Enforceability of Wrap Agreements

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.

What Factors Are Used to Determine Enforceability?

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:

1. Other than clicking a login/purchase button, is there substantial evidence from the website that users are aware that they are binding themselves to the “terms of use” at issue?
2. Does the design and content of the website make the “terms of use” readily and obviously available to the user?
3. Is the importance of the contract terms obscured or minimized?
4. Does the site clearly draw the consumer’s attention to material terms that would be different from what a reasonable consumer would expect of their default rights in an online transaction?

How these factors are applied depends on the type of agreement.

What Types of Wrap Agreements Are Enforceable?

There are four types of wrap agreements:

1. Clickwrap agreements are the type that most people are accustomed to seeing online on ecommerce and other kinds of websites. Clickwrap agreements typically require the consumer to check a box to indicate that they agree to a website or service’s terms of use before proceeding with the transaction.  These contracts are generally enforceable where the agreement’s terms are “reasonably conspicuous.”  Terms are “reasonably conspicuous” when a reasonable person in the user’s position would know about the terms, and that their click would affirmatively indicate that they accept those terms.
2. Scrollwrap agreements take clickwrap agreements one step further. Scrollwrap agreements interrupt whatever the user is doing on a website with a pop-up or a separate page containing the website or transaction’s terms of service.  Scrollwrap agreements then require the consumer to scroll down through the entire agreement and click a box to agree to the terms.  The user is then free to continue with the sale, service or through the website.  Scrollwraps are generally enforceable on the same principles as clickwrap agreements, where customers have realistic opportunities to review and scroll through an entire agreement prior to clicking the “I accept” button.
3. Sign-in wrap agreements require consumers to sign in to use the product or service, where the sign-in screen indicates that by signing in, the consumer has agreed to that website’s terms of use. Sign-in wrap agreements are not necessarily enforceable—courts have held that often they do not put consumers on adequate notice of the material terms of the agreement.  Sign-in wrap agreements will be enforced, for example, if: (1) the hyperlinked terms and conditions are placed next to the only button that will allow the user to continue using the website; (2) the user signed up to the website with a clickwrap agreement and is presented with hyperlinks to the terms and conditions on later visits to the website; or (3) hyperlinks to the terms and conditions are present on several different webpages in succession.
4. Browsewrap agreements on a website or mobile app indicate that by accessing the services of a website or app, the consumer agrees to accept the terms of service. Consumers typically must click a link on the page which will take consumers to a separate page where they can read the website’s terms.  These links are usually in the footer of a web page, as opposed to being linked right next to an “I agree” box as with clickwrap agreements.  Browsewrap agreements are more likely to be unenforceable than the other types of wrap agreements; usually, this is because e-commerce websites fail to prompt users to review terms and conditions in a noticeable place on the site.  Browsewrap agreements do tend to be enforced more commonly against corporations, however, and tend to be enforced less against individual consumers.

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.

How Have Courts Decided Enforceability in Key Cases?

Several court cases provide guidance on what constitutes an enforceable online contract.  In Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2d Cir. 2017) for example, a customer sued Uber based on allegations of price-fixing.  Uber moved to compel the case to arbitration based on an arbitration clause in Uber’s terms of service, which the customer allegedly agreed to when he signed up for the app.  At sign-up, below where the customer was prompted to enter payment information, the payment screen contained a hyperlinked disclaimer, in underlined and bright blue font, reading “by creating an Uber account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”  Uber appealed to the Second Circuit after the trial court denied Uber’s motion to compel arbitration and held the Uber Terms of Service unenforceable.

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.

These cases point out how important the specific facts of each wrap agreement are.  Had the hyperlink to the terms of use in Meyer been buried in a corner of the app, as opposed to right below the “Register” button, those terms could have been considered not reasonably conspicuous, therefore unlikely to notify a consumer of the terms and unenforceable.  Similarly, if the purchase page or service contract in Starke had been more conspicuously noted for the consumer—such as placing the terms and conditions hyperlink in a more obvious place at the top of the email, or as an attachment to the email—the court might have held those terms enforceable.

Conclusion

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.

Photo by Glenn Carstens-Peters on Unsplash