What Controls: Online Terms or a Written Contract?

In the case of Fadal Machining Centers, LLC  v. Compumachine, Inc., the Ninth Circuit decided that the arbitration clause found in the terms and conditions on a company website was binding on the parties.

Fadal Machining Centers (“Fadal”) manufactures machines and Compumachine is one of Fadal’s exclusive distributors. The two parties had a distribution agreement that included a forum selection provision. Including this provision meant that the parties agreed to bring suits against each other in a previously agreed upon forum. This implies that the parties could sue each other under the contract. However, when Fadal sued Compumachine over unpaid invoices, the district court dismissed the case because each of Fadal’s invoices referred to Fadal’s website for terms and conditions of sale and those online terms said that non-payment claims had to be submitted to arbitration. Fadal appealed, but the Ninth Circuit Court of Appeals affirmed the district court’s decision.

The lesson for companies is this: be careful about what terms and conditions you post online. Although these online terms and conditions may never be officially entered into by a contract in writing, they can still be binding when they are incorporated by reference.

Read the case in its entirety here.

SOURCE: United States Court of Appeals for the Ninth Circuit