Clients inquire whether it is sufficient for a short, customer friendly contract to incorporate by reference Terms & Conditions (“T&Cs”) and merely provide a link to the T&Cs online, to allow the short contract to be legally binding against the customer under New York Law?

The short answer is yes, but with certain caveats.

The short answer remains yes, even where the T&Cs are extensive and meant to cover a variety of agreements including both sales of goods as well as types of services.

Best Practices

In terms of “best practices,” the clause referencing the T&Cs should:

• Appear on the signature page somewhere above the signature line indicating assent to the contract.

• Be reasonably conspicuous to alert the reader to ‘inquiry notice.

• Clearly state that the T&Cs are expressly made part of the contract, using language, such as, the T&Cs “are incorporated into” or “made a part of” or this agreement “shall be construed in accordance with and is subject to the T&Cs.”

• Ensure that the link to the T&Cs on the client’s website is not “buried,” but rather as straightforward as possible, such as, being readily found from the home page.

 

1. Incorporation by Reference is Generally Valid

For the avoidance of any doubt, as a general rule of contract construction, “all writings which are part of the same transaction are interpreted together …One application of this principle is the situation in which parties have expressed their intention to have one document’s provision read into a separate document.”  Richard A. Lord, Williston on Contracts § 30:25 (4^th ed. 2020).

Williston goes on to write:

“As long as the contract makes clear reference to the document and describes it in such terms that its identity may be ascertained beyond doubt, the parties to a contract may incorporate contractual terms by reference to a separate, noncontemporaneous document, including a separate agreement to which they are not parties, and including a separate document which is unsigned.”  Id. (emphasis added).

See also Restatement (Second) of Contracts § 132:4; Corbin on Contracts § 23.3 (2020); Revis v. Schwartz, 192 A.D.3d 127, 140 N.Y.S.3d 38 (2d Dep’t 2020) (reference to arbitration by AAA rules in NFL player regulations was specific enough to leave no doubt as to what was being referenced and incorporated).

“It is a fundamental principal of contract law that documents may be incorporated by reference into an executed agreement (see Kachurin v. Barr, 272 App. Div. 391, 398, 71 N.Y.S.2d 629 (1st Dep’t 1947), aff’d, 297 N.Y.889, 79 N.E.2d 736 (1948); Shah v. Monpat. Constr., Inc., 65 A.D.3d 541, 544, 884 N.Y.S.2d 116 (2d Dep’t 2009).” Madison Indus., Inc. v. Garden Ridge Co., 2011 N.Y. Misc. LEXIS 3370; 2011 N.Y. Slip Op. 31866(U) (Sup. Ct. N.Y. Co. 2011).  See also Taboola, Inc. v. Sandra Rose, LLC, 2020 N.Y. Misc. LEXIS 2693; 2020 N.Y. Slip Op. 31866(U) (Sup. Ct. N.Y. Co. 2020) (T&Cs were found to have been incorporated into the publisher’s agreement) (citing Madison, supra).

In Madison, supra, and of interest here, is that the letter agreement stated the following:

“Please visit www.gardenridge.com often to remain current on the Terms and Conditions in this manual.”

The complaining customer’s argument in that case was that it should not have been bound by the defendant’s T&Cs, and in particular, the forum selection clause, because it never saw them.  The court held that this argument was not only without merit under the doctrine of incorporation by reference, but as a contracting party, it was presumed to know the terms and consents to which it was bound, stating: “Failure to read a contract is not an excuse or defense to enforcement of the contract terms” (citing Fiore v. Oakwood Plaza Shopping Ctr., 78 N.Y.2d 572, 582, 585 N.E.2d 364 (1991)) (emphasis added).

 

2. Ordinary Contract Formation Principles Apply to the Web

New York’s Court of Appeals, in Wu v. Uber Tech., Inc., — N.Y.3d –, 2024 N.Y. LEXIS 1896; 2024 N.Y. Slip Op. 05869 (2024), recently addressed a question certified to it concerning the entirely web based “clickwrap” process Uber used to solicit assent and in so doing, bind customers to an agreement to arbitrate.

In addressing this question, the Court extensively reviewed the policies behind the long-standing principles applied to contracts, observing that:

• “Because contract formation is governed by an objective rather than a subjective standard, there is no requirement that a party have correctly understood – or even reviewed – the terms presented by the offeror for their manifestation of acceptance to be effective.” Id.
• “Instead, courts ask whether the offeree was put on inquiry notice of the contractual terms (see Starke v. Squaretrade, Inc., 913 F.3d 279, 289 (2d Cir. 2019) (applying New York law); Blossom v. Dodd, 43 N.Y. 264, 268-70 (1870).” Id.
• “An offeree is placed on inquiry notice of contractual terms when those terms are clearly and conspicuously presented to the offeree as a contract and made available for review (see Blossom, 43 N.Y. at 268-69) [‘The delivery and acceptance of a paper containing the contract may be binding, though not read, provided the business is of such a nature and the delivery is under such circumstances as to raise the presumption that the person receiving it knows that it is a contract, containing the terms and conditions’]).” Id.
• “It then becomes the responsibility of the offeree, before manifesting assent, to ‘inquire’ further by reading and assessing the proposed terms to determine whether they are acceptable.” Id.
• “Under well-established law, a person who accepts a written contract without first undertaking this review generally bears the risk that the agreement may contain provisions they do not like or expect (see Morris v Snappy Car Rental, 84 N.Y.2d 21, 30, 637 N.E.2d 253, 614 N.Y.S.2d 362 [1994] [involving a standardized car rental agreement]; Pimpinello v Swift & Co., 253 N.Y. 159, 162-163, 170 N.E. 530 [1930] [a contracting party, ‘having the will to sign the writing, is bound by the consequence, “reasonably to have been anticipated” from the signing of a document unread, that its terms might not truly express the intent of the signer’]; Metzger v Aetna Ins. Co., 227 N.Y. 411, 416, 125 N.E. 814 [1920] [‘when a party to a written contract accepts it as a contract he is bound by the stipulations and conditions expressed in it whether he reads them or not’]; Miller v Phoenix Mut. Life Ins. Co., 107 N.Y. 292, 296, 14 N.E. 271, 12 N.Y. St. 1 [1887] [it is not ‘generally a defense to an action founded upon (a contract) that the party did not read the contract, or was ignorant of its contents, or that it was prepared by the party claiming the benefit of it, unless he also shows that his signature thereto was obtained by misrepresentation or fraud’]).” Id.
• “A contrary rule ‘would introduce into the law a dangerous doctrine’ (see Metzger, 227 NY at 415), by allowing one contracting party’s negligence or post-hoc dissatisfaction to frustrate the reasonable expectations of the other party or parties, in contradiction of the objectives of contract law ‘to protect the parties’ reasonable expectations, avoid fraud, and promote stability in commercial transactions’ (see MAK Tech. Holdings Inc. v Anyvision Interactive Tech. Ltd., ___ NY3d ___ 2024 NY Slip Op 03376, *1 [2024]).” Id.

In applying these principles to online contracts, the Court of Appeals in Wu v. Uber tech, supra, held as enforceable Uber’s fully online contract, including its terms and conditions, reasoning that:

“There is no sound reason why the contract principles described above should not be applied to web-based contracts in the same manner as they have long applied to traditional written contracts.  Although this Court has not, until now, had the opportunity to offer substantial guidance on the question, state and federal courts across the country have routinely applied “traditional contract formation law” to web-based contracts, and have further observed that such law “does not vary meaningfully from state to state.”  (emphasis added).

Accordingly, the Court further held: “Here, the consequences of plaintiff’s purported failure to carefully review Uber’s updated terms of use is that she must make her arguments regarding Uber’s allegedly deceptive and unconscionable conduct to a neutral arbitrator, not the courts.”

 

3. Above the Signature Block

Under New York law: “Terms and conditions coming after a signature can be incorporated by reference as long as [the] same is indicated on the signature page prior to the signature.”  Winter Bros. Recycling Corp. v. Barry Imports East Corp., 23 Misc. 3d 1115(A), 885 N.Y.S.2d 714 (Distr. Ct. Suffolk Co. 2009) (citing Fleet Capital Leasing Co. v. Anguilli Motors, Inc., 15 A.D.3d 535, 790 N.Y.S.2d 684 (2d Dep’t 2005)).

In Winter Bros., supra, the T&Cs appeared on the back of the contract in 0.08 sized type face and included an agreement to use the waste hauling service for a minimum of 7 years.  The court concluded on the facts that the agreement was unconscionable and unenforceable; the court also noted that the front page of the contract provided for month-to-month services and therefore contradicted the longer T&Cs on the backside of the contract.

 

4. References Must Not be Oblique

When referring to the T&Cs, or indeed any term incorporated by reference, “The referenced material must be described in the contract such that it is identifiable beyond all reasonable doubt. . . . Here the agreement’s oblique reference to an otherwise unidentified Terms and Conditions page which was never provided to plaintiff, is insufficient to meet this exacting standard.”  Eshaghpour v. Zepsa Indus., Inc.,174 A.D.3d 440, 101 N.Y.S.3d 836 (1st Dep’t 2019) (emphasis added).  In the latter case, the contract at issue was 29 consecutively numbered, initialed pages and it was undisputed that the terms and conditions were not contained within those pages.  The court found that plaintiff had no reason to ask for any other documents.

What exactly appears to be an “oblique reference” or one that is “identifiable beyond a reasonable doubt” appears to be very fact specific.

For example, in a case involving a car rental agreement, the court found that: “There is a triable issue of fact whether the oblique reference in the rental agreement to an otherwise unidentified ‘rental document jacket’ meets that exacting standard and thus whether the rental document signed by plaintiff gave him sufficient notice of the indemnification provisions included in the contents of the separate jacket.”  Kenner v. Avis Rent A Car Sys., 254 A.D.2d 704, 704-05, 678 N.Y.S.2d 213, 214 (4th Dep’t 1998) (internal citations omitted).

Another case where the reference was found insufficient is the recent case of Matter of County of Rockland v. New York State Pub. Empl. Relations Bd., 225 A.D.3d 944, 948, 207 N.Y.3d 197, 201 (3d Dep’t 2024).  In that case, the Appellate Division wrote: “the collective bargaining agreements did not explicitly refer to the [medical] plan description.  Moreover, there was no language in the collective bargaining agreements referring to the plan description so as to identify that plan beyond all reasonable doubt.  Accordingly, petitioners’ reliance on the doctrine of incorporation by reference is unavailing.” (internal citations omitted).

References to T&Cs which put the reader on inquiry notice, have been upheld in the online context.  “Notice of incorporated terms is reasonable where, under the particular facts of the case, ‘[a] reasonably prudent person should have seen them.’” One Beacon Ins. Co. v. Crowley Marine Servs., 648 F.3d 258, 268 (5th Cir. 2011).  In that case, the plaintiff argued that the language of the repair service order did not provide “specific and conspicuous” notice as required to render the indemnity term enforceable.  The indemnity requirement was to be found on the company’s website.  The Fifth Circuit upheld the reference to the website’s terms, writing:

• “Under general contract principles, where a contract expressly refers to and incorporates another instrument in specific terms which show a clear intent to incorporate that instrument into the contract, both instruments are to be construed together.” Id.

• We see no reason to deviate from these principles where, as here, the terms to be incorporated are contained on a party’s website. Id.

• We note that contracts formed in whole or in part over the internet present relatively new considerations for the courts, and will continue to challenge the courts as the internet plays an increasingly important role in commerce. However, ” [w]hile new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract.” com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004); see also Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 31 (2d Cir. 2002) (traditional contract principles applicable to “the world of paper transactions” regarding the enforceability of contract terms against a party on notice of the existence of those terms “apply equally to the emergent world” of online contracting); Feldman v. Google, Inc., 513 F. Supp. 2d 229, 236 (E.D. Pa. 2007) (applying “traditional principles of contract law” to determine enforceability of terms and conditions governing a “clickwrap” agreement); Barnett v. Network Solutions, Inc., 38 S.W. 3d 200, 204 (Tex. Ct. App.—Eastland 2001, pet. denied) (holding that a party with notice of and opportunity to review contract terms is bound by those terms even where party has not read them, and “[t]he same rule applies to contracts which appear in an electronic format”). Id. (emphasis added).

 

5. Clear Link to T&Cs

In Jerez v. JD Closeouts, LLC, 36 Misc. 3d 161, 943 N.Y.S.2d 392 (Dist. Ct. 1st Dist. Nassau Co. 2012), there is a cautionary note about the need to clearly direct a contracting party to the offering party’s website for applicable terms.

The court in that case reviewed several decisions where the reference to the party’s website was insufficient and so found in this particular case, observing:

• “The court in Specht went on to find that the placement of license terms on an ‘unexplored portion of [defendants’] webpage’ below the ‘download button’ was not sufficient to bind customers to those terms. (306 F3d 17, 32 (2d Cir. 2002).” Id.

• “A more recent New Jersey case, Hoffman v Supplements Togo Mgt., LLC, (419 N.J. Super. 596, 18 A3d 210 [Super Ct 2011], cert granted 209 NJ 231, 36 A3d 1063 [2012]), expands upon the distinction drawn in Specht between Internet transactions which permissibly incorporate an arbitration or forum selection clause, and those which do not.” Id.

• “The N.J. Appellate Division of the Superior Court, reversing the trial court, concluded that the forum selection clause ‘is presumptively unenforceable.’ (419 NJ Super at 612, 18 A3d at 220.)” Id. (emphasis added).

• It did so because defendants’ Web site “was evidently structured in an unfair manner so that the clause would not appear on a purchaser’s computer unless he or she scrolled down to display the ‘submerged’ clause before adding the product to his or her electronic ‘shopping cart.’ ” (419 NJ Super at 598, 18 A3d at 212.) ‘[T]he forum selection clause was unreasonably masked from the view of the prospective purchasers because of its circuitous mode of presentation.’” Id. (emphasis added).

• “[E]-commerce merchants cannot blithely assume that the inclusion of sale terms, listed somewhere on a hyperlinked page on their Web site, will be deemed part of any contract of sale.” Id.

In the latter case, Jerez, supra, simply saying that the sale of goods was conditioned on the “Terms of Sale” on the JD Closeouts’ website was found to be insufficient because it was “language buried in the defendant’s website that is very difficult to find.”

The takeaway from this case and the cases cited therein is that if one is going to refer to the T&C’s as being part of the contract, the citation and the link to the website must be as clear and direct as possible and not “buried” on the website.

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