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US appeals court silences Talk America

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A company cannot change its contract with consumers simply by posting revised conditions on its website, a US appeals court has ruled (pdf).

The position is similar in the UK, according to an e-commerce legal expert.

A customer of Talk America has won a court ruling over a consumer contract which was amended online without his knowledge. The ruling clears the way for the customer to take a class action suit against Talk America.

Joe Douglas signed up for a long-distance telephone service with America Online. Talk America acquired the service from AOL and tried to change the terms of the contract by posting a message on its website. The changes introduced new charges, enforced New York law as the relevant law in relation to the contract, inserted an arbitration clause and inserted a class action suit waiver.

Douglas continued using Talk America's service for four years before he became aware of the additional charges. When he found out, he launched a class action lawsuit against Talk America. Talk America tried to compel an arbitration process based on the new contract and a district court ordered that arbitration begin.

Douglas appealed to the US Court of Appeals for the Ninth Circuit. It found that Talk America could not change the contract without telling Douglas.

The court said that a contract was an agreement between two parties, and that one party could not change it without further acceptance by the other.

"Even if Douglas had visited the website, he would have had no reason to look at the contract posted there," said the judgment, from Judges Kozinski, Gould and Callahan. "Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side. Indeed, a party can’t unilaterally change the terms of a contract; it must obtain the other party’s consent before doing so."

"This is because a revised contract is merely an offer and does not bind the parties until it is accepted," said the ruling.

The court pointed out that a party could not know when to check a website for possible changes to the contract terms without being notified that the contract has been changed and how. "Douglas would have had to check the contract every day for possible changes," observed the court in a footnote to its judgment. "Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed."

Talk America had argued that the notice amending the contract was on the same website on which Douglas paid his bills and that he therefore should have seen it. Douglas said, though, that he authorised his bills to be paid by credit card and so had no reason to visit the website.

"Even if Douglas's continued use of Talk America's service could be considered assent," wrote the court, "such assent can only be inferred after he received proper notice of the proposed changes. Douglas claims that no such notice was given."

The Court of Appeals said that the court which granted the arbitration order had made a mistake. "The district court thus erred in holding that Douglas was bound by the terms of the revised contract when he was not notified of the changes," it said. "The error reflects fundamental misapplications of contract law and goes to the heart of petitioner’s claim."

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Next page: The UK position

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