“Additional terms and conditions apply” is a phrase we have all heard from a voice-over on a late-night infomercial hawking vegetable juicers or subscriptions to a knife-of-the-month club. But just what are “terms and conditions” and how are they different from a normal contract? And what concern are they to businesses that occupy, shall we say, more reputable corners of the marketplace?
What are “terms and conditions”?
As an initial matter, every contract has “terms”. These are simply the various promises that the parties to a contract make to each other: WidgetCo shall provide Customer with 600 widgets. In return, Customer shall pay WidgetCo $1,000 per widget. These are both terms.
Terms can be conditional—if Customer pays within 30 days of delivery, WidgetCo will give Customer a 5% reduction off the quoted purchase price. But conditional terms are still terms and, legally, there is no meaningful distinction between terms and conditions. Like “cease and desist” or “will and testament”, “terms and conditions” is simply a stock phrase that has become a fossilized part of legal language.
As a practical matter, though, when we hear the phase “terms and conditions”, what is usually meant are contract terms that have two characteristics. First, they are boilerplate terms—that is, standardized terms that are ancillary to the “real” terms of the deal that have been hammered out between the two parties with respect to the transaction at hand (for example, quantity purchased, delivery dates and locations). Second, they are often contained in a document (often titled “Terms and Conditions”) that is separate from the primary “deal-specific” document (such as a purchase order or statement of work) that gives rise to a particular deal. Terms and conditions are often, but not always, dictated by the seller of the goods or services without negotiation. It is in this sense that we will use the phrase “terms and conditions” in this article.
Considerations in using separate “terms and conditions”:
It can be useful to structure a transaction so that there are separate terms and conditions, and it is a practice that is especially common in internet-based commerce. Nevertheless, if you choose to employ terms and conditions, there are several considerations you must account for. Otherwise, you may end up with a contract different from the one you thought you agreed to.
Do you have a meeting of the minds? The first challenge that terms and conditions present is that they have a funny way of never making it into the contract at all. Any lawyer can tell you that a commercial contract is a “meeting of the minds” – that is, an agreement – between the buyer and the seller. In short, terms that both parties agree to become a part of the contract. Those that haven’t been agreed to do not.
The legal burden is on the party seeking to enforce a term to prove that the term was agreed to by both parties to be part of their “deal”. And, generally, this requires proof that the other party (i) had notice of the additional terms and an opportunity to review them, and (ii) agreed to be bound by them.
A problem with separate terms and conditions is that one party may not be aware that they exist at all. (In fact, a cynic might conclude that one reason terms and conditions are so popular is they seem to allow one party to insert terms into a deal without bringing them to the other party’s attention.) But if one party isn’t aware of certain terms, that raises the possibility that there was no meeting of the minds as to those terms, and so they do not become a part of the parties’ contract.
- Imagine, for example, WidgetCo sells widgets through its website, widgetsforless.com. Within that website is a web page laying out the terms and conditions for purchases made through the website. However, a customer never has to visit that page to complete an order, nor is there a specific reference or link to the terms and conditions during the order process—so a customer can place an order without ever being exposed to the “other terms and conditions”. Instead, the website may contain just a general—and inconspicuous—statement that merely browsing or using the website binds the customer to the terms and conditions. This approach is often referred to as a “browse wrap” agreement. (The word “wrap” is an allusion to the earlier practice of selling software with terms and conditions included inside a box wrapped in shrink-wrap.)
In this situation, can we really say—or prove—the customer has knowingly agreed to those terms? Without something more, that is a very hard conclusion to reach, and courts usually agree. Browse wrap terms are often found to be unenforceable for the fundamental reason that they were never mutually agreed to—because the customer did not have adequate notice of the terms.
- Now imagine WidgetCo uses a printed order form that contains the statement “WidgetCo’s standard Terms and Conditions apply”. This is better, because WidgetCo’s customer should at least be on notice that there are other terms out there that it needs to be aware of. But does WidgetCo’s customer really know the substance of the terms it’s agreeing to when it submits the order form? Can it find out what it’s agreeing to? If not, whose fault is that—WidgetCo’s or the customer’s? In this case, it would be WidgetCo’s fault—while WidgetCo has notified the customer that additional terms apply, it has not given the customer any opportunity to review those terms. As such, the customer cannot be said to have agreed to terms that it could not review.
To avoid these questions, the best practice would be for WidgetCo to include a copy of its separate terms and conditions with the primary contract document and to get some affirmative manifestation that the customer agrees to those terms, such as a signature on the terms and conditions document.
But that is not always possible. So, at a minimum, WidgetCo needs to include a provision in the main document that clearly and unambiguously
- incorporates the additional terms into the parties’ agreement; and
- provides clear direction on how the customer can find those terms to review them.
So long as the terms and condition of a contract have been made available for review by a party, the law will usually presume that the party read them and understood their contents—even if the party chose (for whatever reason) to not actually review the terms.
A useful provision could look something like this:
This transaction is subject to WidgetCo’s standard Terms and Conditions, last modified August 1, 2015. WidgetCo’s full Terms and Conditions are available to Customer on WidgetCo’s website at www.widgetsforless.com/terms_and_conditions.
In an e-commerce context, the same thing can be accomplished by having the buyer/user click a box signaling that he or she agrees to the seller’s terms and conditions, with the actual terms and conditions being available for review via a conspicuous hyperlink. (This is commonly referred to as a “click wrap” agreement, as distinguished from browse wrap.) Where the terms are available for review by clicking on a conspicuous hyperlink, courts again generally presume that the buyer/user has read them and understood their contents before checking the “I agree” box—even if the buyer/user later admits that they chose to not click on the hyperlink or to actually review the terms.
Can you prove what terms and conditions the parties agreed to? At this point, we do know the customer has agreed to a set of terms and conditions. But, we still may not necessarily be able to prove what those terms and conditions are. That brings us to our next issue.
In this case, the terms and conditions are almost certainly for WidgetCo’s benefit, so it is likely WidgetCo that is going to want to assert the rights and protections they provide if the deal falls apart. That means the burden will be on WidgetCo to prove the content of the terms and conditions to a court. Experience has shown that that can be harder than it sounds.
Let’s assume WidgetCo’s customer has clearly and unambiguously signaled its consent to be bound by WidgetCo’s terms and conditions that were in effect on the date their deal was struck. If the terms and conditions were reproduced in full on a document that the customer signed, it’s easy to prove what terms and conditions were agreed to. But if he has signed a printed document containing a provision like the one in the section above, or he has checked a box on WidgetCo’s website showing his assent—i.e., in both cases, where the terms were made available to the customer through a hyperlink or web address—what now? Especially if WidgetCo has since revised the terms and conditions found on its website?
Almost by their nature, terms and conditions change over time (a point we will discuss further below). More than once, a business has appeared in court ready to prove how their current terms and conditions appear on their website, only to be told that their current terms and conditions are irrelevant. What matters, of course, are the terms and conditions that were in place at the time this contract was formed with this customer. If the business has not maintained the entire history of its terms and conditions in a structured way—and many businesses do not—it may find itself unable to prove what earlier terms and conditions were in place on the date that this customer entered into the contract.
Therefore, if a business intends to rely on separate terms and conditions, it is essential that it maintain records of its various terms and conditions in such a way that it can prove the contents of the terms and conditions that every individual customer has actually agreed to. To do this will require the business to:
- Maintain all prior versions of its terms and conditions in a repository;
- Make sure that the repository uses a system that will show not only the version that was in effect on a given day, but also that the customer could have accessed them or did in fact access them (for example, the website containing the terms was not “down” or unavailable at the time; a record showing that the customer clicked the link or “checked the box” (if applicable)); and
- Make sure that the repository system is designed so that future employees will be able to testify with certainty about what terms and conditions were in effect on a given date. (Murphy’s Law dictates that all the employees from the time of the sale will be long gone, years later, when the terms actually become relevant to a dispute.)
Are the terms and condition “subject to change”? A common characteristic of standard terms-and-conditions forms is a provision that the terms and conditions themselves are subject to change, usually at the sole discretion of the party that drafted them and often without notice to the other party. The terms may then go on to say that any such change automatically becomes binding on the other party as soon as the change is made. These types of provisions would obviously be useful to the drafting party if they were enforceable. The problem is, they often aren’t.
Again, a contract is an agreement by two parties to a common set of promises. Imagine WidgetCo’s terms and conditions contain the following language:
All invoices shall be paid within 30 days. All invoices that remain unpaid after 30 days shall incur interest at the rate of 4 percent per annum.
If WidgetCo can retain the right to change any term at any time and in its sole discretion, what’s to stop WidgetCo from amending its terms and conditions to require payment within 14 days? Or 4 days for that matter? Why couldn’t it raise the interest rate to 12% and disavow any warranties at the same time? In fact, while it was at it, why couldn’t WidgetCo change its terms and conditions to say that a customer representative had to come to the home of WidgetCo’s president and mow her lawn every Sunday until the balance is paid?
These scenarios may seem absurd, but they illustrate the fundamental unfairness that a unilateral “subject-to-change at will” clause presents. The law recognizes this unfairness and so, generally, renders “subject-to-change at will” provisions unenforceable. In some cases, courts have gone even further to find that the mere presence of a “subject-to-change at will” provision makes the entire contract unenforceable from the outset.
To make changes to your terms and conditions binding on the other party, you need to comply with the same fundamental requirements as were needed to form the initial contract. That generally means:
- Giving the customer actual notice of the new terms;
- Getting the customer’s consent to the new terms (which can be express or implied, depending on the circumstances); and
- Giving some new promise or performance—or giving up an existing right—in return for the customer’s agreement to make changes to the existing deal.
The last of these is probably the least intuitive for non-lawyers. That is because to be a legally enforceable contract, an agreement cannot be just a meeting of the minds. To be enforceable, an agreement also has to have “consideration” given by each party to the other. Without new consideration, changes to terms and conditions will generally be found to be an unenforceable attempt to unilaterally modify the terms agreed to by the parties.
Consideration is a legal term of art that refers to the thing that each party agrees to, or gives up, as its part of the deal. For example, in a commercial transaction, the seller promises to give up goods or services, and the buyer gives up his money. These promises are consideration. When the terms of an agreement are changed, the customer’s agreement to proceed under the new, changed terms is usually the necessary consideration given on the part of the customer—but the seller must give something in return as well. It could be a promise to accept future orders from the customer (if the seller would otherwise have the right to refuse such orders), a relaxing of payment terms, or something else. Depending on the facts and the type of business at hand, the possibilities are potentially limitless—so long as the seller gives something in exchange for the customer’s agreement to accept the changed terms.
In the end, terms and conditions are a fixture of modern commerce, especially online commerce, but they present issues that must be addressed before they can be effective. If you have any questions about your business’s terms and conditions, please contact Ben Byrd at bbyrd@fh2.com or (770) 399-9500 to discuss further.
