• Paul Peter Nicolai

Modifying Online Contract Terms

Every time you visit a website, use a social media account or buy a pair of shoes, you bind yourself to online contract terms. Courts routinely uphold them when a website user is required to click an “I agree” button and often uphold them even without a click when the terms are “reasonably communicated” to the user. It is highly unlikely any significant number of people have ever fully read a set of online terms.

If you did, you would find that some businesses that operate online say they reserve the right to change online terms at any time without giving notice to the user. Other sites and services warn their terms have changed or are about to change, and simply direct users to the new terms without marking or explaining changes.

Users have challenged the enforceability of online terms of use, creating a body of judge-made law regarding them. Case law on online modifications is scant. The few existing opinions rely on off-line contract modification rules to determine whether the authors succeeded in effectively modifying those terms. So far, the decisions do not provide predictability as to the enforceability of online contract modifications.

Traditional contract doctrine forbids unilateral contract modification. Proposed modifications are treated as an offer that is not binding until accepted. Although law varies state to state, there generally are three traditional requirements for modifying contracts:

  • ​The offeree must have proper notice of the proposed modification. No offer can be accepted unless the offeree knows the offer has been made.

  • The offeree must show consent to the proposed modification in some manner; explicitly or implicitly.

  • For a modification to be enforceable, it must be supported by consideration, or, in contracts for the sale of goods, it must be entered into in good faith.

The notice inquiry depends on the facts of the case. Cases involving credit card and telecommunications industries show how courts evaluate modifications of standard form paper terms. Where a bank tried to modify credit card terms by adding an arbitration clause where one was not already part of the contract terms, the court found the offeree did not receive proper notice of the modification because the proposed change was printed on an insert with the monthly bill and nothing otherwise called the change to anyone’s attention. Other companies have found that simply providing a complete set of the proposed revised terms, without any indication as to which terms had been changed, was not sufficient notice.

On the other hand, a company that prominently announced modified terms with its monthly bill, and provided an Internet address and telephone number where the customer could access the revised terms did successfully put the customer on notice of the changed terms.

The appearance and placement of the notice is also important. One company was unable to enforce a contract modification that was printed on its invoice where it was the fifth item on the second page of the invoice, in ordinary type. On the other hand, a change was enforceable where a notice saying “Important Notice Regarding Your Service” in bold letters immediately below the amount due on the invoice was used. The notice also prominently discussed the changes in the contract terms and provided both a telephone number and a website where the revised terms could be found.

Courts also have looked at whether the modification has been accepted by the offeree. For example, a purchaser of a computer did not see the standard terms (and was not provided notice about the terms) until the computer was shipped to the purchaser and she opened the box. The standard terms contained a number of provisions, including an arbitration clause. When the seller moved to dismiss a class action lawsuit, the court refused to enforce the arbitration clause. The court found that the plaintiff offered to purchase the computer and the seller accepted. The standard terms then became either an expression of acceptance or a confirmation of the offer. However, the court found that the rest of the provisions in the standard terms, including the arbitration clause, were not part of the original purchase agreement and were not enforceable.

More recently, the terms regarding an automobile’s trial subscription to a satellite radio service were sent to the owner a month after the purchase of the automobile in an envelope marked “Welcome Kit.” The court refused to enforce the additional terms because there was no mutual assent to them. It found no evidence that the purchaser of the automobile knew he had purchased anything from the subscription provider or was entering into a relationship with it, let alone had agreed to the terms (which contained an arbitration clause). Continued use of the service by the purchaser did not manifest assent to the terms.

Courts that have addressed online modifications generally have respected these traditional contract principles. They have held that attempted modifications are unenforceable when the person to whom the modification is offered has no reason to know of the proposed changes to the agreement. As a result, online contract modifications tend to fall for failure to satisfy the notice requirement.

Courts that have addressed online contract modification have paid close attention to the differences between electronic and face-to-face or paper communications. In a dispute involving an attempted modification of an employment handbook, an employer attempted to modify the handbook by sending a company-wide e-mail message containing hyperlinks to the changes to its employees. One of the changes was a binding arbitration clause. In holding that the modification was not effective, the court focused on the expectations of the employee receiving the offer. Given that the mass e-mail message did nothing to communicate its importance and that employment changes at the employer were usually communicated in person with a signed writing, the court held the attempted modification was not binding.

The communicative value of online interaction has led to other attempted modifications to be held ineffective. When a phone service provider changed its online terms to add new service charges, a new arbitration clause, and a class action waiver, it did so without notifying its customers and simply posted the changes to its website. The plaintiff had agreed to automatic billing and therefore had little reason to visit the website on a regular basis.

After becoming aware of the additional charges four years later, the plaintiff sued in federal court. The service provider moved to compel arbitration based on the modified arbitration clause. The appeals court found the subscriber had not been given notice of the changes. The court felt strongly that parties to a contract have no obligation to check the terms periodically to learn whether they have been changed by the other side. This, plus the fact that the plaintiff would not have known where to find the changes even if he had visited the website, led to a holding that the modifications were unenforceable.

Other courts have similarly refused to impose a duty on website users to continually check for changes to online terms. In another case where the author of online terms of use posted changes on its website without notifying its customers of the changes, it tried to justify its actions through a clause in its original terms of use that reserved the right to amend the terms at any time and imposed a duty on the customer to keep up with changes. The court stressed it is unreasonable to expect a customer to check a website regularly for changes to online terms. Moreover, the court, applying traditional contract doctrine, noted that a customer could not assent to future changes of which there was no reason to know would come.

When the modification is presented in a click-wrap format, courts seem more likely to find both notice and assent. In order to become a member of a program, a user was required to assent to click-wrap terms. A year later, the service provider modified the terms by amending the forum selection clause, and members were required to click their assent to the modification. Although the service provider had reserved the right to modify the terms and had provided that use of the service after the modification would be acceptance, the user was in fact required to click through to the modified agreement and signify assent. The court found both that the terms were reasonably communicated to and accepted by the user. The opinion did not address the length of the terms or the ease (or lack of ease) of finding the modification. The opinion reads more like the many formation opinions that find assent whenever there is a click requirement, regardless of the length and presentation of the terms.

One issue left open is whether the parties can enforce language in original terms that one party can unilaterally change the terms at any time. Courts have differed on this.

The question was answered in the negative under Texas law. Facebook had an arrangement where customers who rented videos from Blockbuster would find their choices broadcast to that customer’s Facebook friends. The plaintiff sued, claiming this violated the federal Video Privacy Protection Act. Blockbuster invoked an arbitration clause in its terms, which had been accepted by the customer. Blockbuster’s terms also contained a clause where Blockbuster reserved the right to modify the terms at any time, effective immediately upon posting the modifications on its website. Given that Blockbuster could change the contract unilaterally at any time, the court found the contract was illusory and refused to enforce the arbitration provision.

Some courts have upheld such language using different theories. A New York case involved terms language that Dow Jones could change the fees and charges in effect or add new fees and charges at any time by giving notice to the subscribers in advance. When Dow Jones decided to charge separately for two publications that previously had been bundled with one subscription, subscribers claimed Dow Jones had breached its subscription agreement. The court refused to find the contract illusory, finding that New York courts would impose an obligation of reasonableness on Dow Jones in exercising its discretion, and that Dow Jones had acted reasonably.

Based on the traditional contract principles, and the few cases that have addressed online modifications to date, the following suggestions might help:

  • In initial terms, avoid saying the terms can be modified at any time. You do not know where the plaintiff will attack the language and whether that court will uphold it or strike the clause or the entire contract as illusory. Even if you win, you have spent time and money in a dispute that could have been avoided.

  • If the initial terms and conditions provide a procedure for modifying the terms, at a minimum, you should follow those procedures.

  • Use language saying you can modify the terms at any time, after providing notice. This is like the traditional credit card cases. The problem is how to provide notice. One option is to send an e-mail to all subscribers at the e-mail address provided with their registration. This does not work for websites with no registration mechanism. Instead, a click-wrap mechanism where the users cannot continue to use the website unless they affirmatively click on a box or button assenting to the modified terms should be used with a way for the subscriber to reject the modification by quitting the service or discontinuing use of the website without penalty.

Courts in online modification cases seem to require more robust notice for modifications than for formation. Traditionally, courts have classified online terms according to whether the user is required to click a box or button to indicate assent.

Presentations that require a click are called “click-wrap” presentations. Those that display terms only by hyperlink are called “browse-wrap” because the terms often provide that browsing the site is acceptance of the terms. Courts have routinely upheld click-wrap terms even when large and even when presented in a way that discourages reading. Courts are more skeptical of browse-wrap, but uphold them when it appears the link presenting the terms was displayed in a format that communicates the contractual nature of the terms. That may be changing.

A New York court, after a detailed discussion of electronic contracting cases and scholarship, drew a distinction between presentations that encouraged reading and those that did not. Rejecting the clear line between click-wrap and browse-wrap, the court refused to enforce terms when the design of the website did not force the user to view the terms before clicking acceptance. In modification cases, courts appear to be on the leading edge of a trend of urging online companies to present their modifications in a way that encourages customers to have a meaningful opportunity to know that changes have occurred.

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