Consumers have agreed to electronic contracts, known as wrap agreements, for decades. These are agreements presented to consumers before they access services or buy products online. Consumers don’t sign a paper contract with an ink signature; instead, they click on a button to accept the agreement or continue with the purchase. Wrap agreements are often enforceable, provided that consumers do two things: (1) receive appropriate notice of the terms of the contract; and (2) are given an opportunity to assent to those terms. However, how courts judge whether a consumer knew or should have known of those terms depends on the type of agreement and how it is made.
Only 63% of online wrap agreements were found to be enforceable in 2021. The key issue that affects enforceability is whether the consumer knew about, or should have known about, the terms of the agreement. Courts consider the following factors:
How these factors are applied depends on the type of agreement.
There are four types of wrap agreements:
Note that these are not strict categories; many wrap agreements contain elements of multiple types of wrap agreements. Whether or not a particular wrap agreement is enforceable will ultimately be determined by whether or not the consumers have notice of the terms of the agreement and an opportunity to affirmatively consent to those terms.
The Second Circuit reversed the trial court and held the Uber Terms of Service, including the arbitration clause, enforceable. The court concluded first that Uber provided reasonably conspicuous notice of the terms of service and second that the plaintiff clearly manifested his assent to be bound by those terms. The court held this way because Uber’s payment screen provided notice of the terms simultaneous with and immediately below the account registration button and further prominently indicated that by creating an account, users would be agreeing to the terms.
In contrast, in Starke v. SquareTrade, Inc., 913 F.3d 279 (2d Cir. 2019) the plaintiff purchased one of the Defendant’s product protection plans off of Amazon for a recently purchased CD player. The Amazon purchase page for the SquareTrade plan referenced a service contract which the consumer would receive after purchase; farther down the page was a hyperlink labeled “Warranty” which linked to a separate document that contained a set of SquareTrade terms and conditions. After purchase, SquareTrade sent the consumer a confirmation email with a hyperlink to a second set of terms and conditions in the email’s bottom-left corner. This second terms and conditions document contained an arbitration clause. Critically, at no point did the plaintiff read either set of terms and conditions, nor did anything on the plan purchase page or confirmation email call specific attention to the relevant hyperlinks. A few months after purchase, the plaintiff submitted a claim for coverage for the CD player, SquareTrade denied the claim and the plaintiff sued for fraudulent and deceptive trade practices. SquareTrade moved in response to compel arbitration, but the court denied the motion.
On appeal, the Second Circuit affirmed the lower court, holding that the plaintiff did not have sufficient reasonable notice of SquareTrade’s arbitration provision to properly assent to the terms. In this case, the confirmation email was sent after the sale, in a message which was cluttered with text displayed in multiple colors, sizes and fonts and featured various buttons and promotional advertisements that distracted the reader from the relevant hyperlink containing the arbitration clause. Further, the e-mail did not indicate that the consumer needed to click on the link or that he would be deemed to agree to contract terms found on the linked page. Finally, the plaintiff’s past purchases from SquareTrade also failed to put him on notice of the inconspicuous arbitration provision.
As noted in these cases, whether a wrap agreement is enforceable turns on the specific facts of the case. The case can come down to the design and language of the page and the actions the consumer must take to show their assent. If you need a wrap agreement for your website or you have a dispute regarding an agreement, contact our attorneys for assistance in your matter.