Issues concerning the timing of
contract formation might be assumed to be well settled in the archives of
fundamental contract doctrine. In Schnabel v. Trilegiant Corporation [an enhanced version of this opinion is available to lexis.com subscribers],
however, the United States Court of Appeals for the Second Circuit expressly
recognizes that such an assumption is unwarranted because "[t]he
conventional chronology of contract-making has become unsettled over recent
years by courts' increased acceptance of 'terms-later' contracting." The
court proceeds to pursue a valiant analysis to reconcile traditional contract
doctrine amidst considerable judicial confusion concerning the enforceability
of later terms.
When Brian Schnabel made an online purchase from Priceline.com, he did not
knowingly contract with Great Fun.com, a service provided by the defendant,
Trilegiant Corporation, that requires the payment of a membership fee in
exchange for discounts on a wide variety of products and services. Similarly,
when Brian's father, Edward Schnabel, made an online purchase from Beckett.com,
he did not knowingly become a member of Great Fun.com. In their respective
transactions, both Brian and Edward were invited to click on a hyperlink to
receive "cash back" on their purchases. The hyperlink directed them
to "Click above to learn how to get $20 back from Great Fun." Great
Fun was not further identified and both father and son claimed that they were
unaware they were dealing with any party other than the original parties to
their transactions. A click on "learn more" that appeared on the
confirmation page revealed the enrollment page that did not plainly indicate
that the "cash back" offer emanated from a third party (Great Fun).
Neither Brian nor Edward were required to reenter their credit card information
on the enrollment page. While the first month of membership in Great Fun was
free, unless the new member cancelled the membership, his or her credit card
was charged monthly thereafter.
Beyond the hyperlink, Trilegiant sent an email to new members confirming their
membership. The email terms added an arbitration agreement which included a
waiver of class actions. The Schnabels brought this action on behalf of
themselves and plaintiffs similarly situated claiming that the enrollment
process was unauthorized, unfair, and deceptive. Trilegiant moved to compel
arbitration under the membership agreement. The district court concluded that,
even if both Schnabels had read all of the information on the enrollment screen
and on the subsequent email, they would not be bound by the arbitration
provision since neither had expressly or impliedly consented to the additional
agreement in the email.
On appeal, the Second Circuit emphasized the necessity of mutual assent that
may be found in a party's silence, action or inaction, but conduct is not an
effective manifestation of assent unless a party intends to engage in such
conduct that he has reason to know the other party will infer as his assent
(citing Restatement (Second) of Contracts, §19(2)). Thus. the issue in this
case was whether the Schnabels were on inquiry notice of the arbitration
provision in the emails sent after their enrollment and, if so, whether their
conduct in failing to cancel memberships before the free trial period expired
constituted an objective manifestation of assent to the arbitration provision.
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