CONTRACTS FOREWORD

Can You Spot the Problem?

In the e-commerce situation that we have just completed something seems to be wrong. The consumer purchased a of expensive sunglasses for a specific purpose. The consumer expected the sunglasses to be impact resistant, or at the very least, covered under warranty should anything happen to them. Is this reasonable? Does the supplier have any responsibility given the waiver in the contract?

Soakely Sunglasses Inc.'s e-commerce site makes it mandatory that every consumer accepts the terms of the warranty before proceeding with the transaction. Soakely wants assurance that all of the terms of the warranty have been accepted and are therefore binding as soon as the consumer pushes the "I accept" button. Soakely believes they can reasonably rely on the consumer to read the warranty before proceeding with the transaction. Is this reasonable? Is it practical?

Meeting of the Minds - Cyber Mindmeld

According to the law of Contracts both the consumer and the merchant have to agree to the terms of the contract for it to be binding. In contract terms, there must be a "meeting of the minds". In determining consensus, the courts look for outward manifestations made by the respective contractors. In an e-commerce transaction, where the consumer and the merchant don't meet face to face to discuss the contract, how can one really tell if, and when, there is a mutual agreement to the terms of a contract? In order to help determine this, we expect the courts will use the common law "objective theory of contracts". In this case, the judiciary would consider whether the reasonable observer of the e-commerce transaction would believe that there was a meeting of the minds between the consumer and the merchant. The reasonable observer would gather evidence by looking to the circumstances surrounding the transaction and the contents of the written contract. Accordingly, the evidence found would then be used to decide whether the reasonable expectations of each party entering into the contract were in fact reasonable.

E-Commerce Web-Wrap Agreements

A Standard Form Agreement is an agreement where one party drafts the terms of the contract absent any consultation or bargaining with the other party. In an E-Commerce environment, the Web-Wrap Agreement (a standard form agreement), the contractual terms and conditions on a web-site appear at some point before the consumer has completed purchasing the service or good. The web-wrap terms and conditions for the sale are presented to the consumer to read before agreeing to, or refusing, the contract. The question that is on everyone's mind is, whether and when these types of contracts are binding.

Memorandum of Law

If either the Consumer or Soakely Sunglasses came to you for legal advice, where would you begin? The starting place may be to compose a memorandum of law. The purpose of the memorandum is to explore how the law relates to your problem. It can have a very narrow focus, dealing with one area of law and one issue, or it can have a broader focus, looking to all the possible areas of law and the surrounding issues that pertain to your problem. For the purposes of the mini-course we are going to narrow the focus to look strictly to Contract Law, and very narrowly to one issue: did the consumer agree to the terms of the warranty that they appeared to accept.

On to the memo:

M E M O R A N D U M

To: Lawyer

From: Law Student

Date: Today

File No: 20056-3 Soakely Sunglasses Inc.

Re: Warranty waiver and exclusionary provisions in consumer/commercial relations. _______________________________________________________________

FACTS

On September 8, the consumer completed an e-commerce transaction with Soakely Sunglasses Inc. of London, Ontario, and received the "Extortionateor" sunglasses and an accompanying warranty. Soon after, while playing rollerblade hockey, the consumer was elbowed causing one of the uranium lenses to shatter on contact. The consumer contacted Soakely Sunglasses Inc. for reimbursement stating the lens was covered under warranty. The Soakely representative brought to the consumer's attention, for the first time, the waiver and exclusionary provisions found within the fine print of the warranty, which stated:

In consideration of your purchase of Soakely "Extortionateor" Sunglasses, Soakely guarantees your Uranium lenses are 100% impact resisitant. But notwithstanding your purchase, the Soakely company will not be liable for any damage if the sunglasses are worn, used or adjusted in violation of any provisions of this purchase agreement and warranty. All of our lenses exceed ANSI standards including impact resistance and optical quality...

3. Soakely Sunglasses Inc. is not liable for any damage occurring to lenses worn (a) while participating in high risk sporting activities...

Because the consumer shattered the lens while playing rollerblade hockey, which was considered a high risk sporting activity, Soakely would not cover the lens under warranty. The consumer stated that the sunglasses would not have been purchased if proper attention had been drawn to the waiver and the exclusionary provisions prior to the purchase. The e-commerce site makes the approval of the warranty mandatory. The consumer, in order to proceed with the transaction, accepted the warranty without reading it. The site also states that the uranium lenses are 100% impact resistant and includes an image of an extreme skier. Our client, Soakely Sunglasses Inc. suspects a possible law suit and is concerned about whether the waiver and exclusionary provisions will protect them from liability.

ISSUE

1. Is the acceptance option that is contained within the e-commerce site conclusive of consumer assent to the terms of the warranty, its waiver and exclusionary provisions. In other words, is it conclusive so that it protects Soakely from liability for the shattered lens?

CONCLUSION

In modern commercial practice, many standard form printed documents are signed without being read or understood. In this case, Soakely sought to rely on consumer acceptance of terms of the contract Soakely knew, or ought to have known, did not represent the true intention of the consumer. Reasonable expectations will be protected. Although the e-commerce site required mandatory approval of the warranty, the consumers' on-line acceptance is not conclusive of an awareness of the stringent and onerous provisions that the standard form contained. Under such circumstances, Soakely, the party seeking to rely on such terms, would not be able to do so in the absence of first having taken reasonable measures to draw the waiver and exclusionary provisions to the attention of the consumer. The company took no steps to alert the consumer to the unusual and onerous provisions in the standard form warranty. It therefore follows that Soakely cannot rely on the waiver and exclusionary provisions.

DISCUSSION

General principles concerning consumer-commercial contracts.

The bargain theory of contract is based on the fundamental principle that when two parties enter into an agreement there is mutual benefit and detriment incurred when forming the contract. This give and take is called consideration. In the 19th century when many contract principles were first developed, the terms to a contract were "bargained". With the evolution of the marketplace there has also been an evolution in consumer commercial contracts. The marketplace, in many instances, does not allow for bargaining and has been replaced by the unilateral imposition of contract terms on consumers by way of commercial standard form contracts.

With the widespread use of standard form contracts, such as conditions and warranty documents, the Canadian courts have recognized that consumers are being exposed, both overtly and covertly, to contracts about which they have no knowledge or understanding, and to terms that may not be in their best interest. In response, the Courts have imposed obligations on commercial entities to counter the emerging inequality of bargaining power and to limit the circumstances under which certain terms can be relied upon as binding on consumers. In the case where onerous and unusual provisions are not explicitly brought to the attention of the consumer, the Ontario courts have been quite vigilant in protecting the reasonable expectations of consumers.

Ontario

The leading case in Ontario is Tilden Rent-A Car v. Clendenning, decided by the Ontario Court of Appeal. In this case, Mr.Clendenning, while hiring a car, was offered the purchase of a "collision damage waiver", which he was told provided "full non-deductable coverage" for any damage to his rental vehicle. The standard form contained exclusionary provisions that were not brought to the customer's attention and were inconsistent with his reason for purchasing the extra option. The customer relied on the Tilden employee's description of the Standard form agreement and affixed his signature. The customer had an accident and contravened one of the exclusionary provisions. A two-one decision of the Ontario Court of Appeal held that only reasonable expectations will be protected, and that under the circumstances Tilden could not reasonably expect that Mr. Clendenning's signature to the contract was conclusive of an agreement to the terms of the rental contract of which he was not aware.

Objective Theory of Contracts Fundamental to Determining Assent

Justice Dubin, speaking for the majority of the Ontario Court of Appeal, uses the rule in L'Estrange v. Graucob Ltd., [1934] 2 K.B. 394, to inform his analysis of the Tilden case. Justification for the rule, "when a document containing contractual terms is signed, then in the absence of fraud, or misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not", he states, stems from the objective theory of contracts. Dubin J. submits that a signature to a contract is only one consideration in determining agreement to contractual terms. In following the objective test set out in the classic statement of Blackburn J. in Smith v. Hughes (1871), L.R. 6 Q.B. 597 at p. 607:

"I apprehend that if one of the parties intends to make a contract on one set of terms, and the other intends to make a contract on another set of terms, or, as it is sometimes expressed, if the parties are not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties from denying that he has agreed to the terms of the other. The rule of law is stated in Freeman v. Cooke (1948), 2 Ex. 654, 154 E.R. 652. If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms." (Emphasis added)

Justice Dubin observed that an essential part of the test to determine agreement and consensus ad idem (meeting of the minds) was whether the reasonable person would conclude that Tilden had entered into the contract in the belief that Mr. Clendenning was agreeing to all of the terms. In the Soakely case, the test would be whether the reasonable person would conclude that Soakely entered into the contract in the belief that by clicking on the "I accept" button, the consumer was assenting to all of the terms of the warranty.

Reasonable Expectations Protected

To help decide this issue, Dubin J. accepts the proposition that only reasonable expectations will be protected. Quoting Prof. Waddams, The Law of Contracts, at p. 191:

One who signs a written document cannot complain if the other party reasonably relies on the signature as a manifestation of assent to the contents, or ascribes to words used [sic] their reasonable meaning. But the other side of the same coin is that only a reasonable expectation will be protected. If the other party seeking to enforce the document knew or had reason to know of the other's mistake the document should not be enforced.

Justice Dubin decides that it was apparent to the employee of Tilden Rent-A-Car that Mr. Clendenning had not read the rental contract in its entirety before he signed it. Consequently, Tilden could not rely upon the provisions of the contract that it had no reason to believe were being assented to by the other contracting party.

In the Tilden transaction, a face to face transaction, the employee could visibly determine whether the consumer had in fact read the contract. In the Soakely case, an e-commerce transaction, there is no sure way of monitoring whether or not the customer has read the warranty before accepting it and completing the transaction. The mandatory acceptance on the Soakely site is not conclusive as to reasonable knowledge of consumer agreement to terms of the contract.

Considerations in Determining Reasonable Expectations

To help discern circumstances under which outward manifestation of agreement will be determined, Justice Dubin provides a commercial/consumer continuum. In commercial/commercial practice, where there is full opportunity to consider the terms of a contract, there will be a higher assumption that a signature is proof of agreement that both parties can reasonably rely upon. Whereas, in consumer/commercial practice where transactions are hurried and informal, and where parties have not had opportunity to fully considered the terms of a contract, the courts will pay less credence to a signature and look to the surrounding circumstances for proof of an agreement.

Dubin J. further states that where terms within a contract are found to be inconsistent, onerous, unusual, or contrary to the overall purpose for which the contract is entered into by the consumer, something more has to be done by the party submitting the contract for signature than merely handing it over to be signed.

The Soakely transaction cannot be said to be a hurried transaction. Even though the ease and speed of the transaction is promoted, it is distinguishable from Tilden. A web site is not analogous to a busy car rental counter at an airport. There are no time limitations on this web-site, and the Soakely site provides the consumer 24-hour service. It cannot be said that the circumstances for the transaction are unreasonable in this respect.

However, in the Soakely case, the onerous and stringent terms found in the warranty waiver and exclusionary provisions were not brought to the consumer's attention. Making the warranty mandatory does not ensure that the terms within it will be read and understood. Soakely cannot rely on the stringent and onerous provisions because it did not take reasonable measures to draw these terms to the attention of the consumer.

Summary

The mandatory acceptance of warranty option contained within the Soakely e-commerce site is not in and of itself conclusive in proving acceptance of the warranty. The Tilden decision, which is binding on Ontario Courts, determined that more expansive consideration must be given to the circumstances under which one can conclude that an acceptance of a contract has taken place. The basis of this expansion stems from the concept that there must be a mutual understanding of what is contracted for. The reasonable expectations of each party must be protected. The waiver and exclusionary provisions found within the Soakely warranty are inconsistent with the 100% impact resistance guarantee and the sports images promoted on the web site. Justice Dubin, speaking for the majority in Tilden stated, if a party is seeking to rely on provisions that are onerous, unusual or inconsistent with reasonable expectations, then reasonable measures must be taken to draw the terms to the attention of the other party. According to the Tilden decision, a signature, or in our case the "I accept" button does not necessarily denote acceptance to each and every term. Therefore, Soakely Sunglasses Inc. will likely be held liable for the damage to the sunglasses, and correspondingly, the warranty waiver and exclusionary provisions are not binding on the consumer.

Afterword

It is important to note at this point the many other legal issues this case presents to the law student. A deeper analysis must be undertaken to provide a more fully informed conclusion. For example, Ontario has a statute called the Sale of Goods Act , which the courts must consider when decided cases that involve goods sold in Ontario. An analysis and understanding of judicial interpretation of this statute and how, if at all, it would apply to the facts in this case is essential. Another important area of contract law to consider is the concept of fundamental breach. One would examine whether the waiver and exclusionary provisions would stand up in the circumstance where the product received was so fundamentally different than the one contracted for, that it deprived the consumer of substantially the whole benfit of the contract.