Legally Binding Online Contracts - Creative Law Center

Legally Binding Online Contracts

You've been clicking to agree to online contracts for years without a thought—on your phone, your laptop, and on your tablet. Every time we buy something online or open an online account, we are forming a contract.

The simple act of selling a book, an art print, an online course, or an hour of our time involves contract formation. “If you pay me this, I will give you that,” is a contract in its most basic form.

If you are selling your creative work or services online—accepting money from customers—it's important to understand when and how a contract is formed. Legally binding online contracts are the basis of ecommerce. 

Strong contracts are one of the foundational elements of your creative business. Copyright and trademark are also foundational elements of your business. 

Online Contracts are Easy to Get Right

With just a basic understanding of online contract mechanics, you can be sure the terms of your website sales are enforceable. Important terms like "no refunds" or "licensed for personal use only" should be clearly understood, so there are no questions later.

Following best practices for forming online contracts reduces the chance of a fraud claim being lodged against you by a customer. Disputing fraud claims is a waste of everybody’s time when the problem is easily prevented by fixing a poorly designed checkout page or a poorly written set of terms and conditions.

When it comes to making online contracts binding and enforceable, it's not just what the terms say. It also has a lot to do with how the checkout page looks.

What does a user see when they make a purchase on your site?

Do users see that there are terms that control their purchase?

Do your buyers understand that they have agreed to terms even if they didn't read them?

The words in your website terms (also called terms & conditions, terms of use, or terms of service) combined with how they are presented on your site and the actions a user must take to make a purchase determine whether a contract has been formed and can be enforced.

Click to Agree to What?

No one reads terms of service. Everyone just clicks right through.

That's what Spencer Meyer did when he downloaded the Uber app onto his smartphone then registered for an account. He clicked through the screen where he agreed to Uber's terms of service.

He used the Uber app about ten times, then brought a class action in state court claiming that the app allows the drivers to engage in illegal price fixing.

Uber said, "Stop. Right. There. Mr. Meyer, you agreed to arbitration when you signed up for our service. No class action for you!" (Class actions are not available in arbitration.)

Meyer clicked right past the terms of service without reading them when he signed up but he was bound by them anyway because:

  • he was on notice that there were terms; and
  • he consented to them when he clicked.

"But, but, but . . . ," said Mr. Meyer.

"No buts," said the Court in its opinion.

Uber designed their account set-up page, the equivalent of a checkout page, using what are now considered best practices for clickthrough contracts.

Elements of All Binding Contracts

The arrival of the Internet has created new buying scenarios, but it hasn't really changed contract law. All contracts, whether on paper or online, must have certain elements to be legally binding. You can read more about those elements (offer, acceptance, consideration, capacity, competence, consent, and certainty) in Contract Terms: A Glossary for Creatives.

You can download a PDF version of this glossary by clicking the image to the right.

Click on the image to download a PDF of the complete glossary

In the virtual world those contract elements are still required, but the focus online is on certainty and consent. 

Certainty means that terms of the offer must be reasonably certain before its acceptance forms a contract. The terms must be readily understandable so the intent of the parties is clear. If the terms aren't definite, the contract may not be enforceable. 

Consent means that the parties to the contract must intend to be bound by their agreement and must agree on the essential terms. That intention is consent.

Certainty answers the question, "What am I being asked to agree to?" Consent answers the question, "Did I intend to agree by taking this action?"

Best Practices for Binding Online Contracts: A Checklist

A secure purchasing environment, accurate product descriptions, and clear policies (terms & conditions, etc.) that are reasonably conspicuous through good website design are the cornerstones of legally binding online contracts.

Product Description
In addition to listing the name of your product or service, you can help customers make good purchasing decisions by providing detailed text descriptions of what you are selling. For physical goods, include pictures and information about material, colors, and other details.

Setting the right expectations up front gives your customers a clear idea of what they get for their money.

Fulfillment Policies
Your customers should be able to determine how you fill your orders. Consider which of these policies is relevant to your business:

  • Refund Policy – Describe under what conditions customers can receive a refund.
  • Delivery Policy – Describe how and where goods are shipped and on what timeline.
  • Return Policy – Describe under what conditions customers can return purchased goods.
  • Cancellation Policy – Describe under what conditions customers can cancel subscriptions or reservations.

Your website and your payment form should use HTTPS (hypertext transfer protocol secure). HTTPS is used for secure, encrypted communication over the Internet.

Checkout Page Design

There are many ways to form an online contract. Some methods are more effective than others. These are the recommended, or “best” practices gathered by Professor Eric Goldman of Santa Clara University in his book Internet Law: Cases & Materials (used with permission).

Clear Call-to-Action: users should be presented with a statement that says “if you do X, you agree to Y.” Many contracts have failed because of weak or ambiguous calls-to-action, and that’s a trivially easy problem to avoid.

Call-to-Action Prominence: the call-to-action should be “above the fold” which means it should be visible without the user scrolling down, and the font should be a larger font size and more prominent color than the surrounding text. As one court said, “If everything on the screen is conspicuous, then nothing is conspicuous.”

Mandatory Checkbox: preferably, the call-to-action should say “by clicking this checkbox, you agree to the [name of legal terms],” with an associated checkbox that users must check to proceed.

Contract Visibility: making the legal terms (terms of use, terms & conditions, terms of service) available as a hyperlink from the call-to-action is accepted practice.  When setting up this form of a "click to agree" process, be sure that the hyperlink text uses the identical name as the page containing the legal terms. Do not have text that says, "Click to agree to the Terms of Use" and have the link direct to a page entitled "License Agreement," for example.

binding online contracts

Click to enlarge image.

Better practice is to present user terms on the same page as the call-to-action.

binding online contracts

Click to enlarge image. 

Many services present legal terms as “scrollboxes” where the first few lines of the terms are visible and users can scroll down in the box to read more without leaving the page. You can also provide options for users to “pop out” the terms into a new window and print the terms if they choose.

The strongest option for online contract formation would require users to scroll through the terms before they are allowed to click the “agree to” checkbox, but this is not legally required.

Second Click to Proceed: though not required, it would be advisable to have a second click that lets the user advance from the page/screen, such as “register” or “buy now” button.

“Non-leaky” formation process: it should be impossible for users to reach their desired outcome (such as creating the account or buying the item) without going through the contract formation process.

Consider Mobile: Checkout or account registration pages look different on a phone than they do on a computer screen. Be sure the checkout design meets best practices when viewed on a mobile device.

Professor Goldman has the online contracts chapter of his casebook freely downloadable here:

Online Contracts Formed with Confidence

By following best practices for making sales on your site, you are adding credibility to your business and helping your customers have the confidence they need to buy from you.

When it comes time to customize the checkout page on your site or when using website services like SquareSpace and Shopify, be sure your customization complies with the best practices for forming legally binding online contracts.

How does the contract formation process on your site measure up? Do your customers understand what they are agreeing to, how much they are paying, and what the terms of sale are?

Certainty and consent are the keys.

If you'd like an attorney to review your online contract formation process or the terms and conditions for your website, you can book an appointment with me. Here's a link to my schedule: Kathryn's Calendar.

About the Author

Kathryn Goldman helps small business people, writers, artists, and creative professionals make a living from their creative work by teaching them how to protect and enforce their rights. She is an attorney who writes these posts to help you be more thoughtful about intellectual property and the law as you build your business, write your stories, and create your art.