After “how much is my company worth,” the most frequent question I get is “are on-line contracts binding?” The answer is, in general, yes. The questioning ends there – often with a sigh of relief. However, a follow up question is appropriate: how well is your on-line contract drafted? This is particularly true if you, and you know who you are, have chosen to draft your contracts by trolling the Internet and lifting clauses and phrases from other companies contracts. I refer to this as the “conjunction junction” theory of contracts.
The U.S. District Court for the District of Maryland answered this question quite directly in Huggins v. FNC. In this case the District Court was required to review three different versions of FNC’s on-line contract. In each of these contracts, FNC gave itself the ability to modify the contract at any time. The contracts also stated that the new version of the contract would be posted on FNC’s site, and customers “will be asked” to acknowledge acceptance of the new contract.
In the third version of the contract, FNC failed to include a provision requiring binding arbitration. FNC argued that because it didn’t “ask” its customers to agree to the third contract, only the second contract applied, and since it required arbitration, arbitration was required. The court disagreed.
The importance of this case is that the District Court was required to parse some very poorly drafted contract language. You know you’re in a bad state if a court is required to determine whether sentences in your contract are conditions precedent or conditions subsequent.
When drafting your contracts, you need to be sure that you understand how they will be implemented and understood. Indeed, I recommend that you have an individual outside your company read your contract to determine if they can make sense of it. The fact that the contract was ultimately read against the company that drafted it, is a crucial lesson for hosts to learn.
The following quotes illustrate how important drafting is:
“While FNC was free to lay down rules to govern its relationship with its users, it also took the risk that in doing so it would live to regret such rules when future circumstances proved them disadvantageous.”
….
”…FNC’s actions are like a man standing with one foot on a dock and one foot on an untethered boat drifting away and unable to choose whether to stay on land or shove off to sea. …FNC’s predicament is wholly of its own making, the Court will not now throw it a life preserver.”
About David Snead
David Snead is a lawyer whose practice is focused on internet infrastructure providers. In his eleven years in this practice, he has represented clients including multinationals, middle tier hosting companies, and two guys, a server, a T-1 and a huge MasterCard balance.
A long-time WHIR contributor, David Snead is the Web hosting business's best-known legal expert. Through his WHIR blog, he offers a credible legal perspective on both specific actions in the Web hosting business and general developments in legislation.
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