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United States Court of Appeals for the Seventh Circuit - 33 UCC Rep. Serv. 2d 303, 105 F.3d 1147
Tags: Contracts, Rolling contracts, Acceptance, Assent, Lack of notice
See also: Specht v. Netscape Communications Corp.
tl;dr:
Plaintiffs bought a computer for delivery. When the computer arrived, they saw that there were additional terms and conditions in the box. They said that buyers agreed if they didn't return the computer in 30 days. Plaintiffs didn't return the computer.Video Summary
Case Summary
In Hill v. Gateway 2000, Inc. (1997), the U.S. Court of Appeals for the Seventh Circuit dealt with a case concerning the legitimacy of an arbitration clause in a mail-order contract. The case reached the federal appeals court after the district court rejected the defendant's request to enforce arbitration and halt legal proceedings.
The plaintiffs, Hill and others, purchased a computer system from Gateway 2000, Inc. over the phone. The computer was delivered to the plaintiffs with a list of terms and conditions, including an arbitration clause. The terms stated that if the computer wasn't returned within 30 days, these rules would apply. The plaintiffs didn't read the terms or return the computer in time.
The plaintiffs later sued Gateway in federal court, claiming the computer was faulty and Gateway engaged in fraud and racketeering. Gateway asked the court to enforce arbitration and pause legal proceedings based on the arbitration clause in the terms. The district court denied Gateway's request, stating there was no mutual agreement to the arbitration clause and Gateway didn't provide reasonable notice of the terms.
The appeals court overturned the district court's decision, saying the arbitration clause was valid and enforceable. The court argued that contracts can be valid even if not read, and those who accept a product without reading its terms take on the risk of unfavorable terms. The court also found that Gateway's phone order process suggested there were contractual terms, and referencing terms in advertisements and invoices was enough notice for the plaintiffs.
This case matters because it demonstrates how mail-order contracts and arbitration clauses can be formed and enforced, and how courts interpret contract formation to balance the interests of buyers and sellers in phone or online transactions.
DeepDiveHighlight a legal term to see the definition
This case involves a dispute over the validity of an arbitration clause included in the terms of a box containing a computer. The customers kept the computer for more than 30 days before complaining about its performance and filed a lawsuit alleging fraud. The seller asked the court to enforce the arbitration clause, but the judge refused, citing insufficient evidence of a valid agreement or adequate notice of the clause. The seller appealed the decision. The court held that an arbitration clause does not need to be prominent to be effective and that terms included with a product can be binding if the consumer has an opportunity to read and reject them by returning the product. The court also clarified that a "merchant" under the UCC is defined as a person who deals in goods of the kind or otherwise holds themselves out as having knowledge or skill related to the transaction. The court concluded that the plaintiffs' argument was incorrect and that ProCD is relevant to the case at hand.
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