Contract Law for Online Providers

Elements of a Contract Law- [1]

There are four elements to a contract law-

1. Offer – One of the parties make a promise to do, or refrain from doing, some specified action in the future.

2. Consideration – Something of value is promised in exchange for the specified action or non-action.
This can take the form of a significant expenditure of money or effort, a promise to perform some service, an agreement not to do something, or reliance on the promise.
Consideration is the value that induces the parties to enter into the contract.

The existence of consideration distinguishes a contract from a gift. A gift is a voluntary and gratuitous transfer of property from one person to another, without something of value promised in return. Failure to follow through on a promise to make a gift is not enforceable as a breach of contract because there is no consideration for the promise.

3. Acceptance – The offer is accepted unambiguously. Acceptance may be expressed through words, deeds or performance as called for in the contract. Generally, the acceptance must mirror the terms of the offer. If not, the acceptance is viewed as a rejection and counteroffer.

If the contract involves a sale of goods (i.e. items that are movable) between merchants, then the acceptance does not have to mirror the terms of the offer for a valid contract to exist, unless:

(a) the terms of the acceptance significantly alter the original contract; or
(b) the offeror objects within a reasonable time.

4. Mutuality – The contracting parties have “a meeting of the minds” regarding the agreement. This means the parties understood and agreed to the basic substance and terms of the contract.

When a party files a suit claiming a breach of contract, the first question the judge must answer is whether a contract existed between the parties. The complaining party must prove the above four elements to show that a contract existed.
When the complaining party provides proof that all of these elements occurred, that party meets its burden of making a prima facie case that a contract existed. For a defending party to challenge the existence of the contract, that party must provide evidence undermining one or more elements.

Importance of “Terms of Service Agreement” for Online Providers

A Terms of Service Agreement is a set of regulations which users must agree to follow in order to use a service. Terms of Use is often named Terms of Service, Terms and Conditions, or Disclaimer when addressing website usage. [2]

In today’s online-centered world, website owners and website users are necessarily reaching agreements, all the time. These agreements govern a variety of terms, from license agreements to privacy policies to choice of law.
Courts typically have grouped these contracts into “clickwrap” or “browsewrap” agreements, depending on the manner in which the consumer has notice of or otherwise assents to the terms of the agreement. Given that the terms usually involve an exchange of rights and obligations between a website owner and user, disputes over the enforceability of such agreements abound. [3]

Some important reasons for an online provider to implement a TOS-

1. to Prevent Abuse

eg. states “we do not tolerate behavior that crosses the line into abuse, including behavior that harasses, intimidates, or uses fear to silence another user’s voice.” and goes on to define the term “abuse” in detail.

2. to Own the Content

eg. Dell clealy states “…all rights, title and interest (including all copyrights, trademarks and other intellectual property rights) in this Site belong to Dell…”

3. to Terminate accounts and enforce regulations

Youtube states “YouTube may at any time, without prior notice and in its sole discretion, remove such Content and/or terminate a user’s account for submitting such material in violation of these Terms of Service.”

4. to Limit Liability

The iTunes store ( states “Apple is not responsible for any losses arising from the unauthorized use of your Apple ID.”

5. to Set The Governing Law and Jurisdiction

Usually, the Governing Law clause of a Terms and Conditions agreement refers to the jurisdiction that applies to the terms presented in the agreement.

eg. states “These Terms shall be governed by the laws of the State of California, without respect to its conflict of laws principles. We each agree to submit to the personal jurisdiction of a state court located in San Francisco County, California or the United States District Court for the Northern District of California, for any actions not subject to Section 10 (Arbitration).”

Thus, we can see that the online service providers owners have more certainty in knowing that the agreements will be upheld, and the users have a greater understanding of the terms dictating their use of the website or any commercial transaction.
Ultimately, the more that an agreement looks like a clickwrap (i.e., requiring users to check the box next to the statement, “I have read and agree to the Terms of Use”), the more willing courts will be to find the notice necessary to give rise to constructive assent and enforce the agreement.