Online Terms and Conditions may be Enforceable Even if they Conflict with Written Agreements

April 4, 2012

A recent federal court of appeals case highlights the importance of harmonizing written agreements with online terms and conditions. In Fadal Machining Centers, LLC v. Compumachine, Inc., Case No. 10-55719 (9th Cir., Dec. 15, 2011), Fadal, the plaintiff, sued its distributor, Compumachine for breach of contract and the duty of good faith for non-payment of Fadal’s invoices. Fadal filed the suit in the U.S. District Court for the Central District of California as required by the forum selection clause in the written distributorship agreement and attached the agreement to its complaint along with fifteen invoices allegedly unpaid by Compumachine. 

The distributorship agreement, however, also provided that Fadal would unilaterally establish “the terms of sale . . . from time to time.” Moreover, each invoice referred to the terms and conditions posted on Fadal’s website rather than to those contained in the distributorship agreement. Fadal’s online terms and conditions called for arbitration of all disputes. The District Court decided (and the Ninth Circuit affirmed) that Fadal, through references in the invoices to the online terms and conditions, had established the online terms and conditions as controlling for each sale. The Court dismissed the action without prejudice and directed Fadal to arbitrate. 

This case is an example of the unintended results of using multiple expressions of the parties’ agreement and why businesses should: 

1. Have a single reference for the terms and conditions applicable to  a transaction if possible; and
2. Take care to harmonize all agreements that apply to the same transaction.

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