Must a party to a contract be given notice of changes proposed by the other side in order for those changes to be binding? A leading case in this area, Douglas v. U.S. District Court for the Central District of California, seemed to answer this question in the affirmative. In Douglas, the Ninth Circuit held that a telephone company's failure to notify one of its subscribers that it had revised the service agreement rendered the revisions unenforceable. The subscriber “was not bound by the terms of a revised contract when he was not notified of the changes,” the court said.
But Douglas did not address the situation in which parties agree in their original contract that contract terms can be unilaterally revised, without notice. (Such a provision may well have been in the telephone company's contract; however, the Douglas court did not mention it.) This is a more typical scenario, as many online businesses reserve the right to unilaterally modify their terms of service. Some agreements spell out what sort of conduct will be deemed to constitute assent to changes (e.g., continued use of the site), while others are silent on the assent question. For example, the terms of service for the Yahoo! Web site provide:
Yahoo! provides its service to you subject to the following Terms of Service ("TOS"), which may be updated by us from time to time without notice to you. You can review the most current version of the TOS at any time at: http://info.yahoo.com/legal/us/yahoo/utos/utos-173.html.
Over at Google:
Google may make changes to the Universal Terms or Additional Terms from time to time. When these changes are made, Google will make a new copy of the Universal Terms available at http://www.google.com/accounts/TOS?hl=en and any new Additional Terms will be made available to you from within, or through, the affected Services. You understand and agree that if you use the Services after the date on which the Universal Terms or Additional Terms have changed, Google will treat your use as acceptance of the updated Universal Terms or Additional Terms.
Finally, at AT&T:
AT&T may change or modify the Terms from time-to-time without notice other than posting the amended Terms on the Site. The amended Terms will automatically be effective when posted on our Site. Your continued use of our Site after any changes in these Terms shall constitute your consent to such changes. AT&T reserves the right to change, modify or discontinue, temporarily or permanently, the Site (or any portion thereof), including any and all content contained on the Site, at any time without notice. You agree that AT&T shall not be liable to you or to any third party for any modification, suspension or discontinuance of the Site (or any portion thereof).
In Douglas, the court stated that merely posting changes on a Web site was not adequate notice (“Parties have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side,” the court wrote). Nevertheless -- the Douglas ruling notwithstanding -- leading sites like Yahoo!, Google, and AT&T have apparently decided that giving their users' notice of terms of use revisions is not really necessary as far as contract law is concerned, provided that the original agreement allows unilateral changes without notice.
All of which leads me to the curious case of Harold Huggins Realty Inc. v. FNC Inc., No. 07-1203 (D. Md. Sept. 2, 2008), a case in which a Web site operator made a clumsy attempt to modify its terms of service – only to find itself in court two years later arguing that its own modification was not enforceable.
The facts are convoluted, but the salient ones are these. The defendant, a Web-based real estate appraisal service, had three different terms of use agreements during the time period covered by the plaintiffs' claims. The first agreement (2000) contained a binding arbitration clause. The second (2002) also contained a binding arbitration clause. The third (2005) did not contain a binding arbitration clause. The plaintiffs sued in 2007, alleging that the defendant had made false representations on its Web site in order to induce them to supply proprietary appraisal information.
The defendant moved for binding arbitration, relying on the 2000 and 2002 terms of use agreements. The defendant argued that the 2005 agreement – the one that did not contain an arbitration clause -- was not enforceable because the defendant had not followed the modification process it established in the original 2000 agreement. The 2000 agreement provided:
This User Agreement may be modified at any time. Whenever changes are made, the revised agreement will be posted at this location. New terms will be effective 30 days after the changes are posted. You will be asked to acknowledge your acceptance of the changes the first time you log in after the changes have been made.
In fact, none of the plaintiffs were ever asked to “acknowledge” the 2005 agreement. Notice of the 2005 changes was spotty; the Web site displayed a banner for approximately one month indicating that changes had been made, but the defendants were unable to present evidence indicating whether the plaintiffs had ever logged on and had seen it.
The defendants argued to the court that the 2005 agreement was invalid because (1) acknowledgement of the 2005 changes was required by the original agreement and (2) general contract law principles require that the users be given notice of the proposed changes.
The court rejected these arguments, ruling that the 2005 agreement was enforceable. First of all, it said, the 2000 agreement is ambiguous as to whether an acknowledgement is necessary in order to effect a revision of the contract. The agreement could be read to require users to acknowledge the changes, certainly. However, another plausible reading is that the sentence “New terms will be effective 30 days after the changes are posted” means that no indication of assent or acknowledgement by the user is necessary. The court landed on this latter reading. The language mentioning acknowledgement of the changes is merely “icing on the cake,” it said. In any event, the court added, to the extent that the 2000 agreement is ambiguous as to what action on the user's part, if any, is necessary to revise the terms of use, then that ambiguity should be construed against the drafter – in this case, the defendant Web site operator.
Second, ruled that the plaintiffs had waived the acknowledgement requirement, assuming there was one. Finally, the court ruled that the Web site operator was estopped to deny the effectiveness of the 2005 changes. Under the common law doctrine of quasi estoppel, a party may be estopped from asserting a position it has previously taken if it would be unconscionable. The court found unconscionability in the fact that the Web site operator had not – until it saw an advantage to do so in the present litigation – ever taken the position that the 2005 agreement did not apply to its users.
It is hard to draw too much meaning from a case as odd as this one. After all, how many online businesses are removing binding arbitration clauses from their terms of use? And how many online businesses will request an acknowledgement to changes in their terms of user but supply no mechanism by which users can signal this acknowledgement? But, in answer to the question I posed at the outset: Yes, it is certainly possible to validly modify an online terms of use agreement without notice to the user. Apparently it is not very hard at all. Unfortunately, the court declined to address the contract law principle behind the Douglas ruling, namely, whether contract law requires Web site operators to give their users more notice of contract revisions than merely posting the new terms on a Web site.
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