The Unsettled Nature of "Terms-Later" Contracting: Dr. John E. Murray, Jr. on Schnabel v. Trilegiant Corp., 697 F. 3d 110 (2d Cir. 2012)

The Unsettled Nature of "Terms-Later" Contracting: Dr. John E. Murray, Jr. on Schnabel v. Trilegiant Corp., 697 F. 3d 110 (2d Cir. 2012)


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 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, he did not knowingly contract with Great, 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, he did not knowingly become a member of Great 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. [footnotes omitted]

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