You probably purchased something over the phone or online at some point in your life. After giving your credit card information and paying for the item, it's shipped to you. Often, that shipment contains in addition to whatever you bought a document, containing terms and conditions of the sale. Such documents often include warranty information and information about dispute resolution, such as an arbitration clause. Are you bound by the terms of that document? Today, we're going to compare two cases, the first, decided by the Seventh Circuit in 1997, the second, by the District Court for Kansas three years later that addressed this question but reached opposite conclusions. In both Hill and Klocek, the plaintiffs purchased computers from the defendant company over the phone and received shipments containing the products that offered. The shipments contained, as well, a list of terms. In Hill, those terms gave the purchaser 30 days in which to return the computer, if they didn't agree to the terms, and included an arbitration clause. In Klocek, the terms declared that the purchaser's retaining the computer for more than five days after the date of delivery constituted acceptance of the terms, and similarly included an arbitration clause. The plaintiffs in both cases sued Gateway after performance problems with the computers. In both cases, the company claimed the plaintiffs were bound by the arbitration clause in the terms and conditions because the plaintiffs kept their computers for longer than the time period set forth in those terms and conditions. Hill was decided by Judge Frank Easterbrook. Easterbrook had previously issued an influential opinion in ProCD vs. Zeidenberg, a case that presented similar issues and which shaped the judge's opinion in Hill. In ProCD, Easterbrook held that terms inside a shipment of software contractually bound consumers who use the software after they had an opportunity to read the terms and reject them by returning the product. The same logic applied, Easterbrook said, in Hill. Crucial to the decision was the judge's understanding of when the contract between Hill and Gateway was actually formed. The judge denied that the contract was formed when Hill paid for the computer and Gateway delivered it, which would mean that the terms were not part of the original agreement. Instead, relying on the principle derived from UCC 2-204 that, "A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitute acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance." Easterbrook concluded that Gateway invited Hill to accept by keeping the computer after receiving the terms and conditions. The arbitration clause was, thus, part of the contract and bound the plaintiffs. It didn't matter that the plaintiffs didn't read the terms because they had the opportunity and responsibility to do so. The District Court of Kansas disagreed. It explicitly rejected Hill when it decided Klocek versus Gateway. The court in Kansas stated at the outset of its opinion, that the fact that Klocek paid Gateway for a computer and received that product from Gateway "clearly demonstrates a contract for the sale of a computer." It took issue with Easterbrook's categorization of the defendant as the quote master of the offer, and his conclusion that Gateway conditioned acceptance on the plaintiff's assent to the term and conditions in the shipment. The defendant had offered no evidence that either of these things was the case. More significantly, the District Court argued that the Seventh Circuit had incorrectly concluded that the UCC Section 2-207 did not apply to these cases. UCC 2-207 is the famous battle of the forms provision that we just spoke about in the last class. As we just discussed, in this textile unlimited case, 2-207 provides, if a contract is formed with a confirmation that includes additional terms under Subsection 1, then that operates as an acceptance. The additional terms are to be construed as proposals for additions to the contract, unless both parties are merchants. As the opinion notes, the plaintiff was not a merchant. So under Kansas interpretation of the UCC, and this is the UCC Section 2-207, if either party is not a merchant, the additional terms are proposals for additions to the contract and do not become part of the contract unless the original offer war expressly agrees. The court concluded that the fact that Klocek kept the computer for more than five days was not sufficient evidence that he expressly agreed to the additional terms. And for that reason, the plaintiff was not bound by those terms, including the arbitration clause. Easterbrook provided policy justifications for his holding, asserting that writing provides benefits for both sides of commercial transaction. Customers, as a group, are better off when vendors skip costly and ineffectual steps such as telephone recitations, and use instead a simple approve-or-return device. It's probably true that consumers would not want to sit through an over-the-phone recitation of pages of terms and conditions before completing a purchase. But is Easterbrook fair to suggest these are the only options? A footnote in Klocek offered another possibility. It said, "The court is mindful of the practical considerations which are involved in commercial transactions, but it's not unreasonable for a vendor to clearly communicate to a buyer, at the time of sale, either the complete terms of the sale or the fact that the vendor will propose additional terms as a condition of sale, if that be the case." What if the Gateway representative on the phone call, which the purchase took place, simply inform the consumer that the forthcoming computer shipment would contain important terms and conditions that Gateway considered a part of the contract? These cases provide a good introduction to the concept of the rolling contract. Such contracts are formed over time with one party providing terms in batches, some before a given item is ordered and others later. But often, the latter batch of terms are unlikely to be read and will be accepted by conduct. Is it fair to make increasing use of such contracts when the offer war is aware the terms probably will never be seen or understood? Despite their disagreement, we see in these two cases the Seventh Circuit's ruling in Hill is no longer controlling, at least over cases governed by Illinois law. In 2006, the Illinois Supreme Court decided in Razor versus Hyundai Motor that a warranty containing a disclaimer of consequential damages which was in the owner's manual of a glove compartment of the car, the plaintiff in the case had purchased, was not part of the car sale contract because it wasn't made available to the purchaser at or before the purchase of the car. The District Court for the Northern District of Illinois recognized that the Razor decision was now controlling rather than Hill. In a separate case, Trujillo versus Apple Computer. So what have we learned? We were introduced to rolling contracts, in particular, to accept or return terms that a company customer ordered goods. We saw two different cases laying out opposite lines of reasoning. The first, enforcing the accept-or-return terms, the latter rejecting them, and exploring policy arguments and potential compromises for these kinds of transactions. And once again, we see that generally it's a good idea to read carefully the documents that come with your purchases.
