Richmond

W. O. Lucy and J. C. Lucy v. A. H. Zehmer and Ida S. Zehmer.

November 22, 1954.

Record No. 4272.

Present, Eggleston, Buchanan, Miller, Smith and Whittle, JJ.

The opinion states the case.

A. S. Harrison, Jr. and Emerson D. Baugh, for the appellants.

Morton G. Goode and William Earle White, for the appellees.

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.

W. O. 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 $5.0,000.00 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 $50,00,0, “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. 17 C. J. S., Contracts, § 133 b., p. 483; Taliaferro v. Emery, 124 Va. 674, 98 S. E. 627. 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 $50,00.0.00.” 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, 192 S. E. 764, 770.

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. Restatement of the Law of Contracts, Vol. I, § 71, p. 74.

"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. 17 C. J. S., Contracts, § 32, p. 361; 12 Am. Jur., Contracts, § 19, p. 515.

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, 17 C. J. S., Contracts, § 47, p. 390; Clark on Contracts, 4 ed., § 27, at p. 54.

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.

Specific performance, it is true, is not a matter of absolute or arbitrary right, but is addressed to the reasonable and sound discretion of the court. First Nat. Bank v. Roanoke Oil Co., supra, 169 Va. at p. 116, 192 S. E. at p. 771. But it is likewise true that the discretion which may be exercised is not an arbitrary or capricious one, but one which is controlled by the established doctrines and settled principles of equity; and, generally, where a contract is in its nature and circumstances unobjectionable, it is as much a matter of course for courts of equity to decree a specific performance of it as it is for a court of law to give damages for a breach of it. Bond v. Crawford, 193 Va. 437, 444, 69 S. E. (2d) 470, 475.

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.

Reversed and remanded.

MICHAEL M. NORMILE and WAWIE KURNIAWAN v. HAZEL ELIZABETH MILLER LAWRENCE J. SEGAL v. HAZEL ELIZABETH MILLER

No. 487PA83

(Filed 27 February 1985)

Parker Whedon, for plaintiff-appellants.

Levine & Levine, by Miles S. Levine, for plaintiff-appellee.

FRYE, Justice.

Defendant Hazel Miller owned real estate located in Charlotte, North Carolina. On 4 August 1980, the property was listed for sale with a local realtor, Gladys Hawkins. On that same day, Richard Byer, a real estate broker with the realty firm Gallery of Homes, showed the property to the prospective purchasers, Plaintiffs Normile and Kurniawan. Afterwards, Byer helped plaintiffs prepare a written offer to purchase the property. A Gallery of Homes form, entitled “Deposit Receipt AND CONTRACT for Purchase and Sale of Real Estate,” containing blanks for the insertion of terms pertinent to the purchasers’ offer, was completed in quadruplicate and signed by Normile and Kurniawan. One specific standard provision in Paragraph 9 included a blank that was filled in with the time and date to read as follows: “OFFER & Closing DATE: Time is of the essence, therefore this offer must be accepted on or before 5:00 p.m. Aug. 5th 1980. A signed copy shall be promptly returned to the purchaser.”

Byer took the offer to purchase form to Gladys Hawkins, who presented it to defendant. Later that evening, Gladys Hawkins returned the executed form to Byer. It had been signed under seal by defendant, with several changes in the terms having been made thereon and initialed by defendant. The primary changes made by defendant were an increase in the earnest money deposit ($100 to $500); an increase in the down payment due at closing ($875 to $1,000); a decrease in the unpaid principal of the existing mortgage amount ($18,525 to $18,000); a decrease in the term of the loan from seller (25 years to 20 years); and a purchaser qualification contingency added in the outer margin of the form.

That same evening, Byer presented defendant’s counteroffer to Plaintiff Normile. Byer testified in his deposition that Normile did not have $500 for the earnest money deposit, one of the requirements of defendant’s counteroffer. Also, Byer stated that Normile did not “want to go 25 [sic] years because he wanted lower payments.” Byer was under the impression at this point that Normile thought he had first option on the property and that “nobody else could put an offer in on it and buy it while he had this counteroffer, so he was going to wait awhile before he decided what to do with it.” Normile, however, neither accepted nor rejected the counteroffer at this point, according to Byer. When this meeting closed, Byer left the pink copy of the offer to purchase form containing defendant’s counteroffer with Normile. Byer stated that he thought that Normile had rejected the counteroffer at this point.

At approximately 12:30 a.m. on 5 August, Byer went to the home of Plaintiff Segal, who signed an offer to purchase with terms very similar to those contained in defendant’s counteroffer to Plaintiffs Normile and Kurniawan. This offer was accepted, without change, by defendant. Later that same day, at approximately 2:00 p.m., Byer informed Plaintiff Normile that defendant had revoked her counteroffer by commenting to Normile, “[Y]ou snooze, you lose; the property has been sold.” Prior to 5:00 p.m. on that same day, Normile and Kurniawan initialed the offer to purchase form containing defendant’s counteroffer and delivered the form to the Gallery of Homes’ office, along with the earnest money deposit of $500.

Separate actions were filed by plaintiff-appellants and -appellee seeking specific performance. Plaintiff Segal’s motion for consolidation of the trials was granted. Defendant, in her answer, recognized the validity of the contract between her and Plaintiff Segal. However, because of the action for specific performance commenced by Plaintiffs Normile and Kurniawan, defendant contended that she was unable to legally convey title to Plaintiff Segal. Both plaintiffs filed a motion for summary judgment. Plaintiff Segal’s motion for summary judgment was granted by the trial court, and defendant was ordered to specifically perform the contract to convey the property to Segal. Plaintiffs Normile and Kurniawan appealed to the Court of Appeals from the trial court’s denial of their motion for summary judgment. That court unanimously affirmed the trial court’s actions. Discretionary review was allowed by this Court on petition of Plaintiffs Normile and Kurniawan.

I.

The first issue on this appeal is whether a time limit within which an offer must be accepted that is contained in a prospective purchaser’s written offer to purchase real property becomes a term of the seller’s subsequent counteroffer, transforming the counteroffer into an option contract or irrevocable offer for the time stated if signed under seal. We conclude that it does not.

Plaintiff-appellants argue that the counteroffer made by Defendant Miller to plaintiff-appellants became a binding and irrevocable option to purchase within the time for acceptance contained in their original offer to purchase. Essentially, plaintiff-appellants argue that the Court of Appeals was incorrect in holding that defendant’s counteroffer was not an irrevocable option because the “promise to hold the offer open until 5:00 p.m., 5 August 1980, was not supported by consideration, . . .” Normile, 63 N.C. App. at 694, 306 S.E. 2d at 150.

As a preliminary matter, it is obvious that the thrust of both the Court of Appeals’ and plaintiff-appellants’ arguments center around their analysis of whether or not the counteroffer from Defendant Miller to plaintiff-appellants constituted a binding and enforceable option contract for the period of time for acceptance stated and contained in plaintiff-appellants’ original offer to purchase form. This basic proposition seems to be premised upon the inaccurate notion that Defendant Miller’s “counteroffer provided that the offer would remain open until 5:00 p.m. on 5 August 1980 . . . .” Normile, 63 N.C. App. at 693, 306 S.E. 2d at 149. This same misconception is reflected in plaintiff-appellants’ brief where they state, without citing any legal authority:

It is basic that when one party makes another a written offer which the offeree changes in some respects, signs and returns, the offer becomes a counteroffer by the original offeree to the original offeror, which consists of the altered provisions and all of the unaltered provisions of the original offer. Thus, since the time limitation for acceptance was not altered, one of the provisions of the counteroffer was that the time for its acceptance would terminate at 5:00 p.m. August 5, 1980.

The counteroffer, being under seal, constituted a binding option to sell, irrevocable during the stated time limitation for its acceptance, and enforceable by specific performance upon its acceptance. (Emphasis added.)

We do not agree that defendant’s counteroffer to plaintiff-appellants subsumed all the provisions of the original offer from the prospective purchasers. To effectively explain this conclusion, we begin with a brief description of how a typical sale of real estate is consummated. The broker, whose primary duty is to secure a ready, willing, and able buyer for the seller’s property, generally initiates a potential sale by procuring the prospective purchaser’s signature on an offer to purchase instrument. J. Webster, North Carolina Real Estate for Brokers and Salesmen, § 8.03 (1974). “An ‘offer to purchase’ is simply an offer by a purchaser to buy property, . . .” J. Webster, supra, § 8.03. This instrument contains the prospective purchaser’s “offer” of the terms he wishes to propose to the seller. Id.

Usually, this offer to purchase is a printed form with blanks that are filled in and completed by the broker. Among the various clauses contained in such an instrument, it is not uncommon for the form to contain “a clause stipulating that the seller must accept the offer and approve the sale within a certain specified period of time, . . . The inclusion of a date within which the seller must accept simply indicates that the offer will automatically expire at the termination of the named period if the seller does not accept before then.” Id. § 8.10. Such a clause is contained in Paragraph 9 of the offer to purchase form in the case sub judice.

In the instant case, the offerors, plaintiff-appellants, submitted their offer to purchase defendant’s property. This offer contained a Paragraph 9, requiring that “this offer must be accepted on or before 5:00 p.m. Aug. 5th 1980.” Thus the offeree’s, defendant-seller’s, power of acceptance was controlled by the duration of time for acceptance of the offer. Restatement (Second) of Contracts § 35 (1981). “The offeror is the creator of the power, and before it leaves his hands, he may fashion it to his will ... if he names a specific period for its existence, the offeree can accept only during this period.” Corbin, Offer and Acceptance, and Some of the Resulting Legal Relations, 26 Yale L. J. 169, at 183 (1917); see Restatement, supra, § 41; S. Williston, A Treatise on the Law of Contracts § 53 (1957).

This offer to purchase remains only an offer until the seller accepts it on the terms contained in the original offer by the prospective purchaser. J. Webster, supra, § 8.10. If the seller does accept the terms in the purchaser’s offer, he denotes this by signing the offer to purchase at the bottom, thus forming a valid, binding, and irrevocable purchase contract between the seller and purchaser. However, if the seller purports to accept but changes or modifies the terms of the offer, he makes what is generally referred to as a qualified or conditional acceptance. Richardson v. Greensboro Warehouse & Storage Co., 223 N.C. 344, 26 S.E. 2d 897 (1943); Wilson v. W. M. Storey Lumber Co., 180 N.C. 271, 104 S.E. 531 (1920); 17 Am. Jur. 2d Contracts § 62 (1964). “The effect of such an acceptance so conditioned is to make a new counter-proposal upon which the parties have not yet agreed, but which is open for acceptance or rejection.” (Citations omitted.) Richardson, 223 N.C. at 347, 26 S.E. 2d at 899. Such a reply from the seller is actually a counteroffer and a rejection of the buyer’s offer. J. Webster, supra, § 8.10.

These basic principles of contract law are recognized not only in real estate transactions but in bargaining situations generally. It is axiomatic that a valid contract between two parties can only exist when the parties “assent to the same thing in the same sense, and their minds meet as to all terms.” Goeckel v. Stokely, 236 N.C. 604, 607, 73 S.E. 2d 618, 620 (1952). This assent, or meeting of the minds, requires an offer and acceptance in the exact terms and that the acceptance must be communicated to the offeror. Dodds v. St. Louis Union Trust Co., 205 N.C. 153, 170 S.E. 652 (1933). Goeckel, 236 N.C. 604, 73 S.E. 2d 618. “If the terms of the offer are changed or any new ones added by the acceptance, there is no meeting of the minds and, consequently, no contract.” G. Thompson, supra, § 4452. This counteroffer amounts to a rejection of the original offer. S. Williston, supra, § 51. “The reason is that the counteroffer is interpreted as being in effect the statement by the offeree not only that he will enter into the transaction on the terms stated in his counteroffer, but also by implication that he will not assent to the terms of the original offer.” Id. § 36.

The question then becomes, did defendant-seller accept plaintiff-appellants’ offer prior to the expiration of the time limit contained within the offer? We conclude that she did not. The offeree, defendant-seller, changed the original offer in several material respects, most notably in the terms regarding payment of the purchase price. S. Williston, supra, § 77 (any alteration in the method of payment creates a conditional acceptance). This qualified acceptance was in reality a rejection of the plaintiff-appellants original offer because it was coupled with certain modifications or changes that were not contained in the original offer. G. Thompson, supra, § 4452. Additionally, defendant-seller’s conditional acceptance amounted to a counteroffer to plaintiff-appellants. “A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.” Restatement, supra, § 39. Between plaintiff-appellants and defendant-seller there was no meeting of the minds, since the parties failed to assent to the same thing in the same sense.

In substance, defendant’s conditional acceptance modifying the original offer did not manifest any intent to accept the terms of the original offer, including the time-for-acceptance provision, unless and until the original offeror accepted the terms included in defendant’s counteroffer. The offeree, by failing to unconditionally assent to the terms of the original offer and instead qualifying his acceptance with terms of his own, in effect says to the original offeror, “I will accept your offer; provided you [agree to my proposed terms].” Rucker v. Sanders, 182 N.C. 607, 609, 109 S.E. 857, 858 (1921). Thus, the time-for-acceptance provision contained in plaintiff-appellants’ original offer did not become part of the terms of the counteroffer. And, of course, if they had accepted the counteroffer from defendant, a binding purchase contract, which would have included the terms of the original offer and counteroffer, would have resulted. J. Webster, supra, § 8.03.

Plaintiff-appellants further argue that the Court of Appeals should not have looked behind the seal to determine that there was no actual consideration given by plaintiff-appellants, thus rendering the offer revocable prior to 5:00 p.m., August 5. Having previously determined that the terms of defendant’s counteroffer did not include the time-for-acceptance provision contained in the original offer, it is unnecessary to address plaintiff-appellants’ primary argument that defendant’s signature under seal is sufficient consideration to support an option contract and render it irrevocable for the stated period of time. Without addressing this precise issue, we do wish to make certain observations collateral to this argument about the nature of an option contract to further demonstrate why defendant’s counteroffer was not an irrevocable option.

It is generally recognized that “[a]n ‘option’ is a contract by which the owner agrees to give another the exclusive right to buy property at a fixed price within a specified time.” 8A G. Thompson, Commentaries on the Modern Law of Real Property, § 4443 (1963); Sandlin v. Weaver, 240 N.C. 703, 83 S.E. 2d 806 (1954). In effect, an owner of property agrees to hold his offer open for a specified period of time. G. Thompson, supra, § 4443. This option contract must also be supported by valuable consideration. Id. Disregarding the issue of consideration, it is more significant that defendant’s counteroffer did not contain any promise or agreement that her counteroffer would remain open for a specified period of time.

Several of the cases cited by plaintiff-appellants are useful in illustrating how a seller expressly agrees to hold his offer open. For instance, in Ward v. Albertson, 165 N.C. 218, 81 S.E. 168 (1914), this Court stated, “An option, in the proper sense, is a contract by which the owner of property agrees with another that he shall have the right to purchase the same at a fixed price within a certain time.” Id. at 222-23, 81 S.E. at 169. In that case, defendant-seller had agreed in writing as follows: “. . . I agree that if [prospective purchaser] pays me nine hundred and ninety-five dollars prior to January 1, 1913, to convey to him all the timber and trees . . . .” Id. at 219, 81 S.E. at 168. Similarly, in Thomason v. Bescher, 176 N.C. 622, 97 S.E. 654 (1918), defendant-seller agreed in writing: “. . . we, J. C. and W. M. Bescher, do hereby contract and agree with said [prospective purchaser] to sell and convey ... all that certain tract ... at his or their request on or before the 18th day of August, 1917 . . .” Id. at 624, 97 S.E. at 654. And finally, in Kidd v. Early, 289 N.C. 343, 222 S.E. 2d 392 (1976), defendant-sellers agreed in writing: “. . . we C. F. Early and Bessie D. Early, hereby irrevocably agree to convey to [prospective purchasers] upon demand by him within 30 days from the date hereof, ... a certain tract or parcel of land . . . .” Id. at 346, 222 S.E. 2d at 396.

In each of these three cases, this Court recognized that the sellers had given the prospective purchasers a contractual option to purchase the seller’s property. In the present case we find no comparable language within defendant-seller’s counteroffer manifesting any similar agreement. There is no language indicating that defendant-seller in any way agreed to sell or convey her real property to plaintiff-appellants at their request within a specified period of time. There is, however, language contained within the prospective purchasers’ offer to purchase that does state, “DESCRIPTION: I/we Michael M. Normile and Wawie Kurniawan hereby agree to purchase from the sellers, . . .” and “this offer must be accepted on or before 5:00 p.m. Aug. 5th 1980.” (Emphasis added.) Nowhere is there companion language to the effect that Defendant Miller “hereby agrees to sell or convey to the purchasers” if they accept by a certain date.

Therefore, regardless of whether or not the seal imported the necessary consideration, we conclude that defendant-seller made no promise or agreement to hold her offer open. Thus, a necessary ingredient to the creation of an option contract, ie., a promise to hold an offer open for a specified time, is not present. Accordingly, we hold that defendant’s counteroffer was not transformed into an irrevocable offer for the time limit contained in the original offer because the defendant’s conditional acceptance did not include the time-for-acceptance provision as part of its terms and because defendant did not make any promise to hold her counteroffer open for any stated time.

II.

The foregoing preliminary analysis of both the Court of Appeals’ opinion and plaintiff-appellants’ argument in their brief prefaces what we consider to be decisive of the ultimate issue to be resolved. Basic contract principles effectively and logically answer the primary issue in this appeal. That is, if a seller rejects a prospective purchaser’s offer to purchase but makes a counteroffer that is not accepted by the prospective purchaser, does the prospective purchaser have the power to accept after he receives notice that the counteroffer had been revoked? The answer is no. The net effect of defendant-seller’s counteroffer and rejection is twofold. First, plaintiff-appellants’ original offer was rejected and ceased to exist. S. Williston, supra, § 51. Secondly, the counteroffer by the offeree requires the original offeror, plaintiff-appellants, to either accept or reject. Benya v. Stevens & Thompson Paper Co., Inc., 143 Vt. 521, 468 A. 2d 929 (1983).

Accordingly, the next question is did plaintiff-appellants, the original offerors, accept or reject defendant-seller’s counteroffer? Plaintiff-appellants in their brief seem to answer this question when they state, “At the time Byer presented the counteroffer to Normile, Normile neither accepted nor rejected it . . . .” Therefore, plaintiff-appellants did not manifest any intent to agree to or accept the terms contained in defendant’s counteroffer. Normile instead advised Byer that he, though mistakenly, had an option on the property and that it was off the market for the duration of the time limitation contained in his original offer. As was stated by Justice Bobbitt in Howell v. Smith, 258 N.C. 150, 128 S.E. 2d 144 (1962): “ ‘The question whether a contract has been made must be determined from a consideration of the expressed intention of the parties — that is from a consideration of their words and acts.’ ” Id. at 153, 128 S.E. 2d at 146. Although Normile’s mistaken belief that he had an option is unfortunate, he still failed to express to Byer his agreement to or rejection of the counteroffer made by defendant-seller.

A recent decision by the Supreme Court of Vermont based on similar facts is instructive to this Court in reaching its decision in the present case. In Benya v. Stevens & Thompson Paper Co., Inc., 143 Vt. 521, 468 A. 2d 929 (1983), a real estate broker, at plaintiff-buyer’s request, prepared an offer to purchase property of defendant-seller. Defendant, when presented with plaintiff’s offer, made several modifications, which included changes in the terms regarding the deposit, cash at closing, interest rate, and payment terms. These changes were initialed by defendant, and the offer to purchase was mailed back for plaintiffs consideration. Plaintiff did not agree with some of the modifications and advised his attorney to execute a new offer to purchase, a third proposal. Defendant did not execute or respond to the terms contained in the second offer from plaintiff, since he had sold the property to a second purchaser in the interim. The trial court concluded that the first offer to purchase, having been signed by both the parties, constituted a valid contract. However, the Vermont Supreme Court disagreed.

The court, after citing the law relevant to offer and acceptance, determined that defendant’s alteration of the terms contained in plaintiffs original offer to purchase did not constitute an acceptance but a counteroffer. After concluding that the counteroffer required that the original offeror either accept or reject it, the court stated, “The offeror’s acceptance of the offeree’s counteroffer may be accomplished either expressly or by conduct.” (Citations omitted.) Id. at 523, 468 A. 2d at 931. After examining the record, the court concluded “that plaintiff never accepted, either expressly or otherwise, defendant’s counteroffer.” Id. The court was of the opinion that plaintiffs decision to draft a third proposal after receiving defendant’s counteroffer was not evidence of plaintiffs acceptance of such counteroffer. Furthermore, defendant did not express his assent to this third proposal. Therefore, there was no contract based upon that document either.

Plaintiff-appellants in the instant case, as plaintiff in Benya, did not accept, either expressly or by conduct, defendant’s counteroffer. In addition to disagreeing with the change in payment terms, Normile stated to Byer that “he was going to wait awhile before he decided what to do with [the counteroffer].” Neither did plaintiffs explicitly reject defendant’s counteroffer. Instead, plaintiff-appellants in this case chose to operate under the impression, though mistaken, that they had an option to purchase and that the property was “off the market.” Absent either an acceptance or rejection, there was no meeting of the minds or mutual assent between the parties, a fortiori, there was no contract. Horton v. Humble Oil & Refining Co., 255 N.C. 675, 122 S.E. 2d 716 (1961); Goeckel, 236 N.C. 604, 73 S.E. 2d 618 (1952).

It is evident from the record that after plaintiff-appellants failed to accept defendant’s counteroffer, there was a second purchaser, Plaintiff-appellee Segal, who submitted an offer to defendant that was accepted. This offer and acceptance between the latter parties, together with consideration in the form of an earnest money deposit from plaintiff-appellee, ripened into a valid and binding purchase contract.

By entering into the contract with Plaintiff-appellee Segal, defendant manifested her intention to revoke her previous counteroffer to plaintiff-appellants. “It is a fundamental tenet of the common law that an offer is generally freely revocable and can be countermanded by the offeror at any time before it has been accepted by the offeree.” E. Farnsworth, Contracts, § 3.17 (1982); Restatement, supra, § 42. The revocation of an offer terminates it, and the offeree has no power to revive the offer by any subsequent attempts to accept. G. Thompson, supra, § 4452.

Generally, notice of the offeror’s revocation must be communicated to the offeree to effectively terminate the offeree’s power to accept the offer. It is enough that the offeree receives reliable information, even indirectly, “that the offeror had taken definite action inconsistent with an intention to make the contract.” E. Farnsworth, supra, § 3.17 (the author cites Dickinson v. Dodds, 2 Ch. Div. 463 (1876), a notorious English case, to support this proposition); Restatement, supra, § 43.

In this case, plaintiff-appellants received notice of the offeror’s revocation of the counteroffer in the afternoon of August 5, when Byer saw Normile and told him, “[Y]ou snooze, you lose; the property has been sold.” Later that afternoon, plaintiff-appellants initialed the counteroffer and delivered it to the Gallery of Homes, along with their earnest money deposit of $500. These subsequent attempts by plaintiff-appellants to accept defendant’s revoked counteroffer were fruitless, however, since their power of acceptance had been effectively terminated by the offeror’s revocation. Restatement, supra, § 36. Since defendant’s counteroffer could not be revived, the practical effect of plaintiff-appellants’ initialing defendant’s counteroffer and leaving it at the broker’s office before 5:00 p.m. on August 5 was to resubmit a new offer. This offer was not accepted by defendant since she had already contracted to sell her property by entering into a valid, binding, and irrevocable purchase contract with Plaintiff-appellee Segal.

For the reasons stated herein, the decision of the Court of Appeals is

Modified and affirmed.

Justice VAUGHN did not participate in the consideration or decision of this case.

Edgar C. WALKER et al., Appellants, v. Clarence M. KEITH, Appellee.

Court of Appeals of Kentucky.

June 26, 1964.

Rehearing Denied Oct. 16, 1964.

G. D. Milliken, Jr., Marshall Funk, Bowling Green, for appellants.

Joe B. Orr, Bell, Orr & Reynolds, Bowling Green, for appellee.

CLAY, Commissioner.

In this declaratory judgment proceeding the plaintiff appellee sought an adjudication that he had effectively exercised an option to extend a lease, and a further determination of the amount of rent to be paid. The relief prayed was granted by the Chancellor. The principal issue is whether the option provision in the lease fixed the rent with sufficient certainty to constitute an enforceable contract between the parties.

In July 1951 appellants, the lessors, leased a small lot to appellee, the lessee, for a 10-year term at a rent of $100 per month. The lessee was given an option to extend the lease for an additional 10-year term, under the same terms and conditions except as to rental. The renewal option provided:

“rental will be fixed in such amount as shall actually be agreed upon by the lessors and the lessee with the monthly rental fixed on the comparative basis of rental values as of the date of the renewal with rental values at this time reflected by the comparative business conditions of the two periods.”

The lessee gave the proper notice to renew but the parties were unable to agree upon the rent. Preliminary court proceedings finally culminated in this lawsuit. Based upon the verdict of an advisory jury, the Chancellor fixed the new rent at $125 per month.

The question before us is whether the quoted provision is so indefinite and uncertain that the parties cannot be held to have agreed upon this essential rental term of the lease. There have been many cases from other jurisdictions passing on somewhat similar lease provisions and the decisions are in hopeless conflict. We have no authoritative Kentucky decision.

At the outset two observations may be made. One is that rental in the ordinary lease is a very uncomplicated item. It involves the number of dollars the lessee will pay. It, or a method of ascertaining it, can be so easily fixed with certainty. From the standpoint of stability in business transactions, it should be so fixed.

Secondly, as an original proposition, uncomplicated by subtle rules of law, the provision we have quoted, on its face, is ambiguous and indefinite. The language used is equivocal. It neither fixes the rent nor furnishes a positive key to its establishment. The terminology is not only confusing but inherently unworkable as a formula.

The above observations should resolve the issue. Unfortunately it is not that simple. Many courts have become intrigued with the possible import of similar language and have interpolated into it' a. binding obligation. The lease renewal option has been treated as something different from an ordinary contract. The law has become woefully complicated. For this reason we consider it necessary and proper to examine this question in depth.

The following basic principles of law are generally accepted:

“It is a necessary requirement in the nature of things that an agreement in order to be binding must be sufficiently definite to enable a court to give it an exact meaning.” Williston on Contracts (3rd Ed.) Vol. 1, section 37 (page 107).

“Like other contracts or agreements for a lease, the provision for a renewal must be certain in order to render it binding and enforceable. Indefiniteness, vagueness, and uncertainty in the terms of such a provision will render it void unless the parties, by their subsequent conduct or acts supplement the covenant and thus remove an alleged uncertainty. The certainty that is required is such as will enable a court to determine what has been agreed upon.” 32 Am.Jur., Landlord and Tenant, section 958 (page 806).

“The terms of an extension or renewal, under an option therefor in a lease, may be left for future determination by a prescribed method, as by future arbitration or appraisal; but merely leaving the terms for future ascertainment, without providing a method for their determination, renders the agreement unenforceable for uncertainty.” 51 C.J.S. Landlord and Tenant 56b (2), page 597.

“A renewal covenant in a lease which leaves the renewal rental to be fixed by future agreement between the parties has generally been held unenforceable and void for uncertainty and indefiniteness. Also, as a general rule, provisions for renewal rental dependent upon future valuation of premises without indicating when or how such valuation should be made have been held void for uncertainty and indefiniteness.” 32 Am. Jur., Landlord and Tenant, section 965 (page 810).

Many decisions supporting these principles may be found in 30 A.L.R. 572 ; 68 A.L.R. 157; 166 A.L.R. 1237.

The degree of certainty is the controlling consideration. An example of an' appropriate method by which a non-fixed rental could be determined appears in Jackson v. Pepper Gasoline Co., 280 Ky. 226, 133 S.W.2d 91, 126 A.L.R. 1370. The lessee, who operated an automobile service station, agreed to pay “an amount equal to one cent per gallon of gasoline delivered to said station”. Observing that the parties had created a definite objective standard by which the rent could with certainty be computed, the court upheld the lease as against the contention that it was lacking in mutuality. (The Chancellor cited this case as authoritative on the issue before us, but we do not believe it is. Appellee apparently agrees because he does not even cite the case in his brief.)

On the face of the rent provision, the parties had not agreed upon a rent figure. They left the amount to future determination. If they had agreed upon a specific method of making the determination, such as by computation, the application of a formula, or the decision of an arbitrator, they could be said to have agreed upon whatever rent figure emerged from utilization of the method. This was not done.

It will be observed the rent provision expresses two ideas. The first is that the parties agree to agree. The second is that the future agreement will be based on a comparative adjustment in the light of “business conditions”. We will examine separately these two concepts and then consider them as a whole.

The lease purports to fix the rent at such an amount as shall “actually he agreed upon”. It should be obvious that an agreement to agree cannot constitute a binding contract. Williston on Contracts (3rd Ed.) Vol. 1, section 45 (page 149); Johnson v. Lowery, Ky., 270 S.W.2d 943; National Bank of Kentucky v. Louisville Trust Co., 6 Cir., 67 F.2d 97.

Slade v. City of Lexington, 141 Ky. 214, 132 S.W. 404, 32 L.R.A., N.S., 201, has been cited as adopting a contrary view. Certain language in that opinion would seem to justify such contention. However, that case involved very unusual features and some of the broad language used was unnecessary to the decision. The parties (being a legislatively created public service corporation and a municipality) had agreed to renew a contract “upon terms as mutually agreed upon”. When the time came for renewal, both parties agreed upon new terms. Thus the contract in this respect was executed. Since the parties had actually complied with all of its provisions, it was properly held valid and binding as of its inception. No question was raised with respect to the enforceability of the contract as between the parties thereto, which is the issue before us. If this case may be construed to hold that an agreement to agree, standing alone, constitutes a binding contract, we believe it unsound.

As said in Williston on Contracts (3rd Ed.) Vol. 1, section 45 (page 149) :

“Although a promise may be sufficiently definite when it contains an option given to the promisor, yet if an essential element is reserved for the future agreement of both parties, the promise gives rise to no legal obligation until such future agreement. Since either party, by the very terms of the agreement, may refuse to agree to anything the other party will agree to, it is impossible for the law to fix any obligation to such a promise.”

We accept this because it is both sensible and basic to the enforcement of a written contract. We applied it in Johnson v. Lowery, Ky., 270 S.W.2d 943, page 946, wherein we said:

“To be enforceable and valid, a contract to enter into a future covenant must specify all material and essential terms and leave nothing to be agreed upon as a result of future negotiations.”

This proposition is not universally accepted as it pertains to renewal options in a lease. Hall v. Weatherford, 32 Ariz. 370, 259 P. 282, 56 A.L.R. 903; Rainwater v. Hobeika, 208 S.C. 433, 38 S.E.2d 495, 166 A.L.R. 1228. We have examined the reasons set forth in those opinions- and do not find them convincing. The view is taken that the renewal option is for the benefit of the lessee; that the parties intended something; and that the lessee should not be deprived of his right to enforce his contract. This reasoning seems to overlook the fact that a party must have an enforceable contract before he has a right 'to enforce it. We wonder if these courts would enforce an original lease in which the rent was not fixed, but agreed to be agreed upon.

Surely there are some limits to to what equity can or should undertake to compel parties in their private affairs to do what the court thinks they should have done. See Slayter v. Pasley, Or., 199 Or. 616, 264 P.2d 444, 449; and dissenting opinion of Judge Weygandt in Moss v. Olson, 148 Ohio 625, 76 N.E.2d 875. In any event, we are not persuaded that renewal options in leases are of such an exceptional character as to justify emasculation of one of the basic rules of contract law. An agreement to agree simply does not fix an enforceable obligation.

As noted, however, the language of the renewal option incorporated a secondary stipulation. Reference was made to “comparative business conditions” which were to play some part in adjusting the new-rental. It is contended this provides the necessary certainty, and we will examine a leading case which lends support to the argument.

In Edwards v. Tobin, 132 Or. 38, 284 P. 562, 68 A.L.R. 152, the court upheld and enforced a lease agreement which provided that the rent should he “determined” at the time of renewal, “said rental to he a reasonable rental under the then existing conditions”. (Our emphasis) Significance was attached to the last quoted language, the court reasoning that since the parties had agreed upon a reasonable rent, the court would hold the parties to the agreement by fixing it.

All rents tend to be reasonable. When parties are trying to reach an agreement, however, their ideas or claims of reasonableness may widely differ. In addition, they have a right to bargain. They cannot he said to be in agreement about what is a reasonable rent until they specify a figure or an exact method of determining it. The term “reasonable rent” is itself indefinite and uncertain. Would an original lease for a “reasonable rent” be enforceable by either party? The very purpose of a rental stipulation is to remove this item from an abstract area.

It is true courts often must imply such terms in a contract as “reasonable time” or “reasonable price”. This is done when the parties fail to deal with such matters in an otherwise enforceable contract. Here the parties were undertaking to fix the terms rather than leave them to implication. Our problem is not what the law would imply if the contract did not purport to cover the subject matter, but whether the parties, in removing this material term from the field of implication, have fixed their mutual obligations.

We are seeking what the agreement actually was. When dealing with such a specific item as rent, to be payable in dollars, the area of possible agreement is quite limited. If the parties did not agree upon such an unequivocal item or upon a definite method of ascertaining it, then there is a clear case of nonagreement. The court, in fixing an obligation under a non-agreement, is not enforcing the contract but is binding the parties to something they were patently unable to agree to when writing the contract.

The opinion in the Tobin case, which purportedly was justifying the enforcement of a contractual obligation between the lessor and lessee, shows on its face the court was doing something entirely different. This question was posed in the opinion: “What logical reason is there for equity to refuse to act when the parties themselves fail to agree on the rental?” (Our emphasis) The obvious logical answer is that even equity cannot enforce as a contract a nonagreement. No distortion of words can hide the fact that when the court admits the parties “fail to agree,” then the contract it enforces is one it makes for the parties.

It has been suggested that rent is not a material term of a lease. It is said in the Tobin case: “The method of determining the rent pertains more to form than to substance. It was not the essence of the contract, but was merely incidental and ancillary thereto.” . This seems rather startling. Nothing could be more vital in a lease than the amount of rent. It is the price the lessee agrees to pay and the lessor agrees to accept for the use of the premises. Would a contract to buy a building at a “reasonable price” be enforceable? Would the method of determining the price be a matter of “form” and “incidental and ancillary” to the transaction ? In truth it lies at the heart of it. This seems to us as no more than a grammatical means of sweeping the problem under the rug. It will not do to say that the establishment of the rent agreed upon is not of the essence of a lease contract.

We have examined the Tobin case at length because it exemplifies lines of reasoning adopted 'by some courts to dredge certainty from uncertainty. Other courts balk at the process. The majority of cases, passing upon the question of whether a renewal option providing that the future rent shall be dependent upon or proportionate to the valuation of the property at the time of renewal, hold that such provision is not sufficiently certain to constitute an enforceable agreement. See cases cited in 30 A.L.R. 579 and 68 A.L.R. 159. The valuation of property and the ascertainment of “comparative business conditions,” which we have under consideration, involve similar uncertainties.

A case construing language closely approximating that in the lease before us is Beal v. Dill, 173 Kan. 879, 252 P.2d 931. The option to extend the lease provided: “said rental shall be subject to reasonable adjustment, up or down, depending upon general business conditions then existing.” The Kansas Supreme Court, purporting to follow what it deemed the “majority rule” (and citing numerous authorities), held this language was too indefinite to be enforceable.

The opposite conclusion on similar language was reached in Greene v. Leeper, 193 Tenn. 153, 245 S.W.2d 181. The option provided for: “a rental to be agreed on according to business conditions at that time.” The court, declaring that “rental can be determined with reasonable certainty by disinterested parties,” adjudged this was an enforceable provision. The court indicated in the opinion that real estate experts would have no difficulty in fixing the rental agreed upon. The trouble is the parties did not agree to leave the matter to disinterested parties or real estate experts, and it is a false assumption that there will be no differences of opinion.

A similar renewal option was enforced in Fuller v. Michigan National Bank, 342 Mich. 92, 68 N.W.2d 771. In that case the language was “at a rent to be agreed upon, dependent on then existing conditions”. The court treated the problem as one involving an ambiguity. Synonyms for the word “ambiguous” are: indeterminate, indefinite, unsettled. This dubiosity is of course what makes it clear the parties had failed to reach an agreement.

We do not think our problem can be solved by determining which is the “majority” rule and which is the “minority” rule. We are inclined, however, to adhere to a sound basic principle of contract law unless there are impelling reasons to depart from it, particularly so when the practical problems involved in such departure are so manifest. Let us briefly examine those practical problems.

What the law requires is an adequate key to a mutual agreement. If “comparative business conditions” afforded sufficient certainty, we might possibly surmount the obstacle of the unenforceable agreement to agree. This term, however is very broad indeed. Did the parties have in mind local conditions, national conditions, or conditions affecting the lessee’s particular business?

That a controversy, rather than a mutual agreement, exists on this very question is established in this case. One of the substantial issues on appeal is whether the Chancellor properly admitted in evidence the consumer price index of the United States Labor Department. At the trial the lessor was attempting to prove the change in local conditions and the lessee sought to prove changes in national conditions. Their minds to this day have never met on a criterion to determine the rent. It is pure fiction to say the court, in deciding upon some figure, is enforcing something the parties agreed to.

One aspect of this problem seems to have been overlooked by courts which have extended themselves to fix the rent and enforce the contract. This is the Statute of Frauds. The purpose of requiring a writing to evidence an agreement is to assure certainty of the essential terms thereof and to avoid controversy and litigation. See 49 Am.Jur., Statute of Frauds, section 313 (page 629); section 353 (page 663); section 354 (page 664). This very case is living proof of the difficulties encountered when a court undertakes to supply a missing essential term of a contract.

In the first place, when the parties failed to enter into a new agreement as the renewal option provided, their rights were no longer fixed by the contract. The determination of what they were was automatically shifted to the courtroom. There the court must determine the scope of relevant evidence to establish that certainty which obviously cannot be culled from the contract. Thereupon extensive proof must be taken concerning business conditions, valuations of property, and reasonable rentals. Serious controversies develop concerning the admissibility of evidence on the issue of whether “business conditions” referred to in the lease are those on the local or national level, or are those particularly affecting the lessee’s business. An advisory jury is impanelled to express its opinion as to the proper rental figure. The judge then must decide whether the jury verdict conforms to the proof and to his concept of equity. On appeal the appellate court must examine alleged errors in the trial. Assuming some error in the trial (which appears likely on this record), the case may be reversed and the whole process begun anew. All of this time we are piously clinging to a concept that the contract itself fixed the rent with some degree of certainty.

We realize that litigation is oft times inevitable and courts should not shrink from the solution of difficult problems. On the other hand, courts should not expend their powers to establish contract rights which the parties, with an opportunity to do so, have failed to define. As said in Morrison v. Rossingnol, 5 Cal. 64, quoted in 30 A.L.R. at page 579:

“A court of equity is always chary of its power to decree specific performance, and will withhold the exercise of its jurisdiction in that respect, unless there is such a degree of certainty in the terms of the contract as will enable it at one view to do complete equity.”

That cannot be done in this case.

Stipulations such as the one before us have been the source of interminable litigation. Courts are called upon not to enforce an agreement or to determine what the agreement was, but to write their own concept of what would constitute a proper one. Why this paternalistic task should be undertaken is difficult to understand when the parties could so easily provide any number of workable methods by which rents could be adjusted. As a practical matter, courts sometimes must assert their right not to be imposed upon. This thought was thus summed up in Slayter v. Pasley, Or., 264 P.2d 444, page 449:

“We should be hesitant about completing an apparently legally incomplete agreement made between persons sui juris enjoying freedom of contract and dealing at arms’ length by arbitrarily interpolating into it our concept of the parties’ intent merely to validate what would otherwise be an invalid instrument, lest we inadvertently commit them to an ostensible agreement which, in fact, is contrary to the deliberate design of all of them. It is a dangerous doctrine when examined in the light of reason. Judicial paternalism of this character should be as obnoxious to courts as is legislation by judicial fiat. Both import a quality of jural ego and superiority not consonant with long-accepted ideas of legistic propriety under a democratic form of government. If, however, we follow the urgings of the lessee in the instant matter, we will thereby establish a precedent which will open the door to repeated opportunities to do that which, in principle, courts should not do and, in any event, are not adequately equipped to do.”

We think the basic principle of contract law that requires substantial certainty as to the material terms upon which the minds of the parties have met is a sound one and should be adhered to. A renewal option stands on the same footing as any other contract right. Rent is a material term of a lease. If the parties do not fix it with reasonable certainty, it is not the business of courts to do so.

The renewal provision before us was fatally defective in failing to specify either an agreed rental or an agreed method by which it could be fixed with certainty. Because of the lack of agreement, the lessee’s option right was illusory. The Chancellor erred in undertaking to enforce it.

The judgment is reversed.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Richard K. Willard argued the cause for petitioner. With him on the briefs were David L. Roll and Lawrence D. Winson.

Gregory J. Wall argued the cause and filed a brief for respondents.^[1]

JUSTICE BLACKMUN delivered the opinion of the Court.

In this admiralty case we primarily consider whether the United States Court of Appeals for the Ninth Circuit correctly refused to enforce a forum-selection clause contained in tickets issued by petitioner Carnival Cruise Lines, Inc., to respondents Eulala and Russel Shute.

I

The Shutes, through an Arlington, Wash., travel agent, purchased passage for a 7-day cruise on petitioner's ship, the Tropicale. Respondents paid the fare to the agent who forwarded the payment to petitioner's headquarters in Miami, Fla. Petitioner then prepared the tickets and sent them to respondents in the State of Washington. The face of each ticket, at its left-hand lower corner, contained this admonition:

"SUBJECT TO CONDITIONS OF CONTRACT ON LAST PAGES IMPORTANT! PLEASE READ CONTRACT —ON LAST PAGES 1, 2, 3" App. 15.

The following appeared on "contract page 1" of each ticket:

"TERMS AND CONDITIONS OF PASSAGE CONTRACT TICKET

. . . . .

"3. (a) The acceptance of this ticket by the person or persons named hereon as passengers shall be deemed to be an acceptance and agreement by each of them of all of the terms and conditions of this Passage Contract Ticket.

. . . . .

"8. It is agreed by and between the passenger and the Carrier that all disputes and matters whatsoever arising under, in connection with or incident to this Contract shall be litigated, if at all, in and before a Court located in the State of Florida, U. S. A., to the exclusion of the Courts of any other state or country." Id., at 16.

The last quoted paragraph is the forum-selection clause at issue.

II

Respondents boarded the Tropicale in Los Angeles, Cal. The ship sailed to Puerto Vallarta, Mexico, and then returned to Los Angeles. While the ship was in international waters off the Mexican coast, respondent Eulala Shute was injured when she slipped on a deck mat during a guided tour of the ship's galley. Respondents filed suit against petitioner in the United States District Court for the Western District of Washington, claiming that Mrs. Shute's injuries had been caused by the negligence of Carnival Cruise Lines and its employees. Id., at 4.

Petitioner moved for summary judgment, contending that the forum clause in respondents' tickets required the Shutes to bring their suit against petitioner in a court in the State of Florida. Petitioner contended, alternatively, that the District Court lacked personal jurisdiction over petitioner because petitioner's contacts with the State of Washington were insubstantial. The District Court granted the motion, holding that petitioner's contacts with Washington were constitutionally insufficient to support the exercise of personal jurisdiction. See App. to Pet. for Cert. 60a.

The Court of Appeals reversed. Reasoning that "but for" petitioner's solicitation of business in Washington, respondents would not have taken the cruise and Mrs. Shute would not have been injured, the court concluded that petitioner had sufficient contacts with Washington to justify the District Court's exercise of personal jurisdiction. 897 F. 2d 377, 385-386 (CA9 1990).^[2]

Turning to the forum-selection clause, the Court of Appeals acknowledged that a court concerned with the enforceability of such a clause must begin its analysis with The Bremen v. Zapata Off-Shore Co., 407 U. S. 1 (1972), where this Court held that forum-selection clauses, although not "historically. . . favored," are "prima facie valid." Id., at 9-10. See 897 F. 2d, at 388. The appellate court concluded that the forum clause should not be enforced because it "was not freely bargained for." Id., at 389. As an "independent justification" for refusing to enforce the clause, the Court of Appeals noted that there was evidence in the record to indicate that "the Shutes are physically and financially incapable of pursuing this litigation in Florida" and that the enforcement of the clause would operate to deprive them of their day in court and thereby contravene this Court's holding in The Bremen. 897 F. 2d, at 389.

We granted certiorari to address the question whether the Court of Appeals was correct in holding that the District Court should hear respondents' tort claim against petitioner. 498 U. S. 807-808 (1990). Because we find the forum-selection clause to be dispositive of this question, we need not consider petitioner's constitutional argument as to personal jurisdiction. See Ashwander v. TVA, 297 U. S. 288, 347 (1936) (Brandeis, J., concurring) ("`It is not the habit of the Court to decide questions of a constitutional nature unless absolutely necessary to a decision of the case,'" quoting Burton v. United States, 196 U. S. 283, 295 (1905)).

III

We begin by noting the boundaries of our inquiry. First, this is a case in admiralty, and federal law governs the enforceability of the forum-selection clause we scrutinize. See Archawski v. Hanioti, 350 U. S. 532, 533 (1956); The Moses Taylor, 4 Wall. 411, 427 (1867); Tr. of Oral Arg. 36-37, 12, 47-48. Cf. Stewart Organization, Inc. v. Ricoh Corp., 487 U. S. 22, 28-29 (1988). Second, we do not address the question whether respondents had sufficient notice of the forum clause before entering the contract for passage. Respondents essentially have conceded that they had notice of the forum-selection provision. Brief for Respondents 26 ("The respondents do not contest the incorporation of the provisions nor [sic] that the forum selection clause was reasonably communicated to the respondents, as much as three pages of fine print can be communicated"). Additionally, the Court of Appeals evaluated the enforceability of the forum clause under the assumption, although "doubtful," that respondents could be deemed to have had knowledge of the clause. See 897 F. 2d, at 389, and n. 11.

Within this context, respondents urge that the forum clause should not be enforced because, contrary to this Court's teachings in The Bremen, the clause was not the product of negotiation, and enforcement effectively would deprive respondents of their day in court. Additionally, respondents contend that the clause violates the Limitation of Vessel Owner's Liability Act, 46 U. S. C. App. § 183c. We consider these arguments in turn.

IV

A

Both petitioner and respondents argue vigorously that the Court's opinion in The Bremen governs this case, and each side purports to find ample support for its position in that opinion's broad-ranging language. This seeming paradox derives in large part from key factual differences between this case and The Bremen, differences that preclude an automatic and simple application of The Bremen's general principles to the facts here.

In The Bremen, this Court addressed the enforceability of a forum-selection clause in a contract between two business corporations. An American corporation, Zapata, made a contract with Unterweser, a German corporation, for the towage of Zapata's oceangoing drilling rig from Louisiana to a point in the Adriatic Sea off the coast of Italy. The agreement provided that any dispute arising under the contract was to be resolved in the London Court of Justice. After a storm in the Gulf of Mexico seriously damaged the rig, Zapata ordered Unterweser's ship to tow the rig to Tampa, Fla., the nearest point of refuge. Thereafter, Zapata sued Unterweser in admiralty in federal court at Tampa. Citing the forum clause, Unterweser moved to dismiss. The District Court denied Unterweser's motion, and the Court of Appeals for the Fifth Circuit, sitting en banc on rehearing, and by a sharply divided vote, affirmed. In re Complaint of Unterweser Reederei, GmBH, 446 F. 2d 907 (1971).

This Court vacated and remanded, stating that, in general, "a freely negotiated private international agreement, unaffected by fraud, undue influence, or overweening bargaining power, such as that involved here, should be given full effect." 407 U. S., at 12-13 (footnote omitted). The Court further generalized that "in the light of present-day commercial realities and expanding international trade we conclude that the forum clause should control absent a strong showing that it should be set aside." Id., at 15. The Court did not define precisely the circumstances that would make it unreasonable for a court to enforce a forum clause. Instead, the Court discussed a number of factors that made it reasonable to enforce the clause at issue in The Bremen and [592] that, presumably, would be pertinent in any determination whether to enforce a similar clause.

In this respect, the Court noted that there was "strong evidence that the forum clause was a vital part of the agreement, and [that] it would be unrealistic to think that the parties did not conduct their negotiations, including fixing the monetary terms, with the consequences of the forum clause figuring prominently in their calculations." Id., at 14 (footnote omitted). Further, the Court observed that it was not "dealing with an agreement between two Americans to resolve their essentially local disputes in a remote alien forum," and that in such a case, "the serious inconvenience of the contractual forum to one or both of the parties might carry greater weight in determining the reasonableness of the forum clause." Id., at 17. The Court stated that even where the forum clause establishes a remote forum for resolution of conflicts, "the party claiming [unfairness] should bear a heavy burden of proof." Ibid.

In applying The Bremen, the Court of Appeals in the present litigation took note of the foregoing "reasonableness" factors and rather automatically decided that the forum-selection clause was unenforceable because, unlike the parties in The Bremen, respondents are not business persons and did not negotiate the terms of the clause with petitioner. Alternatively, the Court of Appeals ruled that the clause should not be enforced because enforcement effectively would deprive respondents of an opportunity to litigate their claim against petitioner.

The Bremen concerned a "far from routine transaction between companies of two different nations contemplating the tow of an extremely costly piece of equipment from Louisiana across the Gulf of Mexico and the Atlantic Ocean, through the Mediterranean Sea to its final destination in the Adriatic Sea." Id., at 13. These facts suggest that, even apart from the evidence of negotiation regarding the forum clause, it was entirely reasonable for the Court in The [593] Bremen to have expected Unterweser and Zapata to have negotiated with care in selecting a forum for the resolution of disputes arising from their special towing contract.

In contrast, respondents' passage contract was purely routine and doubtless nearly identical to every commercial passage contract issued by petitioner and most other cruise lines. See, e. g., Hodes v. S. N. C. Achille Lauro ed Altri-Gestione, 858 F. 2d 905, 910 (CA3 1988), cert. dism'd, 490 U. S. 1001 (1989). In this context, it would be entirely unreasonable for us to assume that respondents—or any other cruise passenger—would negotiate with petitioner the terms of a forum-selection clause in an ordinary commercial cruise ticket. Common sense dictates that a ticket of this kind will be a form contract the terms of which are not subject to negotiation, and that an individual purchasing the ticket will not have bargaining parity with the cruise line. But by ignoring the crucial differences in the business contexts in which the respective contracts were executed, the Court of Appeals' analysis seems to us to have distorted somewhat this Court's holding in The Bremen.

In evaluating the reasonableness of the forum clause at issue in this case, we must refine the analysis of The Bremen to account for the realities of form passage contracts. As an initial matter, we do not adopt the Court of Appeals' determination that a nonnegotiated forum-selection clause in a form ticket contract is never enforceable simply because it is not the subject of bargaining. Including a reasonable forum clause in a form contract of this kind well may be permissible for several reasons: First, a cruise line has a special interest in limiting the fora in which it potentially could be subject to suit. Because a cruise ship typically carries passengers from many locales, it is not unlikely that a mishap on a cruise could subject the cruise line to litigation in several different fora. See The Bremen, 407 U. S., at 13, and n. 15; Hodes, 858 F. 2d, at 913. Additionally, a clause establishing ex ante the forum for dispute resolution has the salutary effect of dispelling any confusion about where suits arising from the contract must be brought and defended, sparing litigants the time and expense of pretrial motions to determine the correct forum and conserving judicial resources that otherwise would be devoted to deciding those motions. See Stewart Organization, 487 U. S., at 33 (concurring opinion). Finally, it stands to reason that passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued. Cf. Northwestern Nat. Ins. Co. v. Donovan, 916 F. 2d 372, 378 (CA7 1990).

We also do not accept the Court of Appeals' "independent justification" for its conclusion that The Bremen dictates that the clause should not be enforced because "[t]here is evidence in the record to indicate that the Shutes are physically and financially incapable of pursuing this litigation in Florida." 897 F. 2d, at 389. We do not defer to the Court of Appeals' findings of fact. In dismissing the case for lack of personal jurisdiction over petitioner, the District Court made no finding regarding the physical and financial impediments to the Shutes' pursuing their case in Florida. The Court of Appeals' conclusory reference to the record provides no basis for this Court to validate the finding of inconvenience. Furthermore, the Court of Appeals did not place in proper context this Court's statement in The Bremen that "the serious inconvenience of the contractual forum to one or both of the parties might carry greater weight in determining the reasonableness of the forum clause." 407 U. S., at 17. The Court made this statement in evaluating a hypothetical "agreement between two Americans to resolve their essentially local disputes in a remote alien forum." Ibid. In the present case, Florida is not a "remote alien forum," nor—given the fact that Mrs. Shute's accident occurred off the coast of Mexico— is this dispute an essentially local one inherently more suited to resolution in the State of Washington than in Florida. In light of these distinctions, and because respondents do not claim lack of notice of the forum clause, we conclude that they have not satisfied the "heavy burden of proof," ibid., required to set aside the clause on grounds of inconvenience.

It bears emphasis that forum-selection clauses contained in form passage contracts are subject to judicial scrutiny for fundamental fairness. In this case, there is no indication that petitioner set Florida as the forum in which disputes were to be resolved as a means of discouraging cruise passengers from pursuing legitimate claims. Any suggestion of such a bad-faith motive is belied by two facts: Petitioner has its principal place of business in Florida, and many of its cruises depart from and return to Florida ports. Similarly, there is no evidence that petitioner obtained respondents' accession to the forum clause by fraud or overreaching. Finally, respondents have conceded that they were given notice of the forum provision and, therefore, presumably retained the option of rejecting the contract with impunity. In the case before us, therefore, we conclude that the Court of Appeals erred in refusing to enforce the forum-selection clause.

B

Respondents also contend that the forum-selection clause at issue violates 46 U. S. C. App. § 183c. That statute, enacted in 1936, see ch. 521, 49 Stat. 1480, provides:

"It shall be unlawful for the . . . owner of any vessel transporting passengers between ports of the United States or between any such port and a foreign port to insert in any rule, regulation, contract, or agreement any provision or limitation (1) purporting, in the event of loss of life or bodily injury arising from the negligence or fault of such owner or his servants, to relieve such owner . . . from liability, or from liability beyond any stipulated amount, for such loss or injury, or (2) purporting in such event to lessen, weaken, or avoid the right of any claimant to a trial by court of competent jurisdiction on the question of liability for such loss or injury, or the measure of damages therefor. All such provisions or limitations contained in any such rule, regulation, contract, or agreement are hereby declared to be against public policy and shall be null and void and of no effect."

By its plain language, the forum-selection clause before us does not take away respondents' right to "a trial by [a] court of competent jurisdiction" and thereby contravene the explicit proscription of § 183c. Instead, the clause states specifically that actions arising out of the passage contract shall be brought "if at all," in a court "located in the State of Florida," which, plainly, is a "court of competent jurisdiction" within the meaning of the statute.

Respondents appear to acknowledge this by asserting that although the forum clause does not directly prevent the determination of claims against the cruise line, it causes plaintiffs unreasonable hardship in asserting their rights and therefore violates Congress' intended goal in enacting § 183c. Significantly, however, respondents cite no authority for their contention that Congress' intent in enacting § 183c was to avoid having a plaintiff travel to a distant forum in order to litigate. The legislative history of § 183c suggests instead that this provision was enacted in response to passenger-ticket conditions purporting to limit the shipowner's liability for negligence or to remove the issue of liability from the scrutiny of any court by means of a clause providing that "the question of liability and the measure of damages shall be determined by arbitration." See S. Rep. No. 2061, 74th Cong., 2d Sess., 6 (1936); H. R. Rep. No. 2517, 74th Cong., 2d Sess., 6 (1936). See also Safety of Life and Property at Sea: Hearings before the House Committee on Merchant Marine and Fisheries, 74th Cong., 2d Sess., pt. 4, pp. 20, 36-37, 57, 109-110, 119 (1936). There was no prohibition of a forum-selection clause. Because the clause before us allows for judicial resolution of claims against petitioner and does [597] not purport to limit petitioner's liability for negligence, it does not violate § 183c.

V

The judgment of the Court of Appeals is reversed.

It is so ordered.

JUSTICE STEVENS, with whom JUSTICE MARSHALL joins, dissenting.

The Court prefaces its legal analysis with a factual statement that implies that a purchaser of a Carnival Cruise Lines passenger ticket is fully and fairly notified about the existence of the choice of forum clause in the fine print on the back of the ticket. See ante, at 587-588. Even if this implication were accurate, I would disagree with the Court's analysis. But, given the Court's preface, I begin my dissent by noting that only the most meticulous passenger is likely to become aware of the forum-selection provision. I have therefore appended to this opinion a facsimile of the relevant text, using the type size that actually appears in the ticket itself. A careful reader will find the forum-selection clause in the 8th of the 25 numbered paragraphs.

Of course, many passengers, like the respondents in this case, see ante, at 587, will not have an opportunity to read paragraph 8 until they have actually purchased their tickets. By this point, the passengers will already have accepted the condition set forth in paragraph 16(a), which provides that "[t]he Carrier shall not be liable to make any refund to passengers in respect of . . . tickets wholly or partly not used by a passenger." Not knowing whether or not that provision is legally enforceable, I assume that the average passenger would accept the risk of having to file suit in Florida in the event of an injury, rather than canceling—without a refund— a planned vacation at the last minute. The fact that the cruise line can reduce its litigation costs, and therefore its liability insurance premiums, by forcing this choice on its passengers does not, in my opinion, suffice to render the provision reasonable. Cf. Steven v. Fidelity & Casualty Co. of New York, 58 Cal. 2d 862, 883, 377 P. 2d 284, 298 (1962) (refusing to enforce limitation on liability in insurance policy because insured "must purchase the policy before he even knows its provisions").

Even if passengers received prominent notice of the forum-selection clause before they committed the cost of the cruise, I would remain persuaded that the clause was unenforceable under traditional principles of federal admiralty law and is "null and void" under the terms of Limitation of Vessel Owner's Liability Act, ch. 521, 49 Stat. 1480, 46 U. S. C. App. § 183c, which was enacted in 1936 to invalidate expressly stipulations limiting shipowners' liability for negligence.

Exculpatory clauses in passenger tickets have been around for a long time. These clauses are typically the product of disparate bargaining power between the carrier and the passenger, and they undermine the strong public interest in deterring negligent conduct. For these reasons, courts long before the turn of the century consistently held such clauses unenforceable under federal admiralty law. Thus, in a case involving a ticket provision purporting to limit the shipowner's liability for the negligent handling of baggage, this Court wrote:

"It is settled in the courts of the United States that exemptions limiting carriers from responsibility for the negligence of themselves or their servants are both unjust and unreasonable, and will be deemed as wanting in the element of voluntary assent; and, besides, that such conditions are in conflict with public policy. This doctrine was announced so long ago, and has been so frequently reiterated, that it is elementary. We content ourselves with referring to the cases of the Baltimore & Ohio &c.; Railway v. Voigt, 176 U. S. 498, 505, 507, and Knott v. Botany Mills, 179 U. S. 69, 71, where the previously adjudged cases are referred to and the principles by them expounded are restated." The Kensington, 183 U. S. 263, 268 (1902).

Clauses limiting a carrier's liability or weakening the passenger's right to recover for the negligence of the carrier's employees come in a variety of forms. Complete exemptions from liability for negligence or limitations on the amount of the potential damage recovery,^[3] requirements that notice of claims be filed within an unreasonably short period of time,^[4] provisions mandating a choice of law that is favorable to the defendant in negligence cases,^[5] and forum-selection clauses are all similarly designed to put a thumb on the carrier's side of the scale of justice.^[6]

Forum-selection clauses in passenger tickets involve the intersection of two strands of traditional contract law that qualify the general rule that courts will enforce the terms of a contract as written. Pursuant to the first strand, courts traditionally have reviewed with heightened scrutiny the terms of contracts of adhesion, form contracts offered on a take-or-leave basis by a party with stronger bargaining power to a party with weaker power. Some commentators have questioned whether contracts of adhesion can justifiably be enforced at all under traditional contract theory because the adhering party generally enters into them without manifesting knowing and voluntary consent to all their terms. See, e. g., Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1173, 1179-1180 (1983); Slawson, Mass Contracts: Lawful Fraud in California, 48 S. Cal. L. Rev. 1, 12-13 (1974); K. Llewellyn, The Common Law Tradition 370-371 (1960).

The common law, recognizing that standardized form contracts account for a significant portion of all commercial agreements, has taken a less extreme position and instead subjects terms in contracts of adhesion to scrutiny for reasonableness. Judge J. Skelly Wright set out the state of the law succinctly in Williams v. Walker-Thomas Furniture Co., 121 U. S. App. D. C. 315, 319-320, 350 F. 2d 445, 449-450 (1965) (footnotes omitted):

"Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain. But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all of the terms. In such a case the usual rule that the terms of the agreement are not to be questioned should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld."

See also Steven, 58 Cal. 2d, at 879-883, 377 P. 2d, at 295-297; Henningsen v. Bloomfield Motors, Inc., 32 N. J. 358, 161 A. 2d 69 (1960).

The second doctrinal principle implicated by forum-selection clauses is the traditional rule that "contractual provisions, which seek to limit the place or court in which an action may . . . be brought, are invalid as contrary to public policy." See Dougherty, Validity of Contractual Provision Limiting Place or Court in Which Action May Be Brought, 31 A. L. R. 4th 404, 409, § 3 (1984). See also Home Insurance Co. v. Morse, 20 Wall. 445, 451 (1874). Although adherence to this general rule has declined in recent years, particularly following our decision in The Bremen v. Zapata Off-Shore Co., 407 U. S. 1 (1972), the prevailing rule is still that forum-selection clauses are not enforceable if they were not freely bargained for, create additional expense for one party, or deny one party a remedy. See 31 A. L. R. 4th, at 409-438 (citing cases). A forum-selection clause in a standardized passenger ticket would clearly have been unenforceable under the common law before our decision in The Bremen, see 407 U. S., at 9, and n. 10, and, in my opinion, remains unenforceable under the prevailing rule today.

The Bremen, which the Court effectively treats as controlling this case, had nothing to say about stipulations printed on the back of passenger tickets. That case involved the enforceability of a forum-selection clause in a freely negotiated international agreement between two large corporations providing for the towage of a vessel from the Gulf of Mexico to the Adriatic Sea. The Court recognized that such towage agreements had generally been held unenforceable in American courts,^[7] but held that the doctrine of those cases did not extend to commercial arrangements between parties with equal bargaining power.

The federal statute that should control the disposition of the case before us today was enacted in 1936 when the general rule denying enforcement of forum-selection clauses was indisputably widely accepted. The principal subject of the statute concerned the limitation of shipowner liability, but as the following excerpt from the House Report explains, the section that is relevant to this case was added as a direct response to shipowners' ticketing practices.

"During the course of the hearings on the bill (H. R. 9969) there was also brought to the attention of the committee a practice of providing on the reverse side of steamship tickets that in the event of damage or injury caused by the negligence or fault of the owner or his servants, the liability of the owner shall be limited to a stipulated amount, in some cases $5,000, and in others substantially lower amounts, or that in such event the question of liability and the measure of damages shall be determined by arbitration. The amendment to chapter 6 of title 48 of the Revised Statutes proposed to be made by section 2 of the committee amendment is intended to, and in the opinion of the committee will, put a stop to all such practices and practices of a like character." H. R. Rep. No. 2517, 74th Cong., 2d Sess., 6-7 (1936) (emphasis added); see also S. Rep. No. 2061, 74th Cong., 2d Sess., 6-7 (1936).

The intent to "put a stop to all such practices and practices of a like character" was effectuated in the second clause of the statute. It reads:

"It shall be unlawful for the manager, agent, master, or owner of any vessel transporting passengers between ports of the United States or between any such port and a foreign port to insert in any rule, regulation, contract, or agreement any provision or limitation (1) purporting, in the event of loss of life or bodily injury arising from the negligence or fault of such owner or his servants, to relieve such owner, master, or agent from liability, or from liability beyond any stipulated amount, for such loss or injury, or (2) purporting in such event to lessen, weaken, or avoid the right of any claimant to a trial by court of competent jurisdiction on the question of liability for such loss or injury, or the measure of damages therefor. All such provisions or limitations contained in any such rule, regulation, contract, or agreement are declared to be against public policy and shall be null and void and of no effect." 46 U. S. C. App. § 183c (emphasis added).

The stipulation in the ticket that Carnival Cruise sold to respondents certainly lessens or weakens their ability to recover for the slip and fall incident that occurred off the west coast of Mexico during the cruise that originated and terminated in Los Angeles, California. It is safe to assume that the witnesses—whether other passengers or members of the crew—can be assembled with less expense and inconvenience at a west coast forum than in a Florida court several thousand miles from the scene of the accident.

A liberal reading of the 1936 statute is supported by both its remedial purpose and by the legislative history's general condemnation of "all such practices." Although the statute does not specifically mention forum-selection clauses, its language is broad enough to encompass them. The absence of a specific reference is adequately explained by the fact that such clauses were already unenforceable under common law and would not often have been used by carriers, which were relying on stipulations that purported to exonerate them from liability entirely. Cf. Moskal v. United States, 498 U. S. 103, 110-113 (1990).

The Courts of Appeals, construing an analogous provision of the Carriage of Goods by Sea Act, 46 U. S. C. App. § 1300 et seq., have unanimously held invalid as limitations on liability forum-selection clauses requiring suit in foreign jurisdictions. See, e. g., Hughes Drilling Fluids v. M/V Luo Fu Shan, 852 F. 2d 840 (CA5 1988), cert. denied, 489 U. S. 1033 (1989); Union Ins. Soc. of Canton, Ltd. v. S. S. Elikon, 642 F. 2d 721, 724-725 (CA4 1981); Indussa Corp. v. S. S. Ranborg, 377 F. 2d 200, 203-204 (CA2 1967). Commentators have also endorsed this view. See, e. g., G. Gilmore & C. Black, The Law of Admiralty 145, and n. 23 (2d ed. 1975); Mendelsohn, Liberalism, Choice of Forum Clauses and the Hague Rules, 2 J. of Maritime Law & Comm. 661, 663-666 (1971). The forum-selection clause here does not mandate suit in a foreign jurisdiction, and therefore arguably might have less of an impact on a plaintiff's ability to recover. See Fireman's Fund American Ins. Cos. v. Puerto Rican Forwarding Co., 492 F. 2d 1294 (CA1 1974). However, the plaintiffs in this case are not large corporations but individuals, and the added burden on them of conducting a trial at the opposite end of the country is likely proportional to the additional cost to a large corporation of conducting a trial overseas.^[8]

Under these circumstances, the general prohibition against stipulations purporting "to lessen, weaken, or avoid" the passenger's right to a trial certainly should be construed to apply to the manifestly unreasonable stipulation in these passengers' tickets. Even without the benefit of the statute, I would continue to apply the general rule that prevailed prior to our decision in The Bremen to forum-selection clauses in passenger tickets.

I respectfully dissent.

[1] Briefs of amici curiae urging reversal were filed for the Chamber of Commerce of the United States by Herbert L. Fenster, Stanley W. Landfair, and Robin S. Conrad; and for the International Committee of Passenger Lines by John A. Flynn and James B. Nebel.

[2] The Court of Appeals had filed an earlier opinion also reversing the District Court and ruling that the District Court had personal jurisdiction over the cruise line and that the forum-selection clause in the tickets was unreasonable and was not to be enforced. 863 F. 2d 1437 (CA9 1988). That opinion, however, was withdrawn when the court certified to the Supreme Court of Washington the question whether the Washington long-arm statute, Wash. Rev. Code § 4.28.185 (1988), conferred personal jurisdiction over Carnival Cruise Lines for the claim asserted by the Shutes. See 872 F. 2d 930 (1989). The Washington Supreme Court answered the certified question in the affirmative on the ground that the Shutes' claim "arose from" petitioner's advertisement in Washington and the promotion of its cruises there. 113 Wash. 2d 763, 783 P. 2d 78 (1989). The Court of Appeals then "refiled" its opinion "as modified herein." See 897 F. 2d, at 380, n. 1.

[3]See 46 U. S. C. App. § 183c:

"It shall be unlawful for the . . . owner of any vessel transporting passengers between ports of the United States or between any such port and a foreign port to insert in any rule, regulation, contract, or agreement any provision or limitation (1) purporting, in the event of loss of life or bodily injury arising from the negligence or fault of such owner or his servants, to relieve such owner . . . from liability, or from liability beyond any stipulated amount, for such loss or injury . . . ."

[4]See 46 U. S. C. App. § 183b(a):

"It shall be unlawful for the manager, agent, master, or owner of any sea-going vessel (other than tugs, barges, fishing vessels and their tenders) transporting passengers or merchandise or property from or between ports of the United States and foreign ports to provide by rule, contract, regulation, or otherwise a shorter period for giving notice of, or filing claims for loss of life or bodily injury, than six months, and for the institution of suits on such claims, than one year, such period for institution of suits to be computed from the day when the death or injury occurred."

See also 49 U. S. C. § 11707(e) ("A carrier or freight forwarder may not provide by rule, contract, or otherwise, a period of less than 9 months for filing a claim against it under this section and a period of less than 2 years for bringing a civil action against it under this section").

[5] See, e. g., The Kensington, 183 U. S. 263, 269 (1902) (refusing to enforce clause requiring that all disputes under contract for passage be governed by Belgian law because such law would have favored the shipowner in violation of United States public policy).

[6] All these clauses will provide passengers who purchase tickets containing them with a "benefit in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting [its exposure to liability]." See ante, at 594. Under the Court's reasoning, all these clauses, including a complete waiver of liability, would be enforceable, a result at odds with longstanding jurisprudence.

[7] "In [Carbon Black Export, Inc. v. The Monrosa, 254 F. 2d 297 (CA5 1958), cert. dism'd, 359 U. S. 180 (1959),] the Court of Appeals had held a forum-selection clause unenforceable, reiterating the traditional view of many American courts that `agreements in advance of controversy whose object is to oust the jurisdiction of the courts are contrary to public policy and will not be enforced.' 254 F. 2d, at 300-301." The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 6 (1972).

[8] The Court does not make clear whether the result in this case would also apply if the clause required Carnival passengers to sue in Panama, the country in which Carnival is incorporated.

306 F.3d 17 (2002)

Docket Nos. 01-7870, 01-7872, 01-7860.

Argued: March 14, 2002.
Decided: October 1, 2002.

[18] [19] [20] Roger W. Yoerges, Wilmer Cutler & Pickering, Washington, DC (Patrick J. Carome, Joseph R. Profaizer, Darrin A. Hostetler, Wilmer Cutler & Pickering, Washington, DC, on the brief; David C. Goldberg, America Online, Inc., Dulles, VA, of counsel), for Defendants-Appellants.

Joshua N. Rubin, Abbey Gardy, LLP, New York, N.Y. (Jill S. Abrams, Courtney E. Lynch, Richard B. Margolies, Abbey Gardy, LLP, New York, NY, on the brief; James V. Bashian, Law Offices of James V. Bashian, New York, NY; George G. Mahfood, Leesfield, Leighton, Rubio & Mahfood, Miami, FL, of counsel), for Plaintiffs-Appellees.

Before McLAUGHLIN, LEVAL, and SOTOMAYOR, Circuit Judges.

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 also agree with the district court that plaintiffs' claims relating to the software at issue — a "plug-in" program entitled SmartDownload ("SmartDownload" or "the plug-in program"), offered by Netscape to enhance the functioning of the separate browser program called Netscape Communicator ("Communicator" or "the browser program") — are not subject to an arbitration agreement contained in the license terms governing the use of Communicator. Finally, we conclude that the district court properly rejected defendants' argument that plaintiff website owner Christopher Specht, though not a party to any Netscape license agreement, is nevertheless required to arbitrate his claims concerning SmartDownload because he allegedly benefited directly under SmartDownload's license agreement. Defendants' theory that Specht benefited whenever visitors employing SmartDownload downloaded certain files made available on his website is simply too tenuous and speculative to justify application of the legal doctrine that requires a nonparty to an arbitration agreement to arbitrate if he or she has received a direct benefit under a contract containing the arbitration agreement.

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, 18 U.S.C. §§ 2510 et seq., and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030.

Specifically, plaintiffs alleged that when they first used Netscape's Communicator — a software program that permits Internet browsing — the program created and stored on each of their computer hard drives a small text file known as a "cookie" that functioned "as a kind of electronic identification tag for future communications" between their computers and Netscape. Plaintiffs further alleged that when they installed SmartDownload — a separate software "plug-in"^[2] that served to enhance Communicator's browsing capabilities — SmartDownload created and stored on their computer hard drives another string of characters, known as a "Key," which similarly functioned as an identification tag in future communications with Netscape. According to the complaints in this case, each time a computer user employed Communicator to download a file from the Internet, SmartDownload "assume[d] from Communicator the task of downloading" the file and transmitted to Netscape the address of the file being downloaded together with the cookie created by Communicator and the Key created by SmartDownload. These processes, plaintiffs claim, constituted unlawful "eavesdropping" on users of Netscape's software products as well as on Internet websites from which users employing SmartDownload downloaded files.

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 installation^[3] 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 plaintiffs^[5] 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 webpage^[8] 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"), 9 U.S.C. § 4, 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. Specht, 150 F.Supp.2d at 595-96.

The district court also ruled that the separate license agreement governing use of Communicator, even though the user plaintiffs had assented to its terms, involved an independent transaction that made no mention of SmartDownload and so did not bind plaintiffs to arbitrate their claims relating to SmartDownload. Id. at 596. The court further concluded that Fagan could not be bound by the SmartDownload license agreement, because the shareware site from which he allegedly obtained the plug-in program provided even less notice of SmartDownload's license terms than did Netscape's page. Id. at 596-97. Finally, the court ruled that Specht was not bound by the SmartDownload arbitration agreement as a noncontracting beneficiary, because he (1) had no preexisting relationship with any of the parties, (2) was not an agent of any party, and (3) received no direct benefit from users' downloading of files from his site, even if those users did employ SmartDownload to enhance their downloading. Id. at 597-98.

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. Mediterranean Shipping Co. S.A. Geneva v. POL-Atlantic, 229 F.3d 397, 402 (2d Cir. 2000).

DISCUSSION

I. Standard of Review and Applicable Law

A district court's denial of a motion to compel arbitration is reviewed de novo. Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 19 (2d Cir. 1995). 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. Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., Ltd., 189 F.3d 289, 295 (2d Cir.1999); see also Shann v. Dunk, 84 F.3d 73, 77 (2d Cir.1996) ("The central issue — whether, based on the factual findings, a binding contract existed — is a question of law that we review de novo."). The findings upon which that conclusion is based, however, are factual and thus may not be overturned unless clearly erroneous. Chelsea Square Textiles, 189 F.3d at 295.

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. Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 844 (2d Cir.1987). A district court's determination of the scope of an arbitration agreement is reviewed de novo. Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir.1998). 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. Cf. Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 95 (2d Cir.1999) ("[W]hether an entity is a party to the arbitration agreement ... is included within the broader issue of whether the parties agreed to arbitrate.").

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. Interocean Shipping Co. v. Nat'l Shipping & Trading Corp., 462 F.2d 673, 676 (2d Cir.1972). "[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." AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (quotation marks 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." Id. at 649, 106 S.Ct. 1415.

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. Mehler v. Terminix Int'l Co., 205 F.3d 44, 48 (2d Cir.2000); see also Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) ("[S]tate law, whether of legislative or judicial origin, is applicable [to the determination of whether the parties agreed to arbitrate] if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally."). 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.

II. Whether This Court Should Remand for a Trial on Contract Formation

Defendants argue on appeal that the district court erred in deciding the question of contract formation as a matter of law. A central issue in dispute, according to defendants, is whether the user plaintiffs actually saw the notice of SmartDownload's license terms when they downloaded the plug-in program. Although plaintiffs in their affidavits and depositions generally swore that they never saw the notice of terms on Netscape's webpage, defendants point to deposition testimony in which some plaintiffs, under repeated questioning by defendants' counsel, responded that they could not "remember" or be entirely "sure" whether the link to SmartDownload's license terms was visible on their computer screens. Defendants argue that on some computers, depending on the configuration of the monitor and browser, SmartDownload's license link "appears on the first screen, without any need for the user to scroll at all." Thus, according to defendants, "a trial on the factual issues that Defendants raised about each and every Plaintiffs' [sic] downloading experience" is required on remand to remedy the district court's "error" in denying defendants' motion as a matter of law.

Section 4 of the FAA provides, in relevant part, that "[i]f the making of the arbitration agreement ... be in issue, the court shall proceed summarily to the trial thereof." 9 U.S.C. § 4. We conclude for two reasons, however, that defendants are not entitled to a remand for a full trial. First, during oral argument in the district court on the arbitrability of the five user plaintiffs' claims, defendants' counsel repeatedly insisted that the district court could decide "as a matter of law based on the uncontroverted facts in this case" whether "a reasonably prudent person could or should have known of the [license] terms by which acceptance would be signified." "I don't want you to try the facts," defendants' counsel told the court. "I think that the evidence in this case upon which this court can make a determination [of whether a contract existed] as a matter of law is uncontroverted."^[12] Accordingly, the district court decided the issue of reasonable notice and objective manifestation of assent as a matter of law. "[I]t is a well-established general rule that an appellate court will not consider an issue raised for the first time on appeal." Greene v. United States, 13 F.3d 577, 586 (2d Cir. 1994); see also Gurary v. Winehouse, 190 F.3d 37, 44 (2d Cir.1999) ("Having failed to make the present argument to the district court, plaintiff will not be heard to advance it here."). Nor would it cause injustice in this case for us to decline to accept defendants' invitation to consider an issue that defendants did not advance below.

Second, after conducting weeks of discovery on defendants' motion to compel arbitration, the parties placed before the district court an ample record consisting of affidavits and extensive deposition testimony by each named plaintiff; numerous declarations by counsel and witnesses for the parties; dozens of exhibits, including computer screen shots and other visual evidence concerning the user plaintiffs' experience of the Netscape webpage; oral argument supplemented by a computer demonstration; and additional briefs following oral argument. This well-developed record contrasts sharply with the meager records that on occasion have caused this Court to remand for trial on the issue of contract formation pursuant to 9 U.S.C. § 4. See, e.g., Interbras Cayman Co. v. Orient Victory Shipping Co., S.A., 663 F.2d 4, 5 (2d Cir.1981) (record consisted of affidavits and other papers); Interocean Shipping, 462 F.2d at 676 (record consisted of pleadings, affidavits, and documentary attachments). We are satisfied that the unusually full record before the district court in this case constituted "a hearing where evidence is received." Interocean Shipping, 462 F.2d at 677. Moreover, upon the record assembled, a fact-finder could not reasonably find that defendants prevailed in showing that any of the user plaintiffs had entered into an agreement on defendants' license terms.

In sum, we conclude that the district court properly decided the question of reasonable notice and objective manifestation of assent as a matter of law on the record before it, and we decline defendants' request to remand for a full trial on that question.

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. See Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal.App.3d 987, 991, 101 Cal.Rptr. 347, 350 (1972) ("[C]onsent to, or acceptance of, the arbitration provision [is] necessary to create an agreement to arbitrate."); see also Cal. Com.Code § 2204(1) ("A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.").^[13] Mutual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract. Binder v. Aetna Life Ins. Co., 75 Cal.App.4th 832, 848, 89 Cal.Rptr.2d 540, 551 (1999); cf. Restatement (Second) of Contracts § 19(2) (1981) ("The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents."). Although an onlooker observing the disputed transactions in this case would have seen each of the user plaintiffs click on the SmartDownload "Download" button, see Cedars Sinai Med. Ctr. v. Mid-West Nat'l Life Ins. Co., 118 F.Supp.2d 1002, 1008 (C.D.Cal.2000) ("In California, a party's intent to contract is judged objectively, by the party's outward manifestation of consent."), 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 [30] to those terms, see Windsor Mills, 25 Cal.App.3d at 992, 101 Cal.Rptr. at 351 ("[W]hen the offeree does not know that a proposal has been made to him this objective standard does not apply."). 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." Id.; see also Marin Storage & Trucking, Inc. v. Benco Contracting & Eng'g, Inc., 89 Cal. App.4th 1042, 1049, 107 Cal.Rptr.2d 645, 651 (2001) (same).

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." Windsor Mills, 101 Cal.Rptr. at 351. 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." Commercial Factors Corp. v. Kurtzman Bros., 131 Cal.App.2d 133, 134-35, 280 P.2d 146, 147-48 (1955) (internal quotation marks 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. See Cal. Civ.Code § 1589 ("A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting."). 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.; cf. Cory v. Golden State Bank, 95 Cal.App.3d 360, 364, 157 Cal.Rptr. 538, 541 (1979) ("[T]he provision in question is effectively hidden from the view of money order purchasers until after the transactions are completed. ... Under these circumstances, it must be concluded that the Bank's money order purchasers are not chargeable with either actual or constructive notice of the service charge provision, and therefore cannot be deemed to have consented to the provision as part of their transaction with the Bank.").

Most of the cases cited by defendants in support of their inquiry-notice argument are drawn from the world of paper contracting. See, e.g., Taussig v. Bode & Haslett, 134 Cal. 260, 66 P. 259 (1901) (where party had opportunity to read leakage disclaimer printed on warehouse receipt, he had duty to do so); In re First Capital Life Ins. Co., 34 Cal.App.4th 1283, 1288, 40 Cal.Rptr.2d 816, 820 (1995) (purchase of insurance policy after opportunity to read and understand policy terms creates binding agreement); King v. Larsen Realty, Inc., 121 Cal.App.3d 349, 356, 175 Cal.Rptr. 226, 231 (1981) (where realtors' board manual specifying that party was required to arbitrate was "readily available," party was "on notice" that he was agreeing to mandatory arbitration); Cal. State Auto. Ass'n Inter-Ins. Bureau v. Barrett Garages, Inc., 257 Cal.App.2d 71, 76, 64 Cal.Rptr. 699, 703 (1967) (recipient of airport parking claim check was bound by terms printed on claim check, because a "ordinarily prudent" person would have been alerted to the terms); Larrus v. First Nat'l Bank, 122 Cal.App.2d 884, 888, 266 P.2d 143, 147 (1954) ("clearly printed" statement on bank card stating that depositor agreed to bank's regulations provided sufficient notice to create agreement, where party had opportunity to view statement and to ask for full text of regulations, but did not do so); see also Hux v. Butler, 339 F.2d 696, 700 (6th Cir.1964) (constructive notice found where "slightest inquiry" would have disclosed relevant facts to offeree); Walker v. Carnival Cruise Lines, 63 F.Supp.2d 1083, 1089 (N.D.Cal.1999) (under California and federal law, "conspicuous notice" directing the attention of parties to existence of contract terms renders terms binding) (quotation marks omitted); Shacket v. Roger Smith Aircraft Sales, Inc., 651 F.Supp. 675, 691 (N.D.Ill. 1986) (constructive notice found where "minimal investigation" would have revealed facts to offeree).

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. Shacket, 651 F.Supp. at 690.

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. ProCD, 86 F.3d at 1452; cf. Moore v. Microsoft Corp., 293 A.D.2d 587, 587, 741 N.Y.S.2d 91, 92 (2d Dep't 2002) (software user was bound by license agreement where terms were prominently displayed on computer screen before software could [33] be installed and where user was required to indicate assent by clicking "I agree"); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 251, 676 N.Y.S.2d 569, 572 (1st Dep't 1998) (buyer assented to arbitration clause shipped inside box with computer and software by retaining items beyond date specified by license terms); M.A. Mortenson Co. v. Timberline Software Corp., 93 Wash.App. 819, 970 P.2d 803, 809 (1999) (buyer manifested assent to software license terms by installing and using software), aff'd, 140 Wash.2d 568, 998 P.2d 305 (2000); see also I.Lan Sys., 183 F.Supp.2d at 338 (business entity "explicitly accepted the clickwrap license agreement [contained in purchased software] when it clicked on the box stating `I agree'").

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. Mortenson, 970 P.2d at 806. 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]See, e.g., Hotmail Corp. v. Van$ Money Pie Inc., 47 U.S.P.Q.2d 1020, 1025 (N.D.Cal. 1998) (granting preliminary injunction based in part on breach of "Terms of Service" agreement, to which defendants had assented); America Online, Inc. v. Booker, 781 So.2d 423, 425 (Fla.Dist.Ct. App.2001) (upholding forum selection clause in "freely negotiated agreement" contained in online terms of service); Caspi v. Microsoft Network, L.L.C., 323 N.J.Super. 118, 732 A.2d 528, 530, 532-33 (N.J.Super.Ct.App.Div.1999) (upholding forum selection clause where subscribers to online software were required to review license terms in scrollable window and to click "I Agree" or "I Don't Agree"); Barnett v. Network Solutions, Inc., 38 S.W.3d 200, 203-04 (Tex.App.2001) (upholding forum selection clause in online contract for registering Internet domain names that required users to scroll through terms before accepting or rejecting them); cf. Pollstar v. Gigmania, Ltd., 170 F.Supp.2d 974, 981-82 (E.D.Cal.2000) (expressing [34] concern that notice of license terms had appeared in small, gray text on a gray background on a linked webpage, but concluding that it was too early in the case to order dismissal).^[17]

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]

IV. Whether Plaintiffs' Assent to Communicator's License Agreement Requires Them To Arbitrate Their Claims Regarding SmartDownload

Plaintiffs do not dispute that they assented to the license terms governing Netscape's Communicator. The parties disagree, however, over the scope of that license's arbitration clause. Defendants contend that the scope is broad enough to encompass plaintiffs' claims regarding SmartDownload, even if plaintiffs did not separately assent to SmartDownload's license terms and even though Communicator's license terms did not expressly mention SmartDownload. Thus, defendants argue, plaintiffs must arbitrate.

The scope of an arbitration agreement is a legal issue that we review de novo. Oldroyd, 134 F.3d at 76. "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Genesco, 815 F.2d at 847 (quotation marks omitted). Although "the FAA does not require parties to arbitrate when they have not agreed to do so," Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), arbitration is indicated unless it can be said "with positive assurance" that an arbitration clause is not susceptible to an interpretation that covers the asserted dispute. Thomas James Assocs., Inc. v. Jameson, 102 F.3d 60, 65 (2d Cir.1996) (quotation marks omitted).

The Communicator license agreement, which required arbitration of "all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights),"^[19] must be classified as "broad." Coregis Ins. Co. v. Am. Health Found., 241 F.3d 123, 128-29 (2d Cir.2001). Where the scope of an arbitration agreement is broad,

there arises a presumption of arbitrability; if, however, the dispute is in respect of a matter that, on its face, is clearly collateral to the contract, then a court should test the presumption by reviewing the allegations underlying the dispute and by asking whether the claim alleged implicates issues of contract construction or the parties' rights and obligations under it.... [C]laims that present no question involving construction of the contract, and no questions in respect of the parties' rights and obligations under it, are beyond the scope of the arbitration agreement.

Collins & Aikman, 58 F.3d at 23. In determining whether a particular claim falls within the scope of the parties' arbitration agreement, this Court "focus[es] on the factual allegations in the complaint rather than the legal causes of action asserted." Genesco, 815 F.2d at 846. If those allegations "touch matters" covered by the Netscape license agreement, plaintiffs' claims must be arbitrated. Id.

To begin with, we find that the underlying dispute in this case — whether defendants violated plaintiffs' rights under the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act — involves matters that are clearly collateral to the Communicator license agreement. While the SmartDownload license agreement expressly applied "to Netscape Communicator, Netscape Navigator, and Netscape SmartDownload," the Communicator license agreement expressly applied only "to Netscape Communicator and Netscape Navigator." Thus, on its face, the Communicator license agreement governed disputes concerning Netscape's browser programs only, not disputes concerning a plug-in program like SmartDownload. Moreover, Communicator's license terms included a merger or integration clause stating that "[t]his Agreement constitutes the entire agreement between the parties concerning the subject matter hereof." SmartDownload's license terms contained the same clause. Such provisions are recognized by California courts as a means of excluding prior or contemporaneous parol evidence from the scope of a contract. See Franklin v. USX Corp., 87 Cal. App.4th 615, 105 Cal.Rptr.2d 11, 15 (2001). Although the presence of merger clauses is not dispositive here, we note that defendants' express desire to limit the reach of the respective license agreements, combined with the absence of reference to SmartDownload in the Communicator license agreement, suggests that a dispute regarding defendants' allegedly unlawful use of SmartDownload is clearly collateral to the Communicator license agreement.

This conclusion is reinforced by the other terms of the Communicator license agreement, which include a provision describing the non-exclusive nature of the grant and permission to reproduce the software for personal and internal business purposes; restrictions on modification, decompilation, redistribution or other sale or transfer, and removal or alteration of trademarks or other intellectual property; provisions for the licensor's right to terminate and its proprietary rights; a complete disclaimer of warranties ("as is") and an entire-risk clause; a limitation of liability clause for consequential and other damages, together with a liquidated damages term; clauses regarding encryption and export; a disclaimer of warranties for high risk activities; and a miscellaneous paragraph that contains merger, choice-of-law, arbitration, and severability clauses, non-waiver and non-assignment provisions, a force majeure term, and a clause providing for reimbursement of the prevailing party in any dispute. Apart from the potential generic applicability of the warranty and liability disclaimers, a dispute concerning alleged electronic eavesdropping via transmissions from a separate plug-in program would not appear to fall within Communicator's license terms. We conclude, therefore, that this dispute concerns matters that, on their face, are clearly collateral to the Communicator license agreement.

Having determined this much, we next must test the presumption of arbitrability by asking whether plaintiffs' allegations implicate or touch on issues of contract construction or the parties' rights and obligations under the contract. Collins & Aikman, 58 F.3d at 23; Genesco, 815 F.2d at 846. That is, even though the parties' dispute concerns matters clearly collateral to the Communicator license terms, we must determine whether plaintiffs by their particular allegations have brought the dispute within the license terms. Defendants argue that plaintiffs' complaints "literally bristled with allegations that Communicator and SmartDownload operated in conjunction with one another to eavesdrop on Plaintiffs' Internet communications." We disagree. Plaintiffs' allegations nowhere collapse or blur the distinction between Communicator and SmartDownload, but instead consistently separate the two software programs and assert that SmartDownload alone is responsible for unlawful eavesdropping. Plaintiffs begin by alleging that "SmartDownload facilitates the transfer of large files over the Internet by permitting a transfer to be resumed if it is interrupted." Plaintiffs then explain that "[o]nce SmartDownload is downloaded and running on a Web user's computer, it automatically connects to Netscape's file servers and downloads the installation program for Communicator." Plaintiffs add that defendants also encourage visitors to Netscape's website "to download and install SmartDownload even if they are not installing or upgrading Communicator."

Plaintiffs go on to point out that installing Communicator "automatically creates and stores on the Web user's computer a small text file known as a `cookie.'" There follow two paragraphs essentially alleging that cookies were originally intended to perform such innocuous tasks as providing "temporary identification for purposes such as electronic commerce," and that the Netscape cookie performs this original identifying, and entirely lawful, function. Separate paragraphs then describe the "Key" or "UserID" that SmartDownload allegedly independently places on user's computers, and point out that "SmartDownload assumes from Communicator the task of downloading various files. Communicator itself could and would perform these downloading tasks if SmartDownload were not installed." "Thereafter," the complaints continue,

each time a Web user downloads any file from any site on the Internet using SmartDownload, SmartDownload automatically transmits to defendants the name and Internet address of the file and the Web site from which it is being sent. Within the same transmission, SmartDownload also includes the contents of the Netscape cookie previously created by Communicator and the "Key" previously created by SmartDownload.

In the course of their description of the installation and downloading process, plaintiffs keep SmartDownload separate from Communicator and clearly indicate that it is SmartDownload that performed the allegedly unlawful eavesdropping and made use of the otherwise innocuous Communicator cookie as well as its own "Key" and "UserID" to transmit plaintiffs' information to Netscape. The complaints refer to "SmartDownload's spying" and explain that "Defendants are using SmartDownload to eavesdrop." Plaintiffs' allegations consistently distinguish and isolate the functions of SmartDownload in such a way as to make it clear that it is through SmartDownload, not Communicator, that defendants committed the abuses that are the subject of the complaints.

After careful review of these allegations, we conclude that plaintiffs' claims "present no question involving construction of the [Communicator license agreement], and no questions in respect of the parties' rights and obligations under it." Collins & Aikman, 58 F.3d at 23. It follows that the claims of the five user plaintiffs are beyond the scope of the arbitration clause contained in the Communicator license agreement. Because those claims are not arbitrable under that agreement or under the SmartDownload license agreement, to which plaintiffs never assented, we affirm the district court's holding that the five user plaintiffs may not be compelled to arbitrate their claims.

V. Whether Plaintiff Specht Can Be Required To Arbitrate as a Nonparty Beneficiary

Plaintiff Specht operated a website that he claims defendants electronically spied on every time users employing SmartDownload to enhance their browser software downloaded, from his site, software files that he provided for setting up an account with a separate service called WhyWeb. Defendants counter that Specht received a "direct benefit" under the "Netscape license agreement," which they say authorized consumers to use SmartDownload and Communicator to obtain Specht's files. Defendants contend that if a user who obtained a file from Specht's site subsequently subscribed to WhyWeb's service, Specht would receive a commission from WhyWeb. Thus, according to defendants, if users employing SmartDownload accessed his site and obtained WhyWeb files, Specht would receive a direct benefit "because the software assisted in obtaining a WhyWeb file and increased the likelihood of success in the download process." Specht, however, claims that he received no commissions from providing WhyWeb software.

We note at the outset that defendants do not argue, as indeed they could not, that Specht benefited from SmartDownload license agreements entered into by the named user plaintiffs or the putative class [39] that they represent. A contract theory of third-party benefits requires a predicate contract, and we have already determined that the user plaintiffs did not assent to the SmartDownload license agreement. We are thus asked, in effect, to imagine a class of users who, having obtained SmartDownload and/or Communicator after properly assenting to license terms, visited Specht's website by means of Communicator or a non-Netscape browser enhanced by SmartDownload and, while there, downloaded WhyWeb files which they proceeded to use to subscribe to WhyWeb, in turn triggering a commission fee from WhyWeb for Specht.

Even accepting arguendo this strained and roundabout hypothesis, we must reject defendants' legal conclusion. Typically, whether a contract benefits or accords rights to a third party (most often, the right to enforce the contract) depends significantly on the intention of the original contracting parties. See Sessions Payroll Mgmt., Inc. v. Noble Constr. Co, Inc., 84 Cal.App.4th 671, 680, 101 Cal.Rptr.2d 127, 133 (2000) (explaining that a third-party beneficiary may enforce a contract made expressly for its benefit and has the burden of proving that the contracting parties actually promised the performance). Clearly, Netscape and these unknown visitors to Specht's website did not expressly confer or intend to confer any contractual benefits on Specht or website operators generally (other than defendants). Defendants therefore take a different tack, arguing that they need only show that Specht received some direct benefit, knowingly or not, under a Netscape license agreement.

To support this claim, defendants cite American Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349 (2d Cir. 1999). But the benefit at issue in American Bureau of Shipping was much more direct than that described by defendants. There, a ship classification society, which had issued an interim certification of classification (ICC) for a racing yacht that later suffered hull damage allegedly resulting from defective design, sought to compel the yacht's builder, owners, and insurers to arbitrate pursuant to arbitration clauses contained in the ICC and other contracts. The owners never signed any arbitration agreement, but this Court noted that a nonsignatory could be "estopped from denying its obligation to arbitrate when it receives a `direct benefit' from a contract containing an arbitration clause." Id. at 353 (citing Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 778-79 (2d Cir.1995)).^[20] The Court held that the yacht owners had received the following direct benefits under the relevant contracts: (1) significantly lower insurance rates on the yacht; (2) the ability to sail under the French flag; and possibly (3) the ability to register the yacht. Id.; cf. Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060 (2d Cir.1993) (holding that a nonsignatory to an arbitration agreement was bound to arbitrate because it knowingly received direct benefits, which included the right to use a trade name, under the relevant contract).

Even if defendants' theory of Specht's SmartDownload-enhanced potential for earning commissions were more convincing, such an abstract advantage is not remotely as tangible and definite as the benefits that have led this Court to compel nonsignatories to arbitrate. Nor does the intricate, Rube Goldberg-like chain of events postulated by defendants constitute a "direct" benefit in the sense contemplated by American Bureau of Shipping and Deloitte Noraudit. Because we conclude that Specht was not a direct beneficiary under SmartDownload's license agreement or any other Netscape agreement, we affirm the district court's refusal to compel arbitration of his claims.^[21]

CONCLUSION

For the foregoing reasons, we affirm the district court's denial of defendants' motion to compel arbitration and to stay court proceedings.

[1] Although the district court did not consolidate these three cases, it noted that its opinion denying the motion to compel arbitration and to stay court proceedings "appl[ied] equally to all three cases." Specht v. Netscape Communications Corp., 150 F.Supp.2d 585, 587 n. 1 (S.D.N.Y.2001). On August 10, 2001, this Court consolidated the appeals.

[2] Netscape's website defines "plug-ins" as "software programs that extend the capabilities of the Netscape Browser in a specific way — giving you, for example, the ability to play audio samples or view video movies from within your browser." (http://wp.netscape.com/plugins/) SmartDownload purportedly made it easier for users of browser programs like Communicator to download files from the Internet without losing their progress when they paused to engage in some other task, or if their Internet connection was severed. See Specht, 150 F.Supp.2d at 587.

[3] There is a difference between downloading and installing a software program. When a user downloads a program from the Internet to his or her computer, the program file is stored on the user's hard drive but typically is not operable until the user installs or executes it, usually by double-clicking on the file and causing the program to run.

[4] This kind of online software license agreement has come to be known as "clickwrap" (by analogy to "shrinkwrap," used in the licensing of tangible forms of software sold in packages) because it "presents the user with a message on his or her computer screen, requiring that the user manifest his or her assent to the terms of the license agreement by clicking on an icon. The product cannot be obtained or used unless and until the icon is clicked." Specht, 150 F.Supp.2d at 593-94 (footnote omitted). Just as breaking the shrinkwrap seal and using the enclosed computer program after encountering notice of the existence of governing license terms has been deemed by some courts to constitute assent to those terms in the context of tangible software, see, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir.1996), so clicking on a webpage's clickwrap button after receiving notice of the existence of license terms has been held by some courts to manifest an Internet user's assent to terms governing the use of downloadable intangible software, see, e.g., Hotmail Corp. v. Van$ Money Pie Inc., 47 U.S.P.Q.2d 1020, 1025 (N.D.Cal. 1998).

[5] The term "user plaintiffs" here and elsewhere in this opinion denotes those plaintiffs who are suing for harm they allegedly incurred as computer users, in contrast to plaintiff Specht, who alleges that he was harmed in his capacity as a website owner.

[6] While Navigator was Netscape's "stand-alone" Internet browser program during the period in question, Communicator was a "software suite" that comprised Navigator and other software products. All five named user plaintiffs stated in affidavits that they had obtained upgraded versions of Communicator. Fagan, who, as noted below, allegedly did not obtain the browser program in connection with downloading SmartDownload, expressed some uncertainty during his deposition as to whether he had acquired Communicator or Navigator. The identity of Fagan's browser program is immaterial to this appeal, however, as Communicator and Navigator shared the same license agreement.

[7] Unlike the four other user plaintiffs, Fagan chose the option of obtaining Netscape's browser program without first downloading SmartDownload. As discussed below, Fagan allegedly obtained SmartDownload from a separate "shareware" website unrelated to Netscape.

[8] For purposes of this opinion, the term "webpage" or "page" is used to designate a document that resides, usually with other webpages, on a single Internet website and that contains information that is viewed on a computer monitor by scrolling through the document. To view a webpage in its entirety, a user typically must scroll through multiple screens.

[9] Plaintiff Kelly, a relatively sophisticated Internet user, testified that when he clicked to download SmartDownload, he did not think that he was downloading a software program at all, but rather that SmartDownload "was merely a piece of download technology." He later became aware that SmartDownload was residing as software on his hard drive when he attempted to download electronic files from the Internet.

[10] In the screen shot of the SmartDownload webpage attached to Weindorf's affidavit, the reference to license terms is partially visible, though almost illegible, at the bottom of the screen. In the screen shots attached to the affidavits of Gibson, Gruber, and Kelly, the reference to license terms is not visible.

[11] The parties do not dispute, nor could they, that the software license agreement at issue "involv[ed] commerce" within the meaning of 9 U.S.C. § 2, see Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 273-74, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (construing the broad phrase "involving commerce" to be the functional equivalent of "affecting commerce"), or that the agreement is a "written provision" despite being provided to users in a downloadable electronic form. The latter point has been settled by the Electronic Signatures in Global and National Commerce Act ("E-Sign Act"), Pub.L. No. 106-229, 114 Stat. 464 (2000) (codified at 15 U.S.C. §§ 7001 et seq.), which provides that "a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form." Id. § 7001(a)(1); see also Cal. Civ.Code § 1633.7(b) ("A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.").

[12] Later, when Judge Hellerstein suggested that it was "an issue of fact ... to be tried" whether plaintiff Fagan downloaded SmartDownload from Netscape's webpage or from the ZDNet shareware site, defendants' counsel stated: "I am not sure there is an issue of fact. It is sort of a summary judgment kind of standard." Still later, counsel remarked: "I think we established that there really is no genuine issue that Mr. Fagan got his smart download [sic] [by visiting the Netscape webpage from which he] fairly had notice that there was a license agreement." Defendants' position that there was "no genuine issue" regarding reasonable notice of the existence of the license terms is consistent with this Circuit's standard for determining whether a trial is required on the issue of the making of an arbitration agreement. See Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 129-30 (2d Cir.1997) ("As when opposing a motion for summary judgment under Fed.R.Civ.P. 56, the party requesting a jury trial must submit evidentiary facts showing that there is a dispute of fact to be tried." (quotation marks omitted)); Doctor's Assocs., Inc. v. Stuart, 85 F.3d 975, 983-84 (2d Cir.1996) ("To warrant a trial under 9 U.S.C. § 4, the issue raised must be `genuine.'" (quotation marks omitted)).

[13] The district court concluded that the SmartDownload transactions here should be governed by "California law as it relates to the sale of goods, including the Uniform Commercial Code in effect in California." Specht, 150 F.Supp.2d at 591. It is not obvious, however, that UCC Article 2 ("sales of goods") applies to the licensing of software that is downloadable from the Internet. Cf. Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 675 (3d Cir.1991) ("The increasing frequency of computer products as subjects of commercial litigation has led to controversy over whether software is a `good' or intellectual property. The [UCC] does not specifically mention software."); Lorin Brennan, Why Article 2 Cannot Apply to Software Transactions, PLI Patents, Copyrights, Trademarks, & Literary Property Course Handbook Series (Feb.Mar.2001) (demonstrating the trend in case law away from application of UCC provisions to software sales and licensing and toward application of intellectual property principles). There is no doubt that a sale of tangible goods over the Internet is governed by Article 2 of the UCC. See, e.g., Butler v. Beer Across Am., 83 F.Supp.2d 1261, 1263-64 & n. 6 (N.D.Ala.2000) (applying Article 2 to an Internet sale of bottles of beer). Some courts have also applied Article 2, occasionally with misgivings, to sales of off-the-shelf software in tangible, packaged formats. See, e.g., ProCD, 86 F.3d at 1450 ("[W]e treat the [database] licenses as ordinary contracts accompanying the sale of products, and therefore as governed by the common law of contracts and the Uniform Commercial Code. Whether there are legal differences between `contracts' and `licenses' (which may matter under the copyright doctrine of first sale) is a subject for another day."); I.Lan Sys., Inc. v. Nextpoint Networks, Inc., 183 F.Supp.2d 328, 332 (D.Mass.2002) (stating, in the context of a dispute between business parties, that "Article 2 technically does not, and certainly will not in the future, govern software licenses, but for the time being, the Court will assume that it does").

Downloadable software, however, is scarcely a "tangible" good, and, in part because software may be obtained, copied, or transferred effortlessly at the stroke of a computer key, licensing of such Internet products has assumed a vast importance in recent years. Recognizing that "a body of law based on images of the sale of manufactured goods ill fits licenses and other transactions in computer information," the National Conference of Commissioners on Uniform State Laws has promulgated the Uniform Computer Information Transactions Act ("UCITA"), a code resembling UCC Article 2 in many respects but drafted to reflect emergent practices in the sale and licensing of computer information. UCITA, prefatory note (rev. ed. Aug.23, 2001) (available at www.ucitaonline.com/ucita.html). UCITA — originally intended as a new Article 2B to supplement Articles 2 and 2A of the UCC but later proposed as an independent code — has been adopted by two states, Maryland and Virginia. See Md.Code Ann. Com. Law §§ 22-101 et seq.; Va.Code Ann. §§ 59.1-501.1 et seq.

We need not decide today whether UCC Article 2 applies to Internet transactions in downloadable products. The district court's analysis and the parties' arguments on appeal show that, for present purposes, there is no essential difference between UCC Article 2 and the common law of contracts. We therefore apply the common law, with exceptions as noted.

[14] "Inquiry notice" is "actual notice of circumstances sufficient to put a prudent man upon inquiry." Cal. State Auto. Ass'n Inter-Ins. Bureau v. Barrett Garages, Inc., 257 Cal. App.2d 71, 64 Cal.Rptr. 699, 703 (Cal.Ct.App. 1967) (internal quotation marks omitted).

[15] We do not address the district court's alternative holding that notice was further vitiated by the fact that the reference to SmartDownload's license terms, even if scrolled to, was couched in precatory terms ("a mild request") rather than mandatory ones. Specht, 150 F.Supp.2d at 596.

[16] Defendants place great importance on Register.com, Inc. v. Verio, Inc., 126 F.Supp.2d 238 (S.D.N.Y.2000), which held that a user of the Internet domain-name database, Register.com, had "manifested its assent to be bound" by the database's terms of use when it electronically submitted queries to the database. Id. at 248. But Verio is not helpful to defendants. There, the plaintiff's terms of use of its information were well known to the defendant, which took the information daily with full awareness that it was using the information in a manner prohibited by the terms of the plaintiff's offer. The case is not closely analogous to ours.

[17] Although the parties here do not refer to it, California's consumer fraud statute, Cal. Bus. & Prof.Code § 17538, is one of the few state statutes to regulate online transactions in goods or services. The statute provides that in disclosing information regarding return and refund policies and other vital consumer information, online vendors must legibly display the information either:

(i) [on] the first screen displayed when the vendor's electronic site is accessed, (ii) on the screen on which goods or services are first offered, (iii) on the screen on which a buyer may place the order for goods or services, (iv) on the screen on which the buyer may enter payment information, such as a credit card account number, or (v) for nonbrowser-based technologies, in a manner that gives the user a reasonable opportunity to review that information.

Id. § 17538(d)(2)(A). The statute's clear purpose is to ensure that consumers engaging in online transactions have relevant information before they can be bound. Although consumer fraud as such is not alleged in the present action, and § 17538 protects only California residents, we note that the statute is consistent with the principle of conspicuous notice of the existence of contract terms that is also found in California's common law of contracts.

In addition, the model code, UCITA, discussed above, generally recognizes the importance of conspicuous notice and unambiguous manifestation of assent in online sales and licensing of computer information. For example, § 112, which addresses manifestation of assent, provides that a user's opportunity to review online contract terms exists if a "record" (or electronic writing) of the contract terms is "made available in a manner that ought to call it to the attention of a reasonable person and permit review." UCITA, § 112(e)(1) (rev. ed. Aug.23, 2001) (available at www.ucitaonline.com/ucita.html). Section 112 also provides, in pertinent part, that "[a] person manifests assent to a record or term if the person, acting with knowledge of, or after having an opportunity to review the record or term or a copy of it ... intentionally engages in conduct or makes statements with reason to know that the other party or its electronic agent may infer from the conduct or statement that the person assents to the record or term." Id. § 112(a)(2). In the case of a "mass-market license," a party adopts the terms of the license only by manifesting assent "before or during the party's initial performance or use of or access to the information." Id. § 209(a).

UCITA § 211 sets forth a number of guidelines for "internet-type" transactions involving the supply of information or software. For example, a licensor should make standard terms "available for review" prior to delivery or obligation to pay (1) by "displaying prominently and in close proximity to a description of the computer information, or to instructions or steps for acquiring it, the standard terms or a reference to an electronic location from which they can be readily obtained," or (2) by "disclosing the availability of the standard terms in a prominent place on the site from which the computer information is offered and promptly furnishing a copy of the standard terms on request before the transfer of the computer information." Id. § 211(1)(A-B). The commentary to § 211 adds: "The intent of the close proximity standard is that the terms or the reference to them would be called to the attention of an ordinary reasonable person." Id. § 211 cmt. 3. The commentary also approves of prominent hypertext links that draw attention to the existence of a standard agreement and allow users to view the terms of the license. Id.

We hasten to point out that UCITA, which has been enacted into law only in Maryland and Virginia, does not govern the parties' transactions in the present case, but we nevertheless find that UCITA's provisions offer insight into the evolving online "circumstances" that defendants argue placed plaintiffs on inquiry notice of the existence of the SmartDownload license terms. UCITA has been controversial as a result of the perceived breadth of some of its provisions. Compare Margaret Jane Radin, Humans Computers, and Binding Commitment, 75 Ind. L.J. 1125, 1141 (2000) (arguing that "UCITA's definition of manifestation of assent stretches the ordinary concept of consent"), with Joseph H. Sommer, Against Cyberlaw, 15 Berkeley Tech. L.J. 1145, 1187 (2000) ("There are no new legal developments [in UCITA's assent provisions]. The revolution — if any — occurred with [Karl] Llewellyn's old Article 2, which abandoned most formalisms of contract formation, and sought a contract wherever it could be found."). Nonetheless, UCITA's notice and assent provisions seem to be consistent with well-established principles governing contract formation and enforcement. See Robert A. Hillman & Jeffrey J. Rachlinski, Standard-Form Contracting in the Electronic Age, 77 N.Y.U. L.Rev. 429, 491 (2002) ("[W]e contend that UCITA maintains the contextual, balanced approach to standard terms that can be found in the paper world.").

[18] Because we conclude that the Netscape webpage did not provide reasonable notice of the existence of SmartDownload's license terms, it is irrelevant to our decision whether plaintiff Fagan obtained SmartDownload from that webpage, as defendants contend, or from a shareware website that provided less or no notice of that program's license terms, as Fagan maintains. In either case, Fagan could not be bound by the SmartDownload license agreement. Further, because we find that the California common law disposes of the issue of notice and assent, we do not address plaintiffs' arguments based on California's Commercial Code § 2207, the UCC Article 2 provision governing the "battle of the forms." Moreover, having determined that the parties did not enter into the SmartDownload license agreement, we do not reach plaintiffs' alternative arguments concerning unconscionability.

[19] A question not raised by the parties is whether this dispute involves "intellectual property rights." Certainly, Netscape's intellectual property ("IP") rights would not seem to be implicated, even though Netscape may in some sense employ its IP — in the form of computer software — to plant cookies and, as plaintiffs allege, harvest users' personal information. But do plaintiffs have IP rights in their personal information? Certain cases have recognized, mostly under a trespass-to-chattels theory, that computer and database owners enjoy possessory interests in their computer equipment, bandwidth, and server capacity, but these interests are analyzed in terms of traditional personal property, not IP. See, e.g., Verio, 126 F.Supp.2d at 249-53; eBay, Inc. v. Bidder's Edge, Inc., 100 F.Supp.2d 1058, 1069-72 (N.D.Cal.2000). Moreover, plaintiffs' personal information, stored in cookies, is the sort of factual data that are expressly excluded from federal copyright protection. See Nihon Keizai Shimbun, Inc. v. Comline Bus. Data, Inc., 166 F.3d 65, 70 (2d. Cir.1999) ("That copyright does not extend to facts is a `most fundamental axiom of copyright law.'") (quoting Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 344, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991)). Thus, copyrights are not implicated here. Nor are trade secrets, good will, or other valuable intangibles. In consequence, plaintiffs' claims would not appear to be shielded from arbitration on the ground that this is a "dispute relating to intellectual property rights." This is not an issue that we decide today, however.

[20] Cf. County of Contra Costa v. Kaiser Found. Health Plan, Inc., 47 Cal.App.4th 237, 54 Cal. Rptr.2d 628, 631 (1996)(noting that California cases binding nonsignatories to arbitrate their claims fall into two categories: (1) where a benefit was conferred on the nonsignatory as a result of a contract; and (2) where a preexisting relationship existed between the nonsignatory and one of the parties to the arbitration agreement).

[21] Plaintiffs argue in the alternative that their claims are inarbitrable because the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act reflect a congressional intent to preclude arbitration of claims arising under those statutes. In view of our disposition of this case, we need not address that argument.

BROWN MACHINE, DIVISION of JOHN BROWN, INC., a Delaware Corp., Plaintiff-Respondent, v. HERCULES, INC., Defendant-Appellant.

No. 54442.

Missouri Court of Appeals, Eastern District.

April 11, 1989.

Motion for Rehearing and/or Transfer to Supreme Court Denied May 9, 1989.

Application to Transfer Denied June 13, 1989.

Gerre Strehlman Langton, St. Louis, for defendant-appellant.

Louis Joseph Basso, St. Louis, for plaintiff-respondent.

STEPHAN, Judge.

Hercules Inc. (“Hercules”) appeals from the judgment of the trial court awarding respondent Brown Machine $157,911.55 plus interest after a jury verdict in favor of Brown Machine in its action against Hercules for indemnification. We reverse.

In early 1976 Brown Machine had sold appellant Hercules a T-100 trim press. The trim press was a piece of equipment apparently used in manufacturing Cool Whip bowls. The initial sales negotiations between the two companies for the trim press began in October 1975. Bruce Boardman, an engineer at Hercules, asked Jim Ryan, Brown Machine’s district sales manager, to send Hercules a quote for a trim press. On November 7, 1975, Brown Machine submitted its original proposal No. 51054 for the model T-100 trim press to Hercules. The proposal set out sixteen numbered paragraphs describing the machine to be sold. Attached to the proposal was a printed form of fifteen paragraphs in boilerplate style captioned “TERMS AND CONDITIONS OF SALE”. The eighth paragraph provided as follows:

8. LIABILITY: The purchaser agrees to pay in behalf of BROWN all sums which BROWN becomes legally obligated to pay because of bodily injury or property damage caused by or resulting from the use or misuse of the IOS [item of sale], including reasonable attorneys fees and legal expenses. The purchaser agrees to indemnify and hold BROWN harmless from all actions, claims, or demands arising out of or in any way connected with the IOS, its operation, use or misuse, or the design construction or composition of any product made or handled by the IOS, including all such actions, claims, or demands based in whole or in part on the default or negligence of BROWN.

Tim Wilson, Hercules’ purchasing agent, reviewed the proposal submitted by Brown Machine. On January 7, 1976, he telephoned Jim Ryan at Brown Machine. Mr. Ryan’s call report reflected that Hercules had prepared its purchase order No. 03361 in response to Brown Machine’s proposal but that Hercules had objected to the payment term requiring a twenty percent deposit be paid with the order. After talking with Mr. Fassett, Brown Machine’s product manager, Mr. Ryan told Mr. Wilson that Brown Machine could not waive the deposit and that an invoice for payment would be forwarded to Hercules.

Mr. Fassett issued a work order that day giving the shop instructions concerning the trim press equipment, followed by a written order the next day. The written order noted that “customer gave verbal P.O. [purchase order] for this stock machine. Will issue revision when formal purchase order received.”

On January 19, 1976, Brown Machine received Hercules’ written purchase order No. 03361 dated January 6, 1976. The order was for a “Brown T-100 Trimpress in accordance with Brown Machine quote #51054. All specifications cited within quote except item #6.1.1 which should read: ‘Reverse trim’ instead of ‘Standard regular forward trim.’ ” In a blue box on the bottom left of the purchase order form in bold print appeared “THIS ORDER EXPRESSLY LIMITS ACCEPTANCE TO THE TERMS STATED HEREIN INCLUDING THOSE PRINTED ON THE REVERSE SIDE. ANY ADDITIONAL OR DIFFERENT TERMS PROPOSED BY THE SELLER ARE REJECTED UNLESS EXPRESSLY AGREED TO IN WRITING.” The reverse side of Hercules’ purchase order, captioned “TERMS AND CONDITIONS” contained sixteen boilerplate paragraphs, the last of which provided:

16. OTHER TERMS: No oral agreement or other understanding shall in any way modify this order, or the terms or the conditions hereof. Seller’s action in (a) accepting this order, (b) delivering material; or (c) performing services called for hereunder shall constitute an acceptance of the above terms and conditions.

The purchase order contained no indemnity provision.

Brown Machine received two copies of the purchase order. One had been stamped “Vendor’s Copy” at the bottom; the other was marked “ACKNOWLEDGMENT”, with a space labeled “accepted by” for signature by Brown Machine. Brown Machine did not return this prepared acknowledgment to Hercules.

The next day, on January 20, 1976, Mr. Fassett issued his second machine order to the shop revising his description to reflect that Brown Machine had received Hercules’ formal purchase order and that the machine was no longer inventoried as a Brown stock item. On January 21, 1976, Brown Machine sent Hercules an invoice requesting payment of $4,882.00, the twenty percent deposit for the trim press.

Rather than returning the acknowledgment of the purchase order prepared by Hercules, Mr. Fassett of Brown Machine sent Hercules an “ORDER ACKNOWLEDGEMENT” dated February 5, 1976. This letter stated as follows:

Below in detail are the specifications covering the equipment ordered, and the equipment will be manufactured to meet these specifications. If these specifications and terms and conditions of Sale are not in accordance with your understanding, please ADVISE US WITHIN SEVEN (7) DAYS OF RECEIPT OF THIS ACKNOWLEDGEMENT. If we do not hear from you within this period of time, we are proceeding with the construction of the equipment as per these specifications and terms as being agreed; and any changes occurring later may result in additional charges.

ONE T-100 TRIM PRESS AS FOLLOWS ...

The paragraphs following set out the same sixteen specifications contained in Brown Machine’s original proposal. Paragraph 6.1.1 of the specifications again provided for “Standard-regular forward trim”. Page four of the acknowledgment contained the same “TERMS AND CONDITIONS OF SALE” which had accompanied Brown Machine’s earlier proposal of November 7, 1975, including paragraph eight on liability and indemnity. Only two minor changes had been penned in on page four, neither of which has any bearing on the issues presented for appeal.

Hercules responded with a letter on February 9, 1976, to Mr. Fassett that “This is to advise you that Provision 6.1 of your order acknowledgement dated 2/5/76 should read ‘Reverse Trim' instead of ‘Standard-regular forward trim.’ All other specifications are correct.” On February 16, 1976, Mr. Fassett confirmed the change in provision 6.1.1 and informed the shop that same day of the requested modification to be made.

Hercules never paid the twenty percent deposit. Brown Machine sent Hercules an invoice dated April 14, 1976, requesting final payment of the total purchase price. Brown eventually shipped the trim press to Hercules and Hercules paid the agreed-upon purchase price.

Sometime later, James Miller, an employee of Hercules, and his wife sued Brown Machine because of injuries he sustained while operating the trim press at Hercules’ plant in Union, Missouri. Brown Machine demanded that Hercules defend the Miller lawsuit, but Hercules refused. Brown Machine eventually settled the Millers’ lawsuit. Brown Machine later initiated this action against Hercules for indemnification of the settlement amount paid the Millers. Brown Machine claimed a condition of the original sales contract for the trim press required Hercules to indemnify Brown Machine for any claims arising from operation or misuse of the trim press.

Hercules’ four points on appeal challenge the submissibility of Brown Machine’s case, the verdict director given by Brown Machine, admission of certain allegedly prejudicial testimony and, finally, an instructional error. The dispositive issue on appeal is whether the parties had agreed to an indemnification provision in their contract for the sale of the T-100 trim press.

Hercules’ first point disputes Brown Machine’s contention that its initial proposal on November 7, 1975, constitutes the offer and that Hercules verbally accepted the offer by the telephone call on January 7, 1976, followed by its written purchase order dated January 6, 1976, which Brown Machine received January 19, 1976.

Article two of the Uniform Commercial Code governs transactions involving the sale of goods. U.C.C. § 2-102 (1977). Because the term “offer” is not defined in the code, the common law definition remains relevant. U.C.C. § 1-103. An offer is made when the offer leads the offeree to reasonably believe that an offer has been made. Gilbert & Bennett Manufacturing Co. v. Westinghouse Electric Corp., 445 F.Supp. 537, 545[3] (D.Mass.1977). Restatement (Second) of Contracts § 24 (1981) defines “offer” as “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”

The general rule is that a price quotation is not an offer, but rather is an invitation to enter into negotiations or a mere suggestion to induce offers by others. Maurice Electrical Supply Co. v. Anderson Safeway Guard Rail Corp., 632 F.Supp. 1082, 1087[3] (D.D.C.1986); USEMCO, Inc. v. Marbro Co., 60 Md.App. 351, 483 A.2d 88, 93[1] (1984). However, price quotes, if detailed enough, can amount to an offer creating the power of acceptance; to do so, it must reasonably appear from the price quote that assent to the quote is all that is needed to ripen the offer into a contract. Quaker State Mushroom Co. v. Dominick’s Finer Foods, Inc., 635 F.Supp. 1281, 1284[3] (N.D.Ill.1986); see Boese-Hilburn Co. v. Dean Machinery Co., 616 S.W.2d 520, 524-25 (Mo.App.1981).

In this case Hercules could not have reasonably believed that Brown Machine’s quotation was intended to be an offer, but rather an offer to enter into negotiations for the trim press. The cover letter accompanying the proposal mentioned that Brown Machine’s sales representative would contact Hercules “to discuss this quote” and that the quotation was submitted for Hercules “approval.” The sale price as quoted also included the notation “We have included a mechanical ejector (item 9.1.2) because we understand this unit may be used for development of many items that would require this option. However, if you decide this is not necessary $2,575.00 could be deducted from the above price for a total of $21,835.00.” Most importantly, paragraph three of the terms and conditions of sale attached to the proposal expressly provided: “No order, sale, agreement for sale, accepted proposal, offer to sell and/or contract of sale shall be binding upon BROWN unless accepted by BROWN ... on BROWN standard ‘Order Acknowlegment’ [sic] form.” Thus, because the quotation reasonably appeared to be an offer to enter into negotiations for the sale of a trim press with a mechanical ejector for $24,410.00 with acceptance conditioned upon Brown’s order acknowledgment form, no firm offer existed. Accord, Quaker State Mushroom, Inc., 635 F.Supp. at 1285. Brown’s price quote was merely a proposal, not an offer, because of its provision that Hercules’ acceptance was not binding upon Brown until Brown acknowledged the acceptance.

Even if we were to accept Brown Machine’s characterization of its proposal as an offer, the quotation by its own terms and conditions expired thirty days after its issuance (“All quoted prices are subject to change without notice except those written proposals which shall expire without notice ... thirty (30) calendar days from date issued ...”). Hercules’ written purchase order was dated January 6, 1976, and their telephone conversation of January 7, 1976, were both well beyond the expiration of the quote. Thus, even if the quotation were construed as an offer, there was no timely acceptance. See Gilbert & Bennett, 445 F.Supp. at 545[4].

If the acceptance of a price quotation, sufficiently detailed to constitute an offer, is not binding on the seller because the time within which it could have been accepted has lapsed, the purchase order, not the price quotation, is treated as the offer since the purchase order did not create an enforceable contract. McCarty v. Verson Allsteel Press Co., 89 Ill.App.3d 498, 44 Ill.Dec. 570, 411 N.E.2d at 936, 943[5] (1980). Thus, we believe Hercules’ purchase order constitutes the offer. As a general rule, orders are considered as offers to purchase. Aaron E. Levine & Co. v. Calkraft Paper Co., 429 F.Supp. 1039, 1048[15] (E.D.Mich.1976).

The question then arises whether Brown Machine’s acknowledgment containing the indemnity provision constitutes a counter offer or an acceptance of Hercules’ offer with additional or different terms. Section 400.2-207, RSMo 1986, which mirrors § 2-207 of the Uniform Commercial Code provides the workable rule of law addressing the problem of the. discrepancies in the independently drafted documents exchanged between the two parties.1 Section 400.2-207 provides as follows:

(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 cases 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 provision of this act.

Under subsection (1) an offeree’s response to an offer operates as a valid acceptance of the offer even though it contains terms additional to, or different from, the terms of the offer unless the “acceptance is expressly made conditional” on the offeror’s assent to the additional or different terms. Where the offeree’s acceptance is made “expressly conditional” on the offeror’s assent, the response operates not as an acceptance but as a counter offer which must be accepted by the original offeror. Falcon Tankers, Inc. v. Litton Systems, Inc., 355 A.2d 898, 906[7] (Del.Super.1976). Restatement (Second) of Contracts § 59 (1981) expresses it succinctly: “[A]n offeree’s reply which purports to accept an offer but makes acceptance conditional on the offeror’s assent to terms not contained in the original offer is effective as a counteroffer rather than acceptance.”

The general view held by the majority of states is that, to convert an acceptance to a counter offer under UCC § 2-207(1), the 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. See Annot. “What Constitutes Acceptance ‘Expressly Made Conditional’ Converting it to Rejection and Counteroffer under UCC § 2-207(1)”, 22 ALR 4th 939, 948-49 (1983) and cases cited therein. The conditional assent provision has been construed narrowly to apply only to an acceptance which clearly shows that the offeree is unwilling to proceed absent assent to the additional or different terms. Id.; see Challenge Machinery Co. v. Mattison Machine Works, 138 Mich.App. 15, 359 N.W.2d 232, 235[3] (1984) citing Idaho Power Co. v. Westinghouse Electric Corp., 596 F.2d 924 (9th Cir.1979); Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir.1972).

We find nothing in Brown Machine’s acknowledgment of February 5, 1976, which reflects its unwillingness to proceed unless it obtained Hercules’ assent to the additional and different terms in Brown Machine’s acknowledgment, that is, page four of the acknowledgment styled “TERMS AND CONDITIONS OF SALE” which contained the indemnity provision. Brown Machine’s acknowledgment was not “expressly made conditional” on Hercules’ assent to the additional or different terms as provided for under § 2-207(1). Acceptance will be considered a counteroffer only if the acceptance is expressly made conditional on assent to the additional terms. Clifford-Jacobs Forging Co. v. Capital Engineering & Mfg. Co., 107 Ill.App.3d 29, 62 Ill.Dec. 785, 787, 437 N.E.2d 22, 24 (1982). We conclude Brown Machine’s acknowledgment did not operate as a counter offer within the scope of § 2-207(1).

Having determined that Brown Machine’s order acknowledgment is not a counter offer, we believe that Brown Machine’s acknowledgment operates as acceptance with additional or different terms from the offer, since the purchase order contained no indemnity provision. Under § 2-207(2), additional terms become a part of the contract between merchants 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 given. Hercules’ purchase order here expressly limited acceptance to the terms of its offer. Given such an express limitation, the additional terms, including the indemnification provision, failed to become part of the contract between the parties.

We can conclude Hercules intended the indemnity provision to become a part of the parties’ contract only if Hercules, as offeror, expressly assented to the additional terms, and, thus, effectively waived its condition that acceptance be limited to the terms of its offer, the purchase order. While the text of § 2-207 does not incorporate such a provision, Official Comment 3 to § 2-207 states: “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.” The indemnification provision was clearly a material alteration to the parties’ agreement.

The evidence does not establish that Hercules expressly assented to the additional terms contained in Brown Machine’s order acknowledgment. Brown Machine’s order acknowledgment of February 5, 1976, indicated that “[i]f these specifications and terms and conditions of Sale are not in accordance with your understanding, please ADVISE US WITHIN SEVEN (7) DAYS OF RECEIPT OF THIS ACKNOWLEDGEMENT.” Hercules replied by letter four days later advising Brown Machine that provision 6.1.1 should provide for reverse trim instead of standard regular forward trim, followed by “all other specifications are correct.” Hercules’ use of the term “specifications” is unambiguous and clearly refers only to the protocol for the machine’s manufacture. Nothing in its response can be construed as express assent to Brown Machine’s additional “terms and conditions of sale.” Express assent under § 2-207(2) cannot be presumed by silence or mere failure to object. N & D Fashions, Inc. v. DHJ Industries, Inc., 548 F.2d 722, 726-27[5] (8th Cir.1977).

We believe it is clear as a matter of law that the indemnification clause cannot be held to be part of the contract agreed upon by the parties. The judgment of the trial court is reversed. We need not address the remaining points raised by Hercules.

REVERSED.

SMITH, P.J., and SATZ, J., concur.

1

Respondent's contention that a choice of law issue arises is without merit since § 2-207 of the Uniform Commercial Code has been enacted in nearly identical terms in Delaware, Michigan, Missouri, and Wisconsin, all the states with possible nexus to this case. Cf. U.C.C. § 2-207 with Del.Code Ann. tit. 6 § 2-207 (1974); Mich. Comp.Laws Ann. § 440.2207 (1967); § 400.2-207 RSMo (1986); Wis.Stat.Ann. § 402.207 (West 1964 and Supp.1988).