained inside a product box. See Hill, 105 F.3d at 1148–50. In ProCD, the Seventh Circuit noted that the exchange of money frequently precedes the communication of detailed terms in a commercial transaction. See ProCD, 86 F.3d at 1451. Citing UCC § 2–204, the court reasoned that by including the license with the software, the vendor proposed a contract that the buyer could accept by using the software after having an opportunity to read the license.⁸ ProCD, 86 F.3d at 1452. Specifically, the court stated:

A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance.

ProCD, 86 F.3d at 1452.

The Hill court followed the ProCD analysis, noting that “[p]ractical considerations support allowing vendors to enclose the full legal terms with their products.” Hill, 105 F.3d at 1149.⁹

The Court is not persuaded that Kansas or Missouri courts would follow the Seventh Circuit reasoning in Hill and ProCD. In each case the Seventh Circuit concluded without support that UCC § 2–207 was irrelevant because the cases involved only one written form. See ProCD, 86 F.3d at 1452 (citing no authority); Hill, 105 F.3d at 1150 (citing ProCD ). This conclusion is not supported by the statute or by Kansas or Missouri law. Disputes under § 2–207 often arise in the context of a “battle of forms,” see, e.g., Diatom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir.1984), but nothing in its language precludes application in a case which involves only one form. The statute provides:

Additional terms in acceptance or confirmation.

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract [if the contract is not between merchants]....

K.S.A. § 84–2–207; V.A.M.S. § 400.2–207. By its terms, § 2–207 applies to an acceptance or written confirmation. It states nothing which requires another form before the provision becomes effective. In fact, the official comment to the section specifically provides that §§ 2–207(1) and (2) apply “where an agreement has been reached orally ... and is followed by one or both of the parties sending formal memoranda embodying the terms so far agreed and adding terms not discussed.” Official Comment 1 of UCC § 2–207. Kansas and Missouri courts have followed this analysis. See Southwest Engineering Co. v. Martin Tractor Co., 205 Kan. 684, 695, 473 P.2d 18, 26 (1970) (stating in dicta that § 2–207 applies where open offer is accepted by expression of acceptance in writing or where oral agreement is later confirmed in writing);¹⁰ Central Bag Co. v. W. Scott and Co., 647 S.W.2d 828, 830 (Mo.App.1983) (§§ 2–207(1) and (2) govern cases where one or both parties send written confirmation after oral contract). Thus, the Court concludes that Kansas and Missouri courts would apply § 2–207 to the facts in this case. Accord Avedon, 126 F.3d at 1283 (parties agree that § 2–207 controls whether arbitration clause in sales confirmation is part of contract).

In addition, the Seventh Circuit provided no explanation for its conclusion that “the vendor is the master of the offer.” See ProCD, 86 F.3d at 1452 (citing nothing in support of proposition); Hill, 105 F.3d at 1149 (citing ProCD ). In typical consumer transactions, the purchaser is the offeror, and the vendor is the offeree. See Brown Mach., Div. of John Brown, Inc. v. Hercules, Inc., 770 S.W.2d 416, 419 (Mo.App.1989) (as general rule orders are considered offers to purchase); Rich Prods. Corp. v. Kemutec Inc., 66 F.Supp.2d 937, 956 (E.D.Wis.1999) (generally price quotation is invitation to make offer and purchase order is offer). While it is possible for the vendor to be the offeror, see Brown Machine, 770 S.W.2d at 419 (price quote can amount to offer if it reasonably appears from quote that assent to quote is all that is needed to ripen offer into contract), Gateway provides no factual evidence which would support such a finding in this case. The Court therefore assumes for purposes of the motion to dismiss that plaintiff offered to purchase the computer (either in person or through catalog order) and that Gateway accepted plaintiff’s offer (either by completing the sales transaction in person or by agreeing to ship and/or shipping the computer to plaintiff).¹¹ Accord Arizona Retail, 831 F.Supp. at 765 (vendor entered into contract by agreeing to ship goods, or at latest, by shipping goods).

Under § 2–207, the Standard Terms constitute either an expression of acceptance or written confirmation. As an expression of acceptance, the Standard Terms would constitute a counter-offer only if Gateway expressly made its acceptance conditional on plaintiff’s assent to the additional or different terms. K.S.A. § 84–2–207(1); V.A.M.S. § 400.2–207(1). “[T]he conditional nature of the acceptance must be clearly expressed in a manner sufficient to notify the offeror that the offeree is unwilling to proceed with the transaction unless the additional or different terms are included in the contract.” Brown Machine, 770 S.W.2d at 420.¹² Gateway provides no evidence that at the time of the sales transaction, it informed plaintiff that the transaction was conditioned on plaintiff’s acceptance of the Standard Terms. Moreover, the mere fact that Gateway shipped the goods with the terms attached did not communicate to plaintiff any unwillingness to proceed without plaintiff’s agreement to the Standard Terms. See, e.g., Arizona Retail, 831 F.Supp. at 765 (conditional acceptance analysis rarely appropriate where contract formed by performance but goods arrive with conditions attached); Leighton Indus., Inc. v. Callier Steel Pipe & Tube, Inc., 1991 WL 18413, *6, Case No. 89–C–8235 (N.D.Ill. Feb. 6, 1991) (applying Missouri law) (preprinted forms insufficient to notify offeror of conditional nature of acceptance, particularly where form arrives after delivery of goods).

Because plaintiff is not a merchant, additional or different terms contained in the Standard Terms did not become part of the parties’ agreement unless plaintiff expressly agreed to them. See K.S.A. § 84–2–207, Kansas Comment 2 (if either party is not a merchant, additional terms are proposals for addition to the contract that do not become part of the contract unless the original offeror expressly agrees).¹³ Gateway argues that plaintiff demonstrated acceptance of the arbitration provision by keeping the computer more than five days after the date of delivery. Although the Standard Terms purport to work that result, Gateway has not presented evidence that plaintiff expressly agreed to those Standard Terms. Gateway states only that it enclosed the Standard Terms inside the computer box for plaintiff to read afterwards. It provides no evidence that it informed plaintiff of the five-day review-and-return period as a condition of the sales transaction, or that the parties contemplated additional terms to the agreement.¹⁴ See Step–Saver, 939 F.2d at 99 (during negotiations leading to purchase, vendor never mentioned box-top license or obtained buyer’s express assent thereto). The Court finds that the act of keeping the computer past five days was not sufficient to demonstrate that plaintiff expressly agreed to the Standard Terms. Accord Brown Machine, 770 S.W.2d at 421 (express assent cannot be presumed by silence or mere failure to object). Thus, because Gateway has not provided evidence sufficient to support a finding under Kansas or Missouri law that plaintiff agreed to the arbitration provision contained in Gateway’s Standard Terms, the Court overrules Gateway’s motion to dismiss.

The motion also must be overruled because Kansas and Missouri law may not apply. As noted above, the Court must interpret the contract according to the law of the state in which the parties performed the last act necessary to form the contract. Gateway’s motion does not address the choice of law issue, and the record is woefully unclear where the parties performed the last act necessary to complete the contract. Gateway therefore has not established that its motion is meritorious. If Gateway contends that the issue of contract formation is governed by some law other than that of Kansas or Missouri, it shall file a supplemental motion which cites the factual and legal basis for its position. The Court will review that submission and decide whether to order a jury trial on the existence of an agreement to arbitrate. See Avedon, 126 F.3d at 1283.

B. Hewlett–Packard’s Motion to Dismiss

Plaintiff brings individual and class action claims against Hewlett–Packard, claiming that it breached a duty to warn consumers that its products are incompatible with Gateway computers. Complaint, ¶ 7. Hewlett–Packard asserts that the Court lacks diversity jurisdiction under 28 U.S.C. § 1332(a) because plaintiff does not seek damages in excess of $75,000.

Federal courts are courts of limited jurisdiction and may exercise jurisdiction only when specifically authorized to do so. See Castaneda v. I.N.S., 23 F.3d 1576, 1580 (10th Cir.1994). A court lacking jurisdiction must dismiss the cause at any stage of the proceeding in which it becomes apparent that jurisdiction is lacking. Scheideman v. Shawnee County Bd. of County Comm’rs, 895 F.Supp. 279, 280 (D.Kan.1995) (citing Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir.1974)); Fed.R.Civ.P. 12(h)(3). The party who seeks to invoke federal jurisdiction bears the burden of establishing that such jurisdiction is proper. Basso, 495 F.2d at 909 (10th Cir.1974). When federal jurisdiction is challenged, plaintiff bears the burden of showing why the case should not be dismissed.¹⁵ Jensen v. Johnson County Youth Baseball League, 838 F.Supp. 1437, 1439–40 (D.Kan.1993).

Challenges to jurisdiction under Fed.R.Civ.P. 12(b)(1) generally take two forms: facial attacks on the sufficiency of jurisdictional allegations or factual attacks on the accuracy of those allegations. Holt v. U.S., 46 F.3d 1000, 1002–3 (10th Cir.1995). Defendant’s motion falls within the former category, and neither party relies on evidence outside the complaint. “[W]here the motion to dismiss states that it affirmatively appears from the allegations of the complaint that the requisite jurisdictional amount is not involved, the question of jurisdiction may be determined on the allegations of the complaint, without the production of any evidence.” Gibson v. Jeffers, 478 F.2d 216, 220–21 (10th Cir.1973).

Ordinarily, the amount plaintiff claims in the pleadings controls if he apparently makes the claim in good faith. F & S Const. Co. v. Jensen, 337 F.2d 160, 162 (10th Cir.1964).

But if, from the face of the pleadings, it is apparent, to a legal certainty, that plaintiff cannot recover the amount claimed, or if from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed.

Jensen, 337 F.2d at 162 (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 82 L.Ed. 845 (1938)).

Plaintiff’s only response regarding the amount of damages is: “A careful reading of the complaint shows damages in excess of $24,000.00.” Plaintiff’s Response to Hewlett–Packard’s Support of Gateway’s Motion to Dismiss or Stay, ¶ 1 (Doc. # 23) filed January 25, 2000 (emphasis added).¹⁶ The Court agrees with plaintiff’s statement. In the opening paragraph of the complaint, plaintiff alleges generally that defendants have caused him personal damages in excess of $350,000 and caused class damages exceeding $350,000. At the end of the complaint, plaintiff itemizes the damages as follows: $350,000 in actual damages (including lost time of over $300,000, see Complaint, ¶ 3) and $3,500,000 in punitive damages against Gateway; $24,000 plus unitemized punitive damages against Gateway; and $24,000 plus unitemized punitive damages against Hewlett Packard. Complaint, pp. 6–7.¹⁷

Merely alleging damages in excess of $24,000 is not sufficient to meet plaintiff’s burden of establishing that jurisdiction is proper. While plaintiff is not necessarily required to specify an exact amount of punitive damages, see, e.g., Bell v. Preferred Life Assur. Soc. of Montgomery, Ala., 320 U.S. 238, 241, 64 S.Ct. 5, 88 L.Ed. 15 (1943) (issue is whether it appears to a legal certainty that plaintiff could not recover sufficient actual and punitive damages to meet jurisdictional requirement), plaintiff must allege enough facts to convince the Court that recoverable damages will bear a reasonable relation to the minimum jurisdictional requirement. See Gibson, 478 F.2d at 221. In the complaint, plaintiff alleges only that Hewlett–Packard sold him a scanner without warning him that it was not compatible with Gateway computers, and that Hewlett–Packard had a duty to warn of any incompatibility problems. See Complaint, ¶ 7. He alleges no facts to support actual damages of $24,000, nor does he allege facts to show that he is entitled to punitive damages or the amount thereof. Plaintiff argues that the Court has jurisdiction over joinder claims against Hewlett–Packard under Rules 18, 19 and 20 of the Federal Rules of Civil Procedure. Rule 18 deals with joinder of claims and remedies against a single party, however, and joinder under Rules 19 and 20 requires independent subject matter jurisdiction over the claims against the joined defendant. See 7 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil 2d §§ 1610, 1659. Thus, regardless of the joinder rules, plaintiff must claim damages exceeding $75,000 against Hewlett–Packard in order to satisfy the diversity jurisdictional requirement. Plaintiff fails to do so. Thus, the Court finds that Hewlett–Packard’s motion to dismiss should be sustained.¹⁸

C. Plaintiff’s Motions

Plaintiff has filed four motions which are currently pending before the Court. First, he asks the Court to certify a class.¹⁹ A prerequisite for class action certification is a finding by the Court that the representative party can “fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a)(4). Due process requires that the Court “stringently” apply the competent representation requirement because class members are bound by the judgment (unless they opt out), even though they may not actually be aware of the proceedings. Albertson’s, Inc. v. Amalgamated Sugar Co., 503 F.2d 459, 463–64 (10th Cir.1974). Because a layperson ordinarily does not possess the legal training and expertise necessary to protect the interests of a proposed class, courts are reluctant to certify a class represented by a pro se litigant. See 7A Charles A. Wright, Arthur R. Miller, Mary Kay Kane, Federal Practice and Procedure § 1769.1 n. 12; see also Oxendine v. Williams, 509 F.2d 1405, 1407 (4th Cir.1975) (pro se prisoners are not adequate representatives for a class). Moreover, although plaintiff has the right to appear pro se on his own behalf, he may not represent another pro se plaintiff in federal court. 28 U.S.C. § 1654; see, e.g., U.S. v. Grismore, 546 F.2d 844 (10th Cir.1976); Herrera–Venegas v. Sanchez–Rivera, 681 F.2d 41, 42 (1st Cir.1982); U.S. v. Taylor, 569 F.2d 448 (7th Cir.1978). Accordingly, the Court concludes that plaintiff is not an adequate class representative and overrules his motion to certify a class.

Second, plaintiff requests a “writ of certiorari” to the District Court of Johnson County, Kansas, for a transcript and certified copy of all documents in a prior case. Courts generally have their own procedures for obtaining transcripts and certified copies of documents in a prior case. Plaintiff provides no information to lead the Court to conclude otherwise, nor does he cite any legal authority to support that this Court has the power to grant his unusual request.²⁰ Accordingly, the Court overrules plaintiff’s motion for a “writ of certiorari.”

Finally, plaintiff seeks sanctions against Gateway counsel because of alleged deficiencies in their citation to legal authorities, and he urges the Court to require certain defense counsel to verify that they have notified courts that he has lodged an ethical complaint against them. The Court finds no merit to either request and therefore overrules both motions.

* * *

Hill v. Gateway 2000, Inc.

United States Court of Appeals, Seventh Circuit

105 F.3d 1147 (1997)

EASTERBROOK, Circuit Judge.

A customer picks up the phone, orders a computer, and gives a credit card number. Presently a box arrives, containing the computer and a list of terms, said to govern unless the customer returns the computer within 30 days. Are these terms effective as the parties’ contract, or is the contract term-free because the order-taker did not read any terms over the phone and elicit the customer’s assent?

One of the terms in the box containing a Gateway 2000 system was an arbitration clause. Rich and Enza Hill, the customers, kept the computer more than 30 days before complaining about its components and performance. They filed suit in federal court arguing, among other things, that the product’s shortcomings make Gateway a racketeer (mail and wire fraud are said to be the predicate offenses), leading to treble damages under RICO for the Hills and a class of all other purchasers. Gateway asked the district court to enforce the arbitration clause; the judge refused, writing that “[t]he present record is insufficient to support a finding of a valid arbitration agreement between the parties or that the plaintiffs were given adequate notice of the arbitration clause.” Gateway took an immediate appeal, as is its right. 9 U.S.C. § 16(a)(1)(A).

The Hills say that the arbitration clause did not stand out: they concede noticing the statement of terms but deny reading it closely enough to discover the agreement to arbitrate, and they ask us to conclude that they therefore may go to court. Yet an agreement to arbitrate must be enforced “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Doctor’s Associates, Inc. v. Casarotto, 517U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996), holds that this provision of the Federal Arbitration Act is inconsistent with any requirement that an arbitration clause be prominent. A contract need not be read to be effective; people who accept take the risk that the unread terms may in retrospect prove unwelcome.  Carr v. CIGNA Securities, Inc., 95 F.3d 544, 547 (7th Cir.1996);  Chicago Pacific Corp. v. Canada Life Assurance Co., 850 F.2d 334 (7th Cir.1988). Terms inside Gateway’s box stand or fall together. If they constitute the parties’ contract because the Hills had an opportunity to return the computer after reading them, then all must be enforced.

ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.1996), holds that terms inside a box of software bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product. Likewise, Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991), enforces a forum-selection clause that was included among three pages of terms attached to a cruise ship ticket. ProCD and Carnival Cruise Lines exemplify the many commercial transactions in which people pay for products with terms to follow; ProCD discusses others. 86 F.3d at 1451–52. The district court concluded in ProCD that the contract is formed when the consumer pays for the software; as a result, the court held, only terms known to the consumer at that moment are part of the contract, and provisos inside the box do not count. Although this is one way a contract could be formed, it is not the only way: “A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance.”  Id. at 1452. Gateway shipped computers with the same sort of accept-or-return offer ProCD made to users of its software. ProCD relied on the Uniform Commercial Code rather than any peculiarities of Wisconsin law; both Illinois and South Dakota, the two states whose law might govern relations between Gateway and the Hills, have adopted the UCC; neither side has pointed us to any atypical doctrines in those states that might be pertinent; ProCD therefore applies to this dispute.

Plaintiffs ask us to limit ProCD to software, but where’s the sense in that? ProCD is about the law of contract, not the law of software. Payment preceding the revelation of full terms is common for air transportation, insurance, and many other endeavors. Practical considerations support allowing vendors to enclose the full legal terms with their products. Cashiers cannot be expected to read legal documents to customers before ringing up sales. If the staff at the other end of the phone for direct-sales operations such as Gateway’s had to read the four-page statement of terms before taking the buyer’s credit card number, the droning voice would anesthetize rather than enlighten many potential buyers. Others would hang up in a rage over the waste of their time. And oral recitation would not avoid customers’ assertions (whether true or feigned) that the clerk did not read term X to them, or that they did not remember or understand it. Writing provides benefits for both sides of commercial transactions. Customers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device. Competent adults are bound by such documents, read or unread. For what little it is worth, we add that the box from Gateway was crammed with software. The computer came with an operating system, without which it was useful only as a boat anchor. See Digital Equipment Corp. v. Uniq Digital Technologies, Inc., 73 F.3d 756, 761 (7th Cir.1996). Gateway also included many application programs. So the Hills’ effort to limit ProCD to software would not avail them factually, even if it were sound legally—which it is not.

For their second sally, the Hills contend that ProCD should be limited to executory contracts (to licenses in particular), and therefore does not apply because both parties’ performance of this contract was complete when the box arrived at their home. This is legally and factually wrong: legally because the question at hand concerns the formation of the contract rather than its performance, and factually because both contracts were incompletely performed. ProCD did not depend on the fact that the seller characterized the transaction as a license rather than as a contract; we treated it as a contract for the sale of goods and reserved the question whether for other purposes a “license” characterization might be preferable. 86 F.3d at 1450. All debates about characterization to one side, the transaction in ProCD was no more executory than the one here: Zeidenberg paid for the software and walked out of the store with a box under his arm, so if arrival of the box with the product ends the time for revelation of contractual terms, then the time ended in ProCD before Zeidenberg opened the box. But of course ProCD had not completed performance with delivery of the box, and neither had Gateway. One element of the transaction was the warranty, which obliges sellers to fix defects in their products. The Hills have invoked Gateway’s warranty and are not satisfied with its response, so they are not well positioned to say that Gateway’s obligations were fulfilled when the motor carrier unloaded the box. What is more, both ProCD and Gateway promised to help customers to use their products. Long-term service and information obligations are common in the computer business, on both hardware and software sides. Gateway offers “lifetime service” and has a round-the-clock telephone hotline to fulfil this promise. Some vendors spend more money helping customers use their products than on developing and manufacturing them. The document in Gateway’s box includes promises of future performance that some consumers value highly; these promises bind Gateway just as the arbitration clause binds the Hills.

Next the Hills insist that ProCD is irrelevant because Zeidenberg was a “merchant” and they are not. Section 2–207(2) of the UCC, the infamous battle-of-the-forms section, states that “additional terms [following acceptance of an offer] are to be construed as proposals for addition to a contract. Between merchants such terms become part of the contract unless ...”. Plaintiffs tell us that ProCD came out as it did only because Zeidenberg was a “merchant” and the terms inside ProCD’s box were not excluded by the “unless” clause. This argument pays scant attention to the opinion in ProCD, which concluded that, when there is only one form, “sec. 2–207 is irrelevant.” 86 F.3d at 1452. The question in ProCD was not whether terms were added to a contract after its formation, but how and when the contract was formed—in particular, whether a vendor may propose that a contract of sale be formed, not in the store (or over the phone) with the payment of money or a general “send me the product,” but after the customer has had a chance to inspect both the item and the terms. ProCD answers “yes,” for merchants and consumers alike. Yet again, for what little it is worth we observe that the Hills misunderstand the setting of ProCD. A “merchant” under the UCC “means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction”, § 2–104(1). Zeidenberg bought the product at a retail store, an uncommon place for merchants to acquire inventory. His corporation put ProCD’s database on the Internet for anyone to browse, which led to the litigation but did not make Zeidenberg a software merchant.

At oral argument the Hills propounded still another distinction: the box containing ProCD’s software displayed a notice that additional terms were within, while the box containing Gateway’s computer did not. The difference is functional, not legal. Consumers browsing the aisles of a store can look at the box, and if they are unwilling to deal with the prospect of additional terms can leave the box alone, avoiding the transactions costs of returning the package after reviewing its contents. Gateway’s box, by contrast, is just a shipping carton; it is not on display anywhere. Its function is to protect the product during transit, and the information on its sides is for the use of handlers rather than would-be purchasers. [note: image of text on the outside of a box stating "FRAGILE. THIS SIDE UP." omitted]

Perhaps the Hills would have had a better argument if they were first alerted to the bundling of hardware and legal-ware after opening the box and wanted to return the computer in order to avoid disagreeable terms, but were dissuaded by the expense of shipping. What the remedy would be in such a case—could it exceed the shipping charges?—is an interesting question, but one that need not detain us because the Hills knew before they ordered the computer that the carton would include some important terms, and they did not seek to discover these in advance. Gateway’s ads state that their products come with limited warranties and lifetime support. How limited was the warranty—30 days, with service contingent on shipping the computer back, or five years, with free onsite service? What sort of support was offered? Shoppers have three principal ways to discover these things. First, they can ask the vendor to send a copy before deciding whether to buy. The Magnuson–Moss Warranty Act requires firms to distribute their warranty terms on request, 15 U.S.C. § 2302(b)(1)(A); the Hills do not contend that Gateway would have refused to enclose the remaining terms too. Concealment would be bad for business, scaring some customers away and leading to excess returns from others. Second, shoppers can consult public sources (computer magazines, the Web sites of vendors) that may contain this information. Third, they may inspect the documents after the product’s delivery. Like Zeidenberg, the Hills took the third option. By keeping the computer beyond 30 days, the Hills accepted Gateway’s offer, including the arbitration clause.

The Hills’ remaining arguments, including a contention that the arbitration clause is unenforceable as part of a scheme to defraud, do not require more than a citation to Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Whatever may be said pro and con about the cost and efficacy of arbitration (which the Hills disparage) is for Congress and the contracting parties to consider. Claims based on RICO are no less arbitrable than those founded on the contract or the law of torts.  Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 238–42, 107 S.Ct. 2332, 2343–46, 96 L.Ed.2d 185 (1987). The decision of the district court is vacated, and this case is remanded with instructions to compel the Hills to submit their dispute to arbitration.

Specht v. Netscape Communications Corp.

United States Court of Appeals, Second Circuit

306 F.3d 17 (2002)

SOTOMAYOR, Circuit Judge.

This is an appeal from a judgment of the Southern District of New York denying a motion by defendants-appellants Netscape Communications Corporation and its corporate parent, America Online, Inc. (collectively, “defendants” or “Netscape”), to compel arbitration and to stay court proceedings. In order to resolve the central question of arbitrability presented here, we must address issues of contract formation in cyberspace. Principally, we are asked to determine whether plaintiffs-appellees (“plaintiffs”), by acting upon defendants’ invitation to download free software made available on defendants’ webpage, agreed to be bound by the software’s license terms (which included the arbitration clause at issue), even though plaintiffs could not have learned of the existence of those terms unless, prior to executing the download, they had scrolled down the webpage to a screen located below the download button. We agree with the district court that a reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the license terms before responding to defendants’ invitation to download the free software, and that defendants therefore did not provide reasonable notice of the license terms. In consequence, plaintiffs’ bare act of downloading the software did not unambiguously manifest assent to the arbitration provision contained in the license terms.

* * *

We therefore affirm the district court’s denial of defendants’ motion to compel arbitration and to stay court proceedings.

BACKGROUND

I. Facts

In three related putative class actions,¹ plaintiffs alleged that, unknown to them, their use of SmartDownload transmitted to defendants private information about plaintiffs’ downloading of files from the Internet, thereby effecting an electronic surveillance of their online activities in violation of two federal statutes, the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act.

…

In the time period relevant to this litigation, Netscape offered on its website various software programs, including Communicator and SmartDownload, which visitors to the site were invited to obtain free of charge. It is undisputed that five of the six named plaintiffs—Michael Fagan, John Gibson, Mark Gruber, Sean Kelly, and Sherry Weindorf—downloaded Communicator from the Netscape website. These plaintiffs acknowledge that when they proceeded to initiate installation³ of Communicator, they were automatically shown a scrollable text of that program’s license agreement and were not permitted to complete the installation until they had clicked on a “Yes” button to indicate that they accepted all the license terms.⁴ If a user attempted to install Communicator without clicking “Yes,” the installation would be aborted. All five named user plaintiffs⁵ expressly agreed to Communicator’s license terms by clicking “Yes.” The Communicator license agreement that these plaintiffs saw made no mention of SmartDownload or other plug-in programs, and stated that “[t]hese terms apply to Netscape Communicator and Netscape Navigator”⁶ and that “all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights)” are subject to “binding arbitration in Santa Clara County, California.”

Although Communicator could be obtained independently of SmartDownload, all the named user plaintiffs, except Fagan, downloaded and installed Communicator in connection with downloading SmartDownload.⁷ Each of these plaintiffs allegedly arrived at a Netscape webpage⁸ captioned “SmartDownload Communicator” that urged them to “Download With Confidence Using SmartDownload!” At or near the bottom of the screen facing plaintiffs was the prompt “Start Download” and a tinted button labeled “Download.” By clicking on the button, plaintiffs initiated the download of SmartDownload. Once that process was complete, SmartDownload, as its first plug-in task, permitted plaintiffs to proceed with downloading and installing Communicator, an operation that was accompanied by the clickwrap display of Communicator’s license terms described above.

The signal difference between downloading Communicator and downloading SmartDownload was that no clickwrap presentation accompanied the latter operation. Instead, once plaintiffs Gibson, Gruber, Kelly, and Weindorf had clicked on the “Download” button located at or near the bottom of their screen, and the downloading of SmartDownload was complete, these plaintiffs encountered no further information about the plug-in program or the existence of license terms governing its use.⁹ The sole reference to SmartDownload’s license terms on the “SmartDownload Communicator” webpage was located in text that would have become visible to plaintiffs only if they had scrolled down to the next screen.

Had plaintiffs scrolled down instead of acting on defendants’ invitation to click on the “Download” button, they would have encountered the following invitation: “Please review and agree to the terms of the Netscape SmartDownload software license agreement before downloading and using the software.” Plaintiffs Gibson, Gruber, Kelly, and Weindorf averred in their affidavits that they never saw this reference to the SmartDownload license agreement when they clicked on the “Download” button. They also testified during depositions that they saw no reference to license terms when they clicked to download SmartDownload, although under questioning by defendants’ counsel, some plaintiffs added that they could not “remember” or be “sure” whether the screen shots of the SmartDownload page attached to their affidavits reflected precisely what they had seen on their computer screens when they downloaded SmartDownload.¹⁰

In sum, plaintiffs Gibson, Gruber, Kelly, and Weindorf allege that the process of obtaining SmartDownload contrasted sharply with that of obtaining Communicator. Having selected SmartDownload, they were required neither to express unambiguous assent to that program’s license agreement nor even to view the license terms or become aware of their existence before proceeding with the invited download of the free plug-in program. Moreover, once these plaintiffs had initiated the download, the existence of SmartDownload’s license terms was not mentioned while the software was running or at any later point in plaintiffs’ experience of the product.

Even for a user who, unlike plaintiffs, did happen to scroll down past the download button, SmartDownload’s license terms would not have been immediately displayed in the manner of Communicator’s clickwrapped terms. Instead, if such a user had seen the notice of SmartDownload’s terms and then clicked on the underlined invitation to review and agree to the terms, a hypertext link would have taken the user to a separate webpage entitled “License & Support Agreements.” The first paragraph on this page read, in pertinent part:

The use of each Netscape software product is governed by a license agreement. You must read and agree to the license agreement terms BEFORE acquiring a product. Please click on the appropriate link below to review the current license agreement for the product of interest to you before acquisition. For products available for download, you must read and agree to the license agreement terms BEFORE you install the software. If you do not agree to the license terms, do not download, install or use the software.

Below this paragraph appeared a list of license agreements, the first of which was “License Agreement for Netscape Navigator and Netscape Communicator Product Family (Netscape Navigator, Netscape Communicator and Netscape SmartDownload).” If the user clicked on that link, he or she would be taken to yet another webpage that contained the full text of a license agreement that was identical in every respect to the Communicator license agreement except that it stated that its “terms apply to Netscape Communicator, Netscape Navigator, and Netscape SmartDownload.” The license agreement granted the user a nonexclusive license to use and reproduce the software, subject to certain terms:

BY CLICKING THE ACCEPTANCE BUTTON OR INSTALLING OR USING NETSCAPE COMMUNICATOR, NETSCAPE NAVIGATOR, OR NETSCAPE SMARTDOWNLOAD SOFTWARE (THE “PRODUCT”), THE INDIVIDUAL OR ENTITY LICENSING THE PRODUCT (“LICENSEE”) IS CONSENTING TO BE BOUND BY AND IS BECOMING A PARTY TO THIS AGREEMENT. IF LICENSEE DOES NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, THE BUTTON INDICATING NON–ACCEPTANCE MUST BE SELECTED, AND LICENSEE MUST NOT INSTALL OR USE THE SOFTWARE.

Among the license terms was a provision requiring virtually all disputes relating to the agreement to be submitted to arbitration:

Unless otherwise agreed in writing, all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights) shall be subject to final and binding arbitration in Santa Clara County, California, under the auspices of JAMS/EndDispute, with the losing party paying all costs of arbitration.

Unlike the four named user plaintiffs who downloaded SmartDownload from the Netscape website, the fifth named plaintiff, Michael Fagan, claims to have downloaded the plug-in program from a “shareware” website operated by ZDNet, an entity unrelated to Netscape. Shareware sites are websites, maintained by companies or individuals, that contain libraries of free, publicly available software. The pages that a user would have seen while downloading SmartDownload from ZDNet differed from those that he or she would have encountered while downloading SmartDownload from the Netscape website. Notably, instead of any kind of notice of the SmartDownload license agreement, the ZDNet pages offered only a hypertext link to “more information” about SmartDownload, which, if clicked on, took the user to a Netscape webpage that, in turn, contained a link to the license agreement. Thus, a visitor to the ZDNet website could have obtained SmartDownload, as Fagan avers he did, without ever seeing a reference to that program’s license terms, even if he or she had scrolled through all of ZDNet’s webpages.

The sixth named plaintiff, Christopher Specht, never obtained or used SmartDownload, but instead operated a website from which visitors could download certain electronic files that permitted them to create an account with an internet service provider called WhyWeb. Specht alleges that every time a user who had previously installed SmartDownload visited his website and downloaded WhyWeb-related files, defendants intercepted this information. Defendants allege that Specht would receive a representative’s commission from WhyWeb every time a user who obtained a WhyWeb file from his website subsequently subscribed to the WhyWeb service. Thus, argue defendants, because the “Netscape license agreement ... conferred on each user the right to download and use both Communicator and SmartDownload software,” Specht received a benefit under that license agreement in that SmartDownload “assisted in obtaining the WhyWeb file and increased the likelihood of success in the download process.” This benefit, defendants claim, was direct enough to require Specht to arbitrate his claims pursuant to Netscape’s license terms. Specht, however, maintains that he never received any commissions based on the WhyWeb files available on his website.

II. Proceedings Below

In the district court, defendants moved to compel arbitration and to stay court proceedings pursuant to the Federal Arbitration Act (“FAA”), arguing that the disputes reflected in the complaints, like any other dispute relating to the SmartDownload license agreement, are subject to the arbitration clause contained in that agreement. Finding that Netscape’s webpage, unlike typical examples of clickwrap, neither adequately alerted users to the existence of SmartDownload’s license terms nor required users unambiguously to manifest assent to those terms as a condition of downloading the product, the court held that the user plaintiffs had not entered into the SmartDownload license agreement.

…

Defendants took this timely appeal pursuant to 9 U.S.C. § 16, and the district court stayed all proceedings in the underlying cases pending resolution of the appeal. This Court has jurisdiction pursuant to § 16(a)(1)(B), as this is an appeal from an order denying defendants’ motion to compel arbitration under the FAA.

DISCUSSION

1. Standard of Review and Applicable Law

A district court’s denial of a motion to compel arbitration is reviewed de novo. The determination of whether parties have contractually bound themselves to arbitrate a dispute—a determination involving interpretation of state law—is a legal conclusion also subject to de novo review. The findings upon which that conclusion is based, however, are factual and thus may not be overturned unless clearly erroneous.

If a court finds that the parties agreed to arbitrate, it should then consider whether the dispute falls within the scope of the arbitration agreement. A district court’s determination of the scope of an arbitration agreement is reviewed de novo. In addition, whether a party may be compelled to arbitrate as a result of direct benefits that he or she allegedly received under a contract entered into by others is an issue of arbitrability that is reviewed de novo.

The FAA provides that a “written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”¹¹ 9 U.S.C. § 2. It is well settled that a court may not compel arbitration until it has resolved “the question of the very existence” of the contract embodying the arbitration clause. “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” [citation omitted] Unless the parties clearly provide otherwise, “the question of arbitrability—whether a[n] ... agreement creates a duty for the parties to arbitrate the particular grievance—is undeniably an issue for judicial determination.” [citation omitted]

The district court properly concluded that in deciding whether parties agreed to arbitrate a certain matter, a court should generally apply state-law principles to the issue of contract formation. Therefore, state law governs the question of whether the parties in the present case entered into an agreement to arbitrate disputes relating to the SmartDownload license agreement. The district court further held that California law governs the question of contract formation here; the parties do not appeal that determination.

* * *

III. Whether the User Plaintiffs Had Reasonable Notice of and Manifested Assent to the SmartDownload License Agreement

Whether governed by the common law or by Article 2 of the Uniform Commercial Code (“UCC”), a transaction, in order to be a contract, requires a manifestation of agreement between the parties. Mutual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract. Although an onlooker observing the disputed transactions in this case would have seen each of the user plaintiffs click on the SmartDownload “Download” button, a consumer’s clicking on a download button does not communicate assent to contractual terms if the offer did not make clear to the consumer that clicking on the download button would signify assent to those terms. California’s common law is clear that “an offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he is unaware, contained in a document whose contractual nature is not obvious.” [citation omitted]

Arbitration agreements are no exception to the requirement of manifestation of assent. “This principle of knowing consent applies with particular force to provisions for arbitration.” [citation omitted]. Clarity and conspicuousness of arbitration terms are important in securing informed assent. “If a party wishes to bind in writing another to an agreement to arbitrate future disputes, such purpose should be accomplished in a way that each party to the arrangement will fully and clearly comprehend that the agreement to arbitrate exists and binds the parties thereto.” [citation omitted]. Thus, California contract law measures assent by an objective standard that takes into account both what the offeree said, wrote, or did and the transactional context in which the offeree verbalized or acted.

A. The Reasonably Prudent Offeree of Downloadable Software

Defendants argue that plaintiffs must be held to a standard of reasonable prudence and that, because notice of the existence of SmartDownload license terms was on the next scrollable screen, plaintiffs were on “inquiry notice” of those terms.¹⁴ We disagree with the proposition that a reasonably prudent offeree in plaintiffs’ position would necessarily have known or learned of the existence of the SmartDownload license agreement prior to acting, so that plaintiffs may be held to have assented to that agreement with constructive notice of its terms. It is true that “[a] party cannot avoid the terms of a contract on the ground that he or she failed to read it before signing.” Marin Storage & Trucking, 89 Cal.App.4th at 1049, 107 Cal.Rptr.2d at 651. But courts are quick to add: “An exception to this general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient. In such a case, no contract is formed with respect to the undisclosed term.” Id.

Most of the cases cited by defendants in support of their inquiry-notice argument are drawn from the world of paper contracting. [string cite omitted].

As the foregoing cases suggest, receipt of a physical document containing contract terms or notice thereof is frequently deemed, in the world of paper transactions, a sufficient circumstance to place the offeree on inquiry notice of those terms. “Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact.” Cal. Civ.Code § 19. These principles apply equally to the emergent world of online product delivery, pop-up screens, hyperlinked pages, clickwrap licensing, scrollable documents, and urgent admonitions to “Download Now!”. What plaintiffs saw when they were being invited by defendants to download this fast, free plug-in called SmartDownload was a screen containing praise for the product and, at the very bottom of the screen, a “Download” button. Defendants argue that under the principles set forth in the cases cited above, a “fair and prudent person using ordinary care” would have been on inquiry notice of SmartDownload’s license terms.

We are not persuaded that a reasonably prudent offeree in these circumstances would have known of the existence of license terms. Plaintiffs were responding to an offer that did not carry an immediately visible notice of the existence of license terms or require unambiguous manifestation of assent to those terms. Thus, plaintiffs’ “apparent manifestation of ... consent” was to terms “contained in a document whose contractual nature [was] not obvious.” Windsor Mills, 25 Cal.App.3d at 992, 101 Cal.Rptr. at 351. Moreover, the fact that, given the position of the scroll bar on their computer screens, plaintiffs may have been aware that an unexplored portion of the Netscape webpage remained below the download button does not mean that they reasonably should have concluded that this portion contained a notice of license terms. In their deposition testimony, plaintiffs variously stated that they used the scroll bar “[o]nly if there is something that I feel I need to see that is on—that is off the page,” or that the elevated position of the scroll bar suggested the presence of “mere[ ] formalities, standard lower banner links” or “that the page is bigger than what I can see.” Plaintiffs testified, and defendants did not refute, that plaintiffs were in fact unaware that defendants intended to attach license terms to the use of SmartDownload.

We conclude that in circumstances such as these, where consumers are urged to download free software at the immediate click of a button, a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.¹⁵ The SmartDownload webpage screen was “printed in such a manner that it tended to conceal the fact that it was an express acceptance of [Netscape’s] rules and regulations.” Larrus, 266 P.2d at 147. Internet users may have, as defendants put it, “as much time as they need[ ]” to scroll through multiple screens on a webpage, but there is no reason to assume that viewers will scroll down to subsequent screens simply because screens are there. When products are “free” and users are invited to download them in the absence of reasonably conspicuous notice that they are about to bind themselves to contract terms, the transactional circumstances cannot be fully analogized to those in the paper world of arm’s-length bargaining. In the next two sections, we discuss case law and other legal authorities that have addressed the circumstances of computer sales, software licensing, and online transacting. Those authorities tend strongly to support our conclusion that plaintiffs did not manifest assent to SmartDownload’s license terms.

B. Shrinkwrap Licensing and Related Practices

Defendants cite certain well-known cases involving shrinkwrap licensing and related commercial practices in support of their contention that plaintiffs became bound by the SmartDownload license terms by virtue of inquiry notice. For example, in Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.1997), the Seventh Circuit held that where a purchaser had ordered a computer over the telephone, received the order in a shipped box containing the computer along with printed contract terms, and did not return the computer within the thirty days required by the terms, the purchaser was bound by the contract. Id. at 1148–49. In ProCD, Inc. v. Zeidenberg, the same court held that where an individual purchased software in a box containing license terms which were displayed on the computer screen every time the user executed the software program, the user had sufficient opportunity to review the terms and to return the software, and so was contractually bound after retaining the product. [string cite omitted].

These cases do not help defendants. To the extent that they hold that the purchaser of a computer or tangible software is contractually bound after failing to object to printed license terms provided with the product, Hill and Brower do not differ markedly from the cases involving traditional paper contracting discussed in the previous section. Insofar as the purchaser in ProCD was confronted with conspicuous, mandatory license terms every time he ran the software on his computer, that case actually undermines defendants’ contention that downloading in the absence of conspicuous terms is an act that binds plaintiffs to those terms. In Mortenson, the full text of license terms was printed on each sealed diskette envelope inside the software box, printed again on the inside cover of the user manual, and notice of the terms appeared on the computer screen every time the purchaser executed the program. In sum, the foregoing cases are clearly distinguishable from the facts of the present action.

C. Online Transactions

Cases in which courts have found contracts arising from Internet use do not assist defendants, because in those circumstances there was much clearer notice than in the present case that a user’s act would manifest assent to contract terms.¹⁶ [string cite omitted]

After reviewing the California common law and other relevant legal authority, we conclude that under the circumstances here, plaintiffs’ downloading of SmartDownload did not constitute acceptance of defendants’ license terms. Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers are essential if electronic bargaining is to have integrity and credibility. We hold that a reasonably prudent offeree in plaintiffs’ position would not have known or learned, prior to acting on the invitation to download, of the reference to SmartDownload’s license terms hidden below the “Download” button on the next screen. We affirm the district court’s conclusion that the user plaintiffs, including Fagan, are not bound by the arbitration clause contained in those terms.¹⁸

Domer v. Menard, Inc.

United States Court of Appeals, Seventh Circuit

116 F.4th 686 (2024)

Brennan, Circuit Judge.

Pilar Domer submitted an online order to pick up a can of paint at a Menards home improvement store. Menards charged Domer a $1.40 fee for the pickup service she selected. Domer commenced this putative class action, alleging that Menards had not disclosed the pickup service fee and used the fee to manipulate its prices. Menards moved to compel arbitration of Domer’s claims. The district court granted Menards’s motion, finding that the parties had entered into an arbitration agreement and that Domer’s claims fell within its scope.

Domer appealed, arguing that the arbitration agreement was invalid and unenforceable, and in any event did not cover her claims. We affirm the district court. Menards has shown that its website provided reasonably conspicuous notice of the terms to which Domer would be bound and Domer unambiguously manifested her assent to those terms. Additionally, each of Domer’s claims arise from or relate to the contract between Domer and Menards. So, Domer’s claims are within the scope of the arbitration agreement.

I

Menard, Inc. is a home improvement retail company that sells goods through brick-and-mortar stores and on its website. Customers who purchase products online have three options for receiving their goods. They may go to a local store and locate the item on the shelf, pay a small fee to have a Menards employee locate the item on the shelf and prepare it for pickup, or have the product shipped to their home.

Domer visited the Menards website to purchase a can of paint. Before checking out, she chose option three on the website: to have an employee retrieve the correct item from the shelf, prepare it for pickup at the Menards store in Valparaiso, Indiana, and place it at the pickup counter. In exchange for that service, Menards would charge her a $1.40 per item fee.

After Domer selected the pickup option, the website presented her with the final page in the online checkout process:

[author's note: I have been unable to include the images in this version. Please see the full version of      the opinion on Westlaw or Lexis to view the images included in the opinion.]

As shown, the page presented a summary of Domer’s transaction. It included one shaded, bordered box listing her “Billing & Credit Card Information” and an adjoining column with her “Order Summary.” The “Billing & Credit Card Information” listed her payment information. The box also presented options to receive text updates on the status of her order and to use a gift card. The “Order Summary” column listed four line-items: the “Merchandise Subtotal” (the price of the items purchased); the “Processing Fees” (the pickup service fee); the “Sales Tax”; and the “Total” cost. In addition, the “Order Summary” column included a sentence explaining how much money Domer had saved on her purchase, the option to submit her purchase, and a couple of sentences advertising the Menards credit card.

The same page included an additional note to purchasers immediately below the “Billing & Credit Card Information” section:

Please note: Gift cards may be used as a tender for any merchandise portion of your order and cannot be applied to purchase of another gift card. Applied gift card tenders will be used first towards your purchase and the remaining balance applied to your entered credit card. By submitting your order you accept our Terms of Order.

The note began with bold font and used the same size and style font as the surrounding text.

Directly below the note, there were two hyperlinks: “View Return Policy | Terms of Order Information.” The links, like the note, used the same size font as the surrounding text. But the links were green, unlike the black font of the surrounding text. Clicking on the “Terms of Order Information” link opened a text box with the Menards Terms of Order. The first paragraph of the Terms of Order contained an arbitration clause:

READ THIS CONTRACT CAREFULLY .... Purchaser agrees that any and all controversies or claims arising out of or relating to this contract, or the breach thereof, shall be settled by binding arbitration administered by the American Arbitration Association under its applicable Consumer or Commercial Arbitration Rules. Purchaser agrees that all arbitrators selected shall be attorneys. This provision shall supersede any contrary rule or provision of the forum state. YOUR PURCHASE OF THE PRODUCT ON THIS CONTRACT CONSTITUTES YOUR AGREEMENT TO ALL TERMS AND CONDITIONS STATED ABOVE.

The text box for the Terms of Order used a larger font than the surrounding text.

Domer completed her purchase and picked up her can of paint in the designated store. Domer then commenced this putative class action. Domer’s amended complaint included three claims: (1) violation of the Indiana Deceptive Consumer Sales Act, Ind. Code § 24-5-0.5-4; (2) violation of the Wisconsin Deceptive Trade Practices Act, Wis. Stat. § 100.18; and (3) unjust enrichment. She alleged that Menards had used the pickup service fee to manipulate its prices—artificially deflating them by $1.40 in its advertising materials and then recouping that difference in the form of an undisclosed fee. Additionally, she argued that the $1.40 processing fee for in-store pickup had not been disclosed, and, had it been disclosed, she would not have purchased the can of paint.

Menards moved to compel arbitration under the Federal Arbitration Act, 9 U.S.C. §§ 3, 4. To Menards, Domer entered into an enforceable arbitration agreement by accepting the Menards Terms of Order when she completed her online purchase. As a result, the parties had a valid and binding agreement requiring arbitration of any disputes that either arise from or relate to Domer’s online purchase. Menards further contended that Domer’s claims fall within the scope of the arbitration agreement and, therefore, must be arbitrated.

The district court ruled for Menards. The court found that the arbitration agreement was enforceable. The totality of the circumstances demonstrated fair and adequate notice of the existence of an agreement and the consequence of proceeding with an online purchase. The court also found that “[a]ll of Domer’s claims are related to her contract of purchase with Menards: Domer agreed to pay Menards money, and Menards provided her with a can of paint in exchange.” So, her claims fell within the scope of the “expansive” arbitration clause to which she had agreed.

II

On appeal, Domer argues that the district court erroneously granted Menards’s motion to compel arbitration. To her, the arbitration agreement was invalid and unenforceable, and in any event did not cover her claims.

The “[a]rbitrability of a dispute is often a question of law that does not depend on undisputed facts....” Scheurer v. Fromm Fam. Foods LLC, 863 F.3d 748, 751 (7th Cir. 2017). Sometimes, though, it “present[s] a mixed question of law and fact.” Id. We review a district court’s ruling on a motion to compel arbitration based on the procedural posture of that ruling.

When a factual dispute exists about whether an arbitration agreement was made, parties have options. If the question is brought to a jury, we “must uphold the finding if it is supported by a reasonable basis in the record.” Id. This includes evidence or expert testimony. Additionally, if the judge holds an evidentiary hearing, we review findings of fact “for clear error.” Id. The parties here chose neither of these possibilities. Domer has conceded that here “the facts are undisputed.”

In cases with no factual disputes, the district court decides the issue as a matter of law. In these instances, like here, our “review should be de novo.” Id.

A. Formation of the Arbitration Agreement

Whether an agreement to arbitrate has been formed is governed by state-law principles of contract formation. Wisconsin contract law applies here. But, as the district court stated, this case “calls for the application of general rules of contract formation, so the choice of law is not likely to affect the outcome.” Menards bears the burden of proving that an agreement to arbitrate exists.

The Menards Terms of Order contains an arbitration clause. Domer contends she did not agree to these terms, and therefore did not agree to arbitrate her claims, when she submitted her purchase order on the Menards website.

Under Wisconsin law, the formation of a valid contract requires that “an offer was accepted.” Wells Fargo Bus. Credit v. Hindman, 734 F.3d 657, 667 (7th Cir. 2013). Additionally, there must “be a meeting of the minds, a factual condition that can be demonstrated by word or deed.” Id. “Objective manifestations of assent, rather than subjective intentions, are controlling.” Id. Intent to manifest assent is generally “ ‘derived from a consideration of th[e parties’] words, written and oral, and their actions.’ ” Skyrise Constr. Grp., LLC v. Annex Constr., LLC, 956 F.3d 950, 956 (7th Cir. 2020). But the parties are not required to have signed the agreement for it to be valid. Arbitration is “a creature of contract.” Sgouros v. TransUnion Corp., 817 F.3d 1029, 1033 (7th Cir. 2016) (citing inter alia AT&T Mobility LLC. v. Concepcion, 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011)). So, these principles apply with equal force to arbitration contracts, including those purportedly formed over the internet.

One way to assent to and form a contract online is for a customer to click on an “I Accept” button as part of a “clickwrap” agreement. See id. “Courts around the country have recognized that this type of electronic ‘click’ can suffice to signify the acceptance of a contract.” Id. These agreements differ from “browsewrap” agreements, which provide veiled notice to customers that mere use of the website constitutes agreement to various terms and conditions. See Oberstein v. Live Nation Ent., Inc., 60 F.4th 505, 513 (9th Cir. 2023) (comparing clickwrap and browsewrap agreements in the context of online arbitration agreements). Browsewrap agreements typically are not enforced.

But, as here, online agreements often fall somewhere in between these two forms of agreement. Courts acknowledge that some companies “rely on simply displaying,” some-where on a webpage, “a notice of deemed acquiescence and a link” to the putative terms. Cullinane v. Uber Techs., Inc., 893 F.3d 53, 62 (1st Cir. 2018). When this happens, “purported assent is largely passive.” Schnabel v. Trilegiant Corp., 697 F.3d 110, 120 (2d Cir. 2012). And when assent is passive, a court will recognize an enforceable contract “only if: (1) the website provides reasonably conspicuous notice of the terms to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms.” Berman v. Freedom Fin. Network, LLC, 30 F.4th 849, 856 (9th Cir. 2022).

Although these questions may involve underlying facts, they are questions of law. Rather than resolving questions of fact, we undertake a fact-intensive legal analysis. While this “may lead to different results as courts encounter novel fact patterns, the general legal framework remains unchanged.” Oberstein, 60 F.4th at 515.

Domer did not click a button saying “I Accept” to form the arbitration agreement. So, to prove that the arbitration agreement was formed, Menards must satisfy the test for when assent is passive. Although we analyze the website checkout page presentation, we do so to decide two legal questions: (1) did the website provide reasonably conspicuous notice of the terms to which the consumer will be bound, and (2) did the consumer take some action that unambiguously manifested his or her assent to those terms?

1. Reasonably conspicuous notice

We examine notice from the perspective of a reasonable online shopper—that is, a person who is neither an expert nor a novice with technology. See Meyer, 868 F.3d at 77 (“Accordingly, when considering the perspective of a reasonable smartphone user, we need not presume that the user has never before encountered an app or entered into a contract using a smartphone.”). This permits certain basic, objective assumptions regarding the user’s familiarity with commercial websites, hyperlinks, and online contracts, regardless of subjective experience.

When deciding whether an online disclosure has afforded fair notice, we consider five elements: (1) the simplicity of the screen; (2) the clarity of the disclosure; (3) the size and coloring of the disclosure’s font; (4) the spatial placement of the hyperlink; and (5) the temporal relationship to the user’s action. No single factor is dispositive: the question is whether the website provided reasonable notice “in light of the whole webpage.” Nicosia v. Amazon.com, Inc., 834 F.3d 220, 237 (2d Cir. 2016).

Simplicity of the screen. First, we assess the simplicity of the information on the screen and the way that information is presented. See Meyer v. Uber Techs., Inc., 868 F.3d 66, 78 (2d Cir. 2017) (“The Payment Screen is uncluttered, with only fields for [(1)] the user to enter his or her credit card details, [(2)] buttons to register for a user account or to connect the user’s pre-existing PayPal account or Google Wallet to the Uber account, and [(3)] the warning that ‘By creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.’ ”). The district court concluded that Menards online checkout page was “relatively uncluttered.”

Menards online checkout page includes fields for (1) the user to enter his credit card details, (2) an order summary listing costs with a button to submit the order, (3) an option to receive text updates on the status of the order, (4) a note about the use of gift cards and explaining that “By submitting your order you accept our Terms of Order,” (5) hyperlinks to the Terms of Order Information and Return Policy, and (6) a note explaining that the shopper could save money with a Menards credit card. The only non-standard item in this list is the Menards credit card note.

Domer argues the Menards webpage is “sufficiently distracting so as to divert users’ attention from the disclosure and consequences of placing an order.” She compares the check-out page to the interface in Nicosia. 834 F.3d at 240–41. The court in Nicosia found the webpage may not have been clear because of the company’s use of many different fonts (“various text is displayed in at least four font sizes and six colors (blue, yellow, green, red, orange, and black)”); the presence of numerous extraneous elements (“multiple buttons and promotional advertisements”); the spatially dissipated, complex presentation of various categories of transaction-related information (“customers’ personal address, credit card information, shipping options, and purchase summary”); and the sheer number of hyperlinks on the page (“between fifteen and twenty-five links”). Id. at 236–38. But the court “d[id] not hold that there was no objective manifestation of mutual assent here as a matter of law.” Id. at 238. Rather, it concluded “simply that reasonable minds could disagree on the reasonableness of notice.” Id. (holding that the district court erred in concluding that Nicosia failed to state a claim under Federal Rule of Civil Procedure 12(b)(6)).

In contrast, the Menards page is streamlined, well-spaced, and internally consistent. There is ample white space; nearly all the text and images on the screen are pertinent to the checkout process; and the page is organized into just a few neat boxes and columns (see “Billing & Credit Card Information” and “Order Summary”). And the page is not littered with dozens (or even a handful) of hyperlinks. The page has a consistent color and typeface, and only a few items are presented in bold type. So, those items—including the disclosure of the Terms of Order—are likely to catch a user’s attention. The district court correctly found that the Terms of Order were reasonably conspicuous in this uncluttered presentation.

Clarity of the disclosure. Where, as here, “terms are not displayed” directly to a user, but instead “must be brought up by using a hyperlink,” a “clear prompt directing the user to read them” is required. Sgouros, 817 F.3d at 1035. That usually means a statement prominently offset from other text—one that is “bold, capitalized, or conspicuous in light of the whole webpage.” Starke v. SquareTrade, Inc., 913 F.3d 279, 290 (2d Cir. 2019). While it is permissible to disclose terms and conditions through a hyperlink, “the fact that a hyperlink is present must be readily apparent.” Berman, 30 F.4th at 857. A web designer must do more than “simply underscore the hyperlinked text” to ensure that it is sufficiently “‘set apart’” from the surrounding text. Id. Customary design elements denoting the existence of a hyperlink include “the use of a contrasting font color (typically blue) and the use of all capital letters.” Id.

The Menards disclosure provides such a prompt for the consumer. It explicitly tells the user: “Please note: ... By submitting your order you accept our Terms of Order.” Courts have compelled arbitration based on similar prompts. See, e.g., Meyer, 868 F.3d at 78–79 (language stating “[b]y creating an Uber account, you agree” was “a clear prompt directing users to read the Terms and Conditions and signaling that their acceptance of the benefit of registration would be subject to contractual terms” (quotations omitted)); Selden v. Airbnb, Inc., 4 F.4th 148, 157 (D.C. Cir. 2021) (“The screen provided reasonable notice to Selden that, by signing up, he was agreeing to Airbnb’s Terms of Service.”).

Domer relies on Sgouros to argue that the Menards “Please note” disclaimer was not conspicuous enough. But in Sgouros, the bold text beneath the scroll box informed the purchaser that clicking on the box constituted his authorization for the company to obtain his personal information—it said “nothing about contractual terms.” Sgouros, 817 F.3d at 1035 (explaining the web pages “contained no clear statement that his purchase was subject to any terms and conditions of sale). So, the court held that the company “actively misle[d]” the customer. Id. “No reasonable person” would have thought that authorizing a company to retrieve personal information would form a contract binding him to arbitration. Id. The Menards checkout page is different: the prompt advises users that by completing a purchase they are agreeing to the Terms of Order, which included the arbitration agreement.

On the Menards website, the prompt and the disclosure are separated by two sentences about gift cards, but they constitute only one line of text. This does not render the prompt inconspicuous or misleading. As the district court correctly observed, the bold font stating “Please note” “encourage[s] a reasonable user to read through to the end of the notice.” That Domer did not read the gift card sentences is not relevant. What matters here is that a reasonable internet user would have seen the bold font stating “Please note” against the clean, white background and would have been on notice to read the two lines of text following the prompt. See Meyer, 868 F.3d at 79 (“While it may be the case that many users will not bother reading the additional terms, that is the choice the user makes; the user is still on inquiry notice.”). This factor also weighs in favor of the finding that the Terms of Order were reasonably conspicuous.

Design of the hyperlinks and disclosure. The hyperlinks to the Terms of Order are offset from the white background in a bright, green color, which, as the district court observed, contrasts with the black text of the disclosure immediately above it.

It does not matter that the text was green rather than the “typical[ ] blue.” Berman, 30 F.4th at 857; see, e.g., Selden, 4 F.4th at 157 (a reasonable online shopper was on notice of terms appearing in red, hyperlinked text against a white background). “Reasonable notice does not turn on where the hyperlinked text falls on the color wheel....” Selden, 4 F.4th at 157. Further, the text of the links themselves directs shoppers to “[v]iew” the Return Policy and Terms of Order Information, which is an indication that the terms are links and not static text. Domer claims the text of the disclosure above the hyperlinks was impermissibly small. Yet the font was the same as much of the surrounding text, and more is not required.

The disclosure begins with the bolded “Please note”, drawing the customer’s attention. It is placed alone below the “Billing & Credit Card Information,” where a customer is likely to see it. That Menards chose to place the hyperlinks below instead of within the disclosure does not increase the likelihood that a customer would overlook them. Rather, having the words “Terms of Order” listed twice, once in the disclosure and once in the hyperlink, makes it more likely the customer sees them.

The district court correctly found that the font of the disclosure and hyperlinks are readable and distinct from the surrounding text. So, this element weighs in favor of affirming the district court’s finding of fair notice.

Spatial placement of the disclosure. Text advising users of terms should be spatially coupled with the act deemed to manifest assent to those terms. See Starke, 913 F.3d at 292 (“The text, including the hyperlinks to the Terms and Conditions and Privacy Policy, appeared directly below, i.e., was spatially coupled with the registration button.” (cleaned up)). Domer argues that because the “By submitting your order” disclosure is not spatially closer to the “SUBMIT ORDER” button on the webpage, she did not have reasonable notice to assent to the agreement. The district court found that “[t]he distance between the [disclosure] and the purchase button does not render Menards’ disclosure unreasonable.”

Domer correctly contends that the page lists the disclosure near the bottom with language discussing gift card use. But the disclosure and hyperlinks are placed directly below the “Billing & Credit Card Information” box, which a reasonable shopper undoubtedly reviews, and they are part of the natural visual flow of reviewing the page. The user can see the disclosure and click the hyperlink while viewing the rest of the checkout information and does not need to scroll far, if at all, to read them. The bold “Please note” draws the user’s eye to the information, and the disclosure and hyperlink are very close together with the hyperlink appearing directly below the disclosure. It is enough that the disclosure and hyperlinks are “clearly visible when viewing the page.” Fagerstrom v. Amazon.com, Inc., 141 F. Supp. 3d 1051, 1069 (S.D. Cal. 2015).

Again, the cases Domer relies on are distinguishable. In Wilson, the company’s notice was in small, unbolded text, and it was placed underneath large, colorful buttons. See Wilson v. Redbox Automated Retail, LLC, 448 F. Supp. 3d 873, 879 (N.D. Ill. 2020) (attaching an image of the online notice). Those buttons were “entirely unrelated” to the transaction at hand. Id. at 884. Additionally, in Starke the “‘Terms & Conditions’ hyperlink was spatially decoupled from the transaction because it was not provided near the portion of the Amazon purchase page actually requiring Starke’s attention ... or indeed anywhere on the purchase page.” Starke, 913 F.3d at 294. The Menards notice, on the other hand, is flagged with bolded text, a similar size to other text on the screen, and placed next to credit card and shipping information that a user is likely to review prior to submitting their order.

So, the notice and disclosure are not, as Domer suggests, “hidden” away. And this element weighs in favor of affirming the district court’s finding of a reasonably conspicuous notice.

Temporal relationship. The disclosure is temporally connected to the required act of the user—in other words, the user encounters the disclosure on the same page where the order will be placed. See Meyer, 868 F.3d at 79 (“temporal coupling of the terms with the registration button” weighs in favor of “inquiry notice of the terms”); Schnabel, 697 F.3d at 127 (explaining that the temporal presentation of the consumer’s purchase suggests that receiving goods subjects that consumer to additional terms and conditions). This leaves no discrepancy between the necessary act (clicking the “SUBMIT ORDER” button) and the disclosure requiring assent. The “notice of the Terms of Service is provided simultaneously” to submission of the purchase, “connecting the contractual terms to the services to which they apply.” Meyer, 868 F.3d at 78. As a result, it is easy for the user to connect the disclosure with the required activity. So, this element weighs in favor of affirming the district court’s finding of fair notice.

To summarize on this first prong of whether an agreement was made when assent is passive, the Menards checkout page is not a visually bewildering screen. As the district court found, the website provided reasonably conspicuous notice of the terms to which the consumer, Domer, will be bound.

2. Assent to the Terms of Order

On the second prong, Domer argues that because the checkout webpage did not reasonably communicate the existence of the Terms of Order, she did not unambiguously assent. According to Domer, a reasonably prudent internet user in her position had no reason to understand that, by clicking the “SUBMIT ORDER” button, the user was unambiguously manifesting assent to terms Menards had proposed elsewhere on the checkout webpage.

Domer is incorrect. “There is nothing automatically offensive about such agreements, as long as the layout and language of the site give the user reasonable notice that a click will manifest assent to an agreement.” Sgouros, 817 F.3d at 1033–34. As explained above, the Menards notice was reasonably conspicuous, so Domer manifested her assent to accept the Terms of Order by going through with the purchase. Unlike with pure clickwrap agreements, clicking “SUBMIT ORDER” “does not specifically manifest assent to the additional [arbitration] terms, for the purchaser is not specifically asked whether she agrees or to say ‘I agree.’” Nicosia, 834 F.3d at 236–37.

Nevertheless, Domer unambiguously gave her assent to the arbitration provision. Although Domer’s assent “was not express, we are convinced that it was unambiguous in light of the objectively reasonable notice of the terms, as discussed in detail above.” Meyer, 868 F.3d at 79; see Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004) (“[R]egardless whether [a user] did or did not say, ‘I agree’ ... [the user’s] choice was either to accept the offer of contract, taking the information subject to the terms of the offer, or, if the terms were not acceptable, to decline to take the benefits.”).

As described above:

There is ample evidence that a reasonable user would be on inquiry notice of the terms, and the spatial and temporal coupling of the terms with the registration button indicated to the consumer that he or she is ... employing such services subject to additional terms and conditions that may one day affect him or her .... A reasonable user would know that by clicking the registration button, he was agreeing to the terms and conditions accessible via the hyperlink, whether he clicked on the hyperlink or not.

Meyer, 868 F.3d at 79–80 (citation and quotations omitted). Reasonable consumers understand there will be terms and conditions associated with using a website. That clicking the register button had two functions—purchase of an order and assent to the Terms of Service—does not render Domer’s assent ambiguous. See id. at 80. So, clicking the “SUBMIT ORDER” button demonstrated Domer’s unambiguous manifestation of assent to the arbitration agreement.

* * *

Menards has shown that (1) its website provided reasonably conspicuous notice of the terms to which Domer would be bound, and (2) Domer’s click of the button “SUBMIT ORDER” unambiguously manifested her assent to those terms. So, the arbitration agreement was formed when Domer submitted her order.

* * *

III

We compliment the district court for its good work in this case. Domer and Menards formed an arbitration agreement which encompasses Domer’s claims. For these reasons, we AFFIRM the district court’s decision.

Hamilton, Circuit Judge, concurring in the judgment.

Start from the intuition that there is something odd about judges looking at online user interfaces with magnifying glasses and debating font color and size and the placement of hyperlinks. This case illustrates why courts should try to rethink how we approach the issues of “click-wrap” and “browse-wrap” contracts of adhesion in online commerce. One modest step in that project would be to treat whether a “browse-wrap” user interface gives sufficient notice of hidden but hyperlinked terms and conditions as a question of fact rather than a question of law. In an appropriate case, the issue should be submitted to a jury, including in cases subject to the Federal Arbitration Act.

The issue here is one we all encounter with virtually every online purchase. Somewhere in the steps to complete the purchase, the online merchant includes on a screen a link that allows the customer to access a long statement of terms and conditions. They’re written in impenetrable legalese and usually include an arbitration clause, often even purporting to waive a right to collective or class arbitration. Does anybody read them? Empirical data indicate that only two or three customers in a thousand spend more than one second looking at those terms.

I address in Part I how far the realities of online commerce have drifted from the law of contracts. Part II addresses the false assumptions underlying the reasonable notice requirement. Part III addresses the realities of user-interface design and consumer behavior. Part IV summarizes how courts have been deciding these issues about the terms of contracts and argues that we should be treating them as issues of fact. Part V briefly addresses jury trials under the Federal Arbitration Act.

I. Mutual Assent” in the Era of Digital Consumer Contracts of Adhesion

The common law of contracts emerged from the paradigm of agreements between two repeat-player merchants negotiating all the terms to which both assent. Courts ask if there was a meeting of the minds, shown through evidence of objective actions and communications.

Mass retail commerce required courts to adapt that paradigm for a world of high-volume contracts of adhesion. The Supreme Court of New Jersey wrote two generations ago:

The traditional contract is the result of free bargaining of parties who are brought together by the play of the market, and who meet each other on a footing of approximate economic equality. In such a society there is no danger that freedom of contract will be a threat to the social order as a whole. But in present-day commercial life the standardized mass contract has appeared. It is used primarily by enterprises with strong bargaining power and position. “The weaker party, in need of the goods or services, is frequently not in a position to shop around for better terms, either because the author of the standard contract has a monopoly (natural or artificial) or because all competitors use the same clauses. His contractual intention is but a subjection more or less voluntary to terms dictated by the stronger party, terms whose consequences are often understood in a vague way, if at all.”

Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 389, 161 A.2d 69, 86 (1960).

Now, in online transactions, merchants use contracts of adhesion with terms available only through hyperlinks that the consumer might or might not even notice, let alone read and understand. These online practices have taken us even further from the paradigm of contract law. Digital terms and conditions are “ubiquitous, and their terms are voluminous, onerous, and complex. Because they are practically costless to reproduce and update, businesses use them more frequently and alter them often.” Nancy S. Kim, Adhesive Terms and Reasonable Notice, 53 Seton Hall L. Rev. 85, 91 (2022). This dynamic “creates the potential for unfair surprise, particularly when those terms are at odds with longstanding consumer expectations and with contract law’s default rules.” Mark A. Lemley, The Benefit of the Bargain, 2023 Wisc. L. Rev. 237, 266 (2023).

Digital terms of service are contracts of adhesion. They may be described as “click-wrap” or “browse-wrap” contracts (or hybrids), in which a retailer states only that there are terms and conditions that govern a transaction and that by completing the purchase, you accept those terms. See Kim, 53 Seton Hall L. Rev. at 96 (“Online, where there is no option to sign, courts have determined that a ‘manifestation of consent’ could be something other than a signature; it could be a click on the icon that expresses acceptance.”). The contract presented in this case is a “browse-wrap.” The relevant information is not contained in the notice itself. Instead, the “notice provides no information other than that legal terms are available.” Id. at 104. The consumer then has the burden of seeking out “terms behind links,” and those links “do not necessarily signal whether the hidden information is important or trivial.” Id.

Under these conditions, what happens to the meeting of the minds and manifestations of mutual assent that are the foundations of contract law? Judge Brennan’s opinion for the court accurately reflects the state of the emerging case law, but those cases deserve rethinking.

Under the emerging case law, where the merchant uses a design that prevents customers from completing transactions without affirmatively “clicking” that they agree to the linked terms, courts generally enforce those terms. The so-called “click-wrap” design requires customers to decide whether they want to spend the time to review those terms. If they decide not to—usually a perfectly reasonable decision—courts treat that choice like signing a contract without reading it. They enforce the available but unread terms of such contracts. [string cite omitted]

The problem here is different, going under the rubric of a “browse-wrap” user interface. Menards, like many other merchants, does not require customers to “click” that they accept the terms. Instead, Menards puts a hyperlink somewhere in the screens a customer will encounter along the path to making a purchase. Maybe the customer will notice, maybe not. When the customer completes the transaction, has she, in the language of contract law, manifested her assent to those terms? And how should courts decide?

The majority answers with what it calls “a fact-intensive legal analysis,” ante at 695, citing Sgouros, 817 F.3d at 1034–35. The majority finds that the arbitration clause is enforceable because the Menards website provided “reasonably conspicuous notice” of the company’s Terms of Order, including the arbitration clause. To reach that conclusion, the majority applies a five-factor test that considers (1) the simplicity or clutter of the screen; (2) the clarity of the disclosure; (3) the size and coloring of the disclosure’s font, in the context of the rest of the screen; (4) the “spatial placement” of the hyperlink; and (5) the temporal relationship between the hyperlink and the steps the customer must take to complete the transaction. The majority takes this test from recent case law, citing Meyer, 868 F.3d at 78–79, and Nicosia v. Amazon.com, Inc., 834 F.3d 220, 237 (2d Cir. 2016).

To see the problem with this approach, take a look at the two Uber payment screenshots below, taken from cellphones. Each had a hyperlink for “Terms of Service and Privacy Policy,” and each hyperlink would lead a user to terms that included a mandatory arbitration clause. But each used a “browse-wrap” technique, not requiring affirmative assent with a click. One circuit found that one screen provided users with reasonable notice that they were agreeing to a mandatory arbitration clause by signing up for the service. A different circuit found that the other did not. Compare Cullinane v. Uber Technologies, Inc., 893 F.3d 53, 62–64 (1st Cir. 2018), with Meyer v. Uber Technologies, Inc., 868 F.3d 66, 78–79 (2d Cir. 2017). Can you tell which was which? 

[images not included]

In coming to opposite conclusions about essentially the same user interface design, the two courts looked at the usual factors, including relative clutter on the screen, placement of the relevant warning text in proximity to the elements that users must interact with to complete the transaction, the size of that text, the color of the text in comparison to the color of other text on the page and the background, and so on.

These conflicting results for functionally identical interfaces are not surprising, given what courts have been doing for almost a decade. We have been speculating about which design features will put the hypothetical “reasonable person” on “reasonable notice” that a digital purchase will bind him to a long document of legal terms and conditions. See, e.g., Sgouros, 817 F.3d at 1035 (courts ask whether a webpage design would “place a reasonable person on notice that there were terms and conditions attached to the purchase and that it would be wise to find out what the terms and conditions were before making a purchase” (internal quotation omitted)).

I believe this emerging multifactor test takes courts far from the law, far from judges’ competence, and far from the practical realities of online commerce and user-interface design and consumer behavior.

II. The Flawed Assumptions Underlying the Reasonable Notice Requirement

The multifactor test the majority applies today replaces the familiar requirement of actual mutual assent with one of “conspicuous notice” or “reasonable notice.” Nonetheless, it imports other assumptions from traditional contract law that do not reflect reasonable consumer behavior in online transactions. The result is that every day, many times a day, reasonable consumers give away key legal rights without realizing they have done so.

Implicit in this “conspicuous notice” or “reasonable notice” standard is a “duty to read.” See Michael L. Rustad & Thomas H. Koenig, Wolves of the World Wide Web: Reforming Social Networks’ Contracting Practices, 48 Wake Forest L. Rev. 1431, 1453 (2014) (explaining courts have expanded the longstanding contract principle of a “duty to read” to digital consumer contracts of adhesion). Courts have generally held that if there is a sufficiently conspicuous notice that binding terms and conditions exist, we assume (or our reasoning pretends) that the reasonable consumer has read them (even if doing so would be more costly than the transaction itself) and has consented to them by completing the transaction.

A “duty to read” makes sense in a negotiated transaction between sophisticated parties. But empirical studies show this fundamental assumption does not hold true when it comes to digital contracts of adhesion, particularly where user interfaces are designed to discourage consumers from reading them. As noted above in note 1, virtually no consumers read the fine print. See Bakos, 43 J. Legal Stud. at 3 (0.2 percent of consumers looked at digital terms of software license agreement for more than one second); Marotta-Wurgler, 78 U. Chi. L. Rev. at 179–81 (enhanced disclosure of terms via a “clickwrap” contract increased consumer reading by only 0.36 percent as compared to a “browse-wrap” contract).

I suspect that, as a policy matter, we do not actually want consumers to take the time to read every digital contract they make. For example, in the time it takes to read Microsoft’s terms and conditions for its ubiquitous Office suite of products, you could instead read Shakespeare’s Macbeth. One estimate found it would take average Americans 250 hours each to read all the digital contracts to which they agree in a given year. Another study found it would take the equivalent of 76 eight-hour workdays to read all the digital privacy policies (usually separate documents incorporated by reference into digital terms of service) to which the average internet user has agreed in a given year. If all U.S. consumers read all the digital privacy policies they accept, one study estimated, it would cause a total productivity loss of $781 billion annually. See Aleecia M. McDonald & Lorrie Faith Cranor, The Cost of Reading Privacy Policies, 4 I/S J.L. & Policy Info. Soc’y 543, 563–65 (2008). Adjusted for inflation in 2024, that number would now be above $1 trillion, with a “t.”

Even assuming the “reasonable consumer” is willing to devote so much time to reading these contracts, that does not tell us whether consumers understand the terms to which they are binding themselves. In an empirical test of 500 hybrid-wrap digital contracts on popular websites and applications, 99.6% were written at a reading level above that of the average adult. See Uri Benoliel & Shmuel I. Becher, The Duty to Read the Unreadable, Bos. Col. L. Rev. 2255, 2275, 2278–79 (2019). Microsoft’s “privacy statement” runs 190 pages in print, with many hyperlinks embedded in it. One study applied a standard measure for reading difficulty and found that the privacy policies on popular sites such as CNN, Zoom, Disney, Airbnb, and major league baseball were more difficult to read and understand than Immanuel Kant’s notoriously dense Critique of Pure Reason.

For an attorney or judge, spending an entire day parsing such complex legal language might be daunting but not impossible. For the average consumer who just wants to place an online order to pick up that last tool or can of paint to finish a do-it-yourself project, the reading assignment is beyond unreasonable.

The emerging legal standard is also based on an often-false assumption of choice and competition—that if a consumer is dissatisfied with a contract term, she can simply decline to complete a transaction and take her business elsewhere. See Jacques Crémer et al., Fairness & Contestability in the Digital Markets Act, 40 Yale J. Reg. 973, 986 (2023) (“In totally competitive markets, with totally rational consumers with no cognitive limitations, ... consumers would read all the terms of the contracts proposed by the different suppliers and would be able to carry out a well-founded cost benefit analysis among the different offers. In practice, no consumer can do so.”). For a modest consumer transaction like plaintiff Domer’s, this assumption seems very distant from real consumer behavior.

This assumption also ignores the reality of market concentration—not just in specific industries, but with regard to the terms typically included in these digital contracts. See id. at 980 (digital gatekeepers “have gained the ability to easily set commercial conditions and terms in a unilateral and detrimental manner for their ... end users.”). See also Lemley, supra, at 262 (“Take it or leave it may also not be a practical option if the industry has coalesced around similar contract terms.”); and Thomas D. Haley, Illusory Privacy, 98 Ind. L. J. 75, 79–80 (2022) (finding in survey of 222 platform terms from major websites and smartphone apps that most key terms were shared, such as allowing the platform to change the terms of the agreement unilaterally without consumer consent).

III. Real Consumers and the Science of User-Interface Design

Given what we know about how a reasonable consumer interacts with digital contracts of adhesion, the threshold question of fair notice takes on heightened importance. The literature reviewed in Part II casts doubt on whether it is ever reasonable to enforce digital contract terms against ordinary consumers. Enforcing those terms is doubly unreasonable if we cannot even be sure that consumers know that they have agreed to such terms.

Reasonable notice is produced through the interaction of real consumer behavior and user-interface design choices. Plenty of data shows that (a) almost no consumers even glance at the fine print on websites, let alone click through links to review the terms and conditions, and (b) companies design their interfaces carefully to influence consumer behavior to maximize profits. Neither point is surprising. But they show that our “reasonable notice” cases on whether these interface designs result in binding contract terms bear little relation to actual consumer behavior or to the traditional contract principle of mutual assent.

Because user-interface design is technical and empirically testable, it should be possible for judges or juries to evaluate evidence as to whether or not real-life consumers are on fair notice that they have agreed to a long list of legal terms every time they complete a purchase online or download a new application on their devices. At heart, the way a reasonable consumer responds to a particular user interface is a factual issue. A plaintiff willing to present the necessary evidence may be able to show genuine disputes of material fact that can then be tried before a jury.

A. The Realities of the “Reasonable Consumer”

As we explained recently:

Reasonable consumer behavior is not a matter of pure economic theory. Rather, reasonable consumer behaviors are “matters of fact, subject to proof that can be tested at trial, even if as judges we might be tempted to debate and speculate further about them.” In establishing reasonable consumer behavior, what matters is “how consumers actually behave—how they perceive advertising and how they make decisions.”

Kahn v. Walmart Inc., 107 F.4th 585, 595 (7th Cir. 2024), quoting Bell v. Publix Super Markets, Inc., 982 F.3d 468, 481 (7th Cir. 2020). In evaluating consumer behavior, courts must recognize that people “have limited time, computational skills, and memories, and we rationally use mental shortcuts to deal with those limits.” Id. While Kahn considered state consumer protection law in brick-and-mortar stores, the same principles are relevant in considering how consumers interact with online retail sites and their contracts of adhesion.

“‘[W]e have often stressed that consumers are likely to exhibit a low degree of care when purchasing low-priced, everyday items.’ This low degree of care does not make consumers unreasonable—it makes them human, and even economically rational when search costs and transaction costs are included in the utility calculus.” Kahn, 107 F.4th at 597, quoting Bell, 982 F.3d at 479. The low degree of care, however, “also makes them vulnerable to exploitation.” Id. In particular:

Predictable tendencies in consumer behavior mean that retail settings can be engineered to influence consumers in ways they (meaning we) do not fully anticipate or appreciate. “‘[M]arket outcomes frequently will be heavily influenced, if not determined, by the ability of one actor to control the format of information, the presentation of choices, and, in general, the setting within which market transactions occur,’ allowing some to ‘exploit those tendencies for gain.’”

Kahn, 107 F.4th at 595.

These predictable tendencies in consumer behavior mean that a reasonable consumer may be more likely to overlook the existence of terms than a judge engaged in a careful examination of a single user interface. Extrapolating from our own experiences as busy consumers risks undervaluing the unconscious processes and conditions that shape consumer decision-making.

B. User-Interface Design and Consumer Behavior

Do these realities matter? The businesses seeking to enforce digital contracts certainly believe they do. Just as brick-and-mortar supermarkets stock higher-margin items at eye-level to nudge shoppers into spending more, see Kahn, 107 F.4th at 596 n.3, online retailers strategically place and format certain information (while obscuring other information) to influence consumer behavior.

User-interface design experts focus carefully on how the details of a digital interface influence users’ interactions with it. See Jamie Luguri & Lior Jacob Strahilevitz, Shining a Light on Dark Patterns, 13 J. Legal Analysis 43, 48 (2021) (“e-commerce[ ] firms run thousands of consumers through identical interfaces at a reasonable cost and see how small software tweaks might alter user behavior”); Colin Gray et al., The Dark (Patterns) Side of UX Design, In Proceedings of the 2018 CHI Conference on Human Factors in Computing Systems (CHI ‘18), Association for Computing Machinery, Paper 534, 2 (2018) (user-interface design is “inherently a persuasive act”).

Research can measure how various features change the likelihood of consumers taking certain actions when using a website or application. “Choice architects have long understood that contrasting visual prominence can be used to nudge choosers effectively into a choice the architect prefers.” Luguri & Strahilevitz, 13 J. Legal Analysis at 55. For example, one study found that the most effective design strategies include “hidden information” and “smaller print in a less visually prominent location.” Id. at 47. In a controlled study, such a design choice doubled the number of consumers willing to complete a purchase. Id. at 73–75. The authors of the study concluded that such design choices “might cause consumers to misunderstand material terms of a contractual offer they have just accepted.” Id. at 94; see also Gray et al., supra, at 7 (explaining that the “primary motivator behind hidden information is the disguising of relevant information as irrelevant”). These authors could have been describing Menards’ design and placement of its hyperlink to the terms and conditions at issue here.

If businesses like Menards invest in designing their user interfaces “to influence the behavior of real consumers,” courts should not allow them to enforce hidden contract terms with arguments that “assume consumer behavior in idealized markets with ‘perfect information, perfect competition, and no transactions costs.’” Kahn, 107 F.4th at 597, quoting Honorable, 100 F. Supp. 2d at 888. Like them, “we should consider the behavior of real consumers instead of Adam Smith’s homo economicus.” Id.

These empirical studies on consumer behavior in response to a particular user interface are exactly the type of evidence an expert could present to a jury to show that a consumer did or did not have notice of the terms and conditions found on a digital website. The evidence might show, for example, that the interface has been designed to distract or mislead the consumer, or at least to manipulate the consumer into proceeding without bothering to look at the terms of the contract of adhesion.

IV. The Multifactor Test — Law or Fact?

As noted, the majority enforces the arbitration clause in Menard’s terms and conditions by applying “a fact-intensive legal analysis” that considers (1) the simplicity or clutter of the screen; (2) the clarity of the disclosure; (3) the size and coloring of the disclosure’s font, in the context of the rest of the screen; (4) the “spatial placement” of the hyperlink; and (5) the temporal relationship between the hyperlink and the steps the customer must take to complete the transaction.

I have been tempted to disagree with the majority’s application of this multifactor test, which requires the decision-maker to study high-resolution screenshots of various user interfaces. On further consideration, though, I concluded that such a debate would not be useful. First, plaintiff Domer chose to litigate this case without trying to raise material factual disputes about fair notice. That’s why I concur in the judgment here. Second, and more fundamental, the prospect of debates among judges about such details of a user interface as font size and color and the exact placement and labels for hyperlinks to incomprehensible fine print shows, in my view, that we need to think about these problems in a different way, one that is more consistent with older approaches to contract formation.

As Justice Kagan said recently, “we’re a court. We really don’t know about these things. You know, these are not like the nine greatest experts on the internet.” Transcript of Oral Argument at 45–46, Gonzalez v. Google, 598 U.S. 617 (2023). The same is true of the judiciary as a whole. More specific to this case, judges are not experts in the highly specialized and technical fields of user-interface design and human-computer interaction. I suspect few judges know much about the fields beyond our experience as consumers.

Rather than debating among ourselves our impressions about font size and color, the placement of hyperlinks, and the choice between click-wrap and browse-wrap agreements, we should start treating these issues about user-interface design as questions of fact. We should invite sufficiently motivated parties to test alternative designs and to conduct discovery into merchants’ actual design choices. If judges will not do so, then legislators and/or consumer-protection agencies should consider stepping in with more specific disclosure requirements and regulatory safe harbors.

I recognize that there may be room to debate whether the contract terms in online commerce result from a race to the bottom or a race to the top. Proponents of the browse-wrap interface design might well assert that busy consumers prefer not to be bothered with detailed contract terms they don’t care about, and that competitors’ common terms and conditions reflect an evolution toward an efficient solution to common issues. Those assertions may be true, but they are assertions of fact, subject to empirical proof and rebuttal.

Advocates of treating these problems as questions of law might also argue that treating them as questions of fact would invite expensive and inconclusive battles of experts. Online merchants would be left guessing how to design their user-interfaces to secure enforceable terms. To some extent, those risks are a tradeoff chosen by online merchants who wish to bind consumers to digital contracts of adhesion through browse-wrap agreements. Merchants could avoid much of the uncertainty of litigation by using click-wrap agreements, which are usually enforced.

Moreover, those risks do not change the inherently factual nature of the questions. Nor do those risks justify having judges apply their own experience as consumers to decide factual questions that, in the real world of online commerce, are the subject of genuinely expert study and design. If a plaintiff is willing to invest in the needed expertise, courts and juries should listen. Another alternative, more likely to offer clearer rules, would be for legislatures or consumer-protection agencies to establish more specific guidelines for enforcing terms and conditions for consumer transactions. Legislatures and agencies are also better positioned to craft rules that address the false assumptions underlying the reasonable notice requirement.

In any event, the foundation of contract law is mutual assent. How can there be a meeting of the minds if the average person has (quite reasonably) never seen, let alone read and understood, the contract terms? Or if consumers are functionally deprived of an opportunity to opt out of the binding terms? It would be virtually impossible to navigate our modern world without binding yourself to click-wrap and browse-wrap contracts, yet empirical data show that only a vanishingly small segment of consumers can give anything approaching meaningful consent to their terms. Courts should account for those realities in deciding these disputes over contract terms.

V. Jury Trials on Contract Formation under the FAA

Finally, this reasoning points toward trying before juries whether to enforce hyperlinked arbitration clauses in online contracts of adhesion. Under the Federal Arbitration Act, courts must look to state contract law to determine whether such an agreement exists and is valid. Under the FAA, if a court finds a material factual dispute as to whether an agreement to arbitrate was made, it “shall proceed summarily to the trial thereof.” 9 U.S.C. § 4.

“The burden is on the party opposing arbitration to “identify a triable issue of fact concerning the existence of the agreement in order to obtain a trial on the merits of the contract.” Tinder, 305 F.3d at 735. Whether there is a meeting of the minds to form a contract is generally a question of fact under Wisconsin contract law. [string cite omitted] A party who seeks a jury trial on whether an arbitration agreement exists must request it specifically and quickly to comply with section 4 of the FAA, 9 U.S.C. § 4.

Ultimately, however, because plaintiff Domer did not try to raise any genuine issues of material fact here, I concur in the judgment affirming dismissal of her case.