Dear Mint,
Risks Presented by the Terms as a Whole
In order to formulate an appropriate critique of MC's online terms, it is first necessary to analyze the enforceability of the terms as a whole. The sale of coins between MC and its customers will be covered by the UCC. The Statute of Frauds requires transactions for the sale of goods over $500 to be in writing. MC can limit website orders to those totaling less than $500, and require customers to come into the store to sign a document for orders exceeding that amount. This would cause MC to lose some sales, though. Alternatively, MC can argue that purchases made online with printed out receipts or email confirmations sufficiently meets the Statute of Frauds requirement.
MC's internet 'clickwrap' terms are subject to the standard enforceability problems faced by boilerplates. Unconscionable terms will not be enforced. This might be a problem for the "limitation on claims" and "arbitration" clause (addressed below).
The terms, as a whole, might be unenforceable if they are considered hidden, for lack of mutual assent. Generally, a party cannot avoid the terms of a contract on the ground that he/she failed to read them before signing. However, MC will be subject to this rule's exception if the terms are not reasonably called to the attention of the website user (Specht). Disgruntled customers can claim that the terms were forced upon them like an adhesion contract.
Additionally, inadequate notice of 'clickwrap' terms is likely to lead to disputes that could harm the company's reputation. This concern is slightly tempered by the fact that the terms have not led to any disputes for the eighteen months that they have been posted. (It is possible that this is simply because website sale activity is infrequent.)
MC should take steps to ensure that users have notice of the terms before purchasing. MC could require users to accept the terms before using the website. To prevent users from quickly ignoring these terms, the site could default to click 'I do not accept,' and users would have to actively click on the 'I accept' option. MC should also program the site to re-route web-surfers to the terms homepage to prevent backdoor access from links or search engines. MC could also program the site to have the terms pop-up frequently (as in ProCD). However, as a practical matter, too many pop-ups might discourage use of the site.
None of these suggestions are able to ensure that users will actually read the terms. The default rule, according to Restatement §211, is that as long as the MC stays within bounds of reasonability, buyers will be considered to have accepted its terms.
Risks Presented by Specific Terms
Courts might find the requirement to arbitrate to be unconscionable if the terms are hidden (Gentry). MC might have a claim that the arbitration clause is consistent with the American Arbitration Association. However, the Arbitration Fairness Act of 2007 could invalidate contractual clauses commanding arbitration for consumers on the grounds that it is an unfair and deceptive trade practice. This would deprive MC of the ability to settle disputes cheaply, simply, and expeditiously, while avoiding negative publicity.
Similarly, courts might find a limitation on claims beyond one year to be unconscionable. Effectively, this term attempts to dictate the statute of limitations, usually determined by state law. A modern court might find this acceptable, though, in light of standard coin-sale trade usage. Perhaps, the volatility of coin values makes it difficult to adjudicate over such suits brought over a year after the sale.
Regarding the "subject to availability" clause, MC might face a number of legal claims, despite the waiver of liability here. Buyers who were counting on making a purchase of a coin and then selling the coin to another buyer might have a claim for reliance damages. Similarly if a balanced-portfolio investor wished to hedge a separate bet with a coin purchase, he might also have a claim for reliance damages. Under a §90 promissory estoppel theory, these buyers might be able to show foreseeable and reasonable reliance, and establish that equity required a compensatory remedy for MC's deficient inventory.
Additionally, others who were upset by MC's deficient inventory might claim that MC is liable for violation of a 'bait and switch' statute (i.e.: if you make an offer for the sale of goods, you have to have a certain quantity of goods in stock). MC's interests will be better served if their online inventory was frequently updated to match its actual inventory. This would prevent a buyer from purchasing items that are not in stock, and would allow MC to avoid these reliance and 'bait and switch' problems altogether.
Regarding the "money back guarantee" clause, MC is correct to limit this benefit to customers of rare coins. Fluctuations in bullions can lead to substantial losses to MC if the value of a purchased bullion goes down within the 14-day period and is then returned to MC. However, fluctuations in prices also affect rare coins, and consequently, MC would be vulnerable to a similar risk. Customary practice, however, demands a certain safe-harbor period.
MC should consider shortening the length of this period. Additionally, MC could limit the returnability of slabbed rare coins. Instead of allowing buyers to send coins to personal appraisers, MC can use a single appraiser and grading system for all slabbed rare coins. This will diminish the uncertainty of the appraisal process, and give rare coins bought on the website an objective value at the time of purchasing. The policy could instead stipulate that slabbed coins are only returnable for mistaken orders.
Buyers of raw coins can still enjoy the benefit of unchecked subjective approval.
However, MC can limit the number of returns per customer over the course of a certain period. This would prevent losses resulting from repeated shipping costs. This would also limit the number of lost profit from sales that could have been made to another customer had the original order not been bought and returned. After all, MC is a volume seller.
The downside of these recommendations is that a limited return policy will undoubtedly reduce the attractiveness of the site. Additionally, certain slabbed coin purchasers might have a significant reason to use a personal appraiser (trustworthiness, geographic market specifications, loyalty, etc.). MC would risk alienating some of its slabbed coin collectors, who make up a large percentage of its rare coin customer base.
Regarding the "lay-away sales" clause, MC might be liable to pay back prepaid funds for orders that are terminated before the conclusion of the 60-day time period. These payments, received without sending merchandise in return, probably constitute unjust enrichment for MC. As a result, buyers may be able to collect their restitution interest if they object to this term.
Additionally, it is unclear if this price-structuring flexibility option is available to bullion buyers. If so, MC would be vulnerable to opportunistic buyers who manipulate the fluctuations in bullion value. Essentially, these buyers would purchase an option (at 1/3 of the purchase price) to buy the bullion in 60 days. If the value of the bullion goes up substantially after 60 days, the buyer gets a windfall (i.e.: he will have 'locked-in' the earlier price). If the price of the bullion decreases by over 1/3, he can cancel the payment and avoid a losing investment. If MC is responsible to pay back the restitution interest, the opportunistic buyer will effectively get the option for free.
Additional Term and Business Risks
In order to avoid parol evidence problems that may arise if MC salesmen make antecedent representations about the price of coins, MC can include a merger clause in the terms. The presence of the clause makes it more likely the court will find the online price listing, in conjunction with the terms, a total integration.
It is important for MC to avoid problems of indefiniteness. Although open terms do not prevent an agreement from being enforceable (according to the VCC), MC's would benefit from using clear signals of price, coin quality, and payment structure. Clarity about specific terms ex ante will help MC avoid detrimental gap fillers ex post.
MC is exposed to the threat of fraud. A buyer might purchase an expensive coin and then ship back a similar looking coin for a full refund. MC should take steps to combat fraudulent switches. Possibilities include sophisticated tracking devices or careful appraisal of all returns. If anything, a prominently displayed threat of criminal charges might be an effective deterrent for some.
MC could stipulate liquidated damages for returned damaged goods, as long as they are reasonable in light of the harm caused (2-718). This might discourage sales though.
Finally, MC could demand to see the balance sheet of purchasers of large orders to ensure that they have enough assets or financial stability to go through with the transaction. This would inevitably raise privacy issues.
[AK: Some obvious counterarguments are ignored, and the flurry of points on separate issues at the end is probably less effective than picking the best of these and developing them in depth.]
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Question 2, Answer 2
Morgan Mint,
I will address each of the terms you have posted online in turn, and then make some remarks regarding things you may want to consider when selling to customers over the internet as well as your general business practices and their legal implications.
Sales Subject to Availability
As with many retailers, especially where rare and unique goods are involved, Mint faces the risk that a consumer will place an order which cannot be filled. A major consideration here is implementing a procedure to alert the consumer quickly as to whether or not their item is in stock. The concern here is that enough time may pass that a consumer will come to reasonably rely on the assumption that Mint has the coin, and will miss an opportunity to buy the coin at another retailer. While I don't recommend that Mint bind itself to a certain time period in which you guarantee to let the customer know if his order is available, you may consider implementing a system whereby the order is not considered final until the customer has received an email confirmation stating that his item is or is not in stock. You might also consider allowing the customer an opportunity to confirm or reject the rest of the shipment without the missing item before anything is shipped. This way, if the customer does not want one coin without another, there is an opportunity to avoid extra shipping costs and disputes over nonreturnable items.
Money-Back Guarantee
This term appears to divide the risk between Mint and the customer. Mint bears the risk for rare coins, which may be returned with no questions asked, while the customer bears the risk of bullion coins and fluctuations in the market. Based on the information regarding the coin industry, this appears to be a thoughtful way of providing for flexibility while preventing too much opportunism on behalf of a consumer who simply changes his mind about a bad deal after the market price changes. However, while this provision initially places the risk for rare coins onto Mint, allowing customers to return any coin (this 14 day firm offer is irrevocable), it ultimately places the risk of mistake onto the buyer, if they decide to keep the coin. Mint may want to specify this more clearly, and note that the buyer is being asked to examine the rare coin themselves, even though they may come with industry ratings.
In regard to the different policies for rare and bullion coins, you might consider separating these out into separate paragraphs, so that they will not be lost in the fine print of the agreement. If the customer is at risk of not noticing the policy that bullion coins are not returnable, and would not have agreed to it had they noticed it, a court may decline to enforce this term on a mutual assent rationale. This may also depend on the industry standard here and the sophistication of the buyer. Most of Mint's buyers appear to have some experience in the coin industry, even if amateur collectors, and should not be surprised by this term if it is standard among coin retailers to only allow returns for rare coins. If such practice is not standard, it is important for this term to be taken out of the fine print and perhaps even agreed to separately by the customer.
Lay-Away Sales
Mint provides an opportunity for customers to buy a more expensive coin than they might otherwise be able to afford, in return for the customer not having the right to return that good if it does not meet their satisfaction. There are two main concerns with this policy. First is the perfect tender rule in UCC §2-601. (This issue applies to any term regarding the buyer's right of return.) If, for example, the coin is mislabeled or wrongly appraised, the buyer has the right to reject the improper delivery. Likewise, Mint has a right to cure under DCC §2508. Mint has appeared to have waived its right to cure if a buyer of a rare coin rejects it in the first 14 days. In all other cases, the buyer may reject the good if it does not conform to the contract. It is unclear whether Mint is attempting to contract around this provision of the DCC, or simply saying that if the good conforms to the contract, and the buyer decides that the item nonetheless does not match up to his expectations, that he may not return it. (E.g., the buyer may reject the good if he receives a silver coin where he ordered and paid for a gold one, but not if it is a gold one, as stipulated by the contract, but the buyer just doesn't like it for perhaps a more aesthetic reason. A court may find it unreasonable for the consumer to bear all the risk of the transaction, when Mint may better spread and internalize the costs of error.)
The other concern here is that Mint will hold on to the first two payments if the buyer does not complete the transaction. I assume that the idea behind this is to compensate Mint for holding onto the item instead of selling it immediately, especially if it is a bullion coin, for which Mint is a lost volume seller. However, under DCC §2-718, Mint must refund to the buyer any amount over 20% of the total contract price or $500, whichever amount is smaller. Any attempt by Mint to hold onto the deposit beyond that amount may be considered a penalty by the court and rendered unenforceable. Therefore, Mint may wish to change this provision to more specifically comply with §2-708.
Limitations on Claims
I have discussed above relevant considerations concerning the allocation of risk: Mint has clearly imposed any risk of mistake onto the buyer with this term. A consumer may argue that this term is substantively unconscionable, and that Mint cannot contract out of being held liable for their sales. Again, we should consider the general sophistication of Mint's clientele and whether or not this term is standard in the industry. Otherwise, questions of whether or not this is good for customer relations aside, this appears legally sound.
Arbitration
While courts have occasionally declined to enforce an arbitration clause that is unconscionable, I see no problems with including such a clause in this case. One plausible objection is that Mint chooses the arbitrator, which, in combination with the fact that this term is in the middle of an adhesion contract, gives too much power to Mint. On the other hand, in an industry with many self-regulating mechanisms (in terms of independent appraisals, etc.), arbitration may provide a faster resolution of disputes by someone who is familiar with the intricacies of the industry, which would benefit both buyer and seller.
In terms of considerations unique to online transactions, Mint will want to make sure that these terms appear on their website in a visible place, where a customer does not have to scroll down to find them. To be safe, Mint may want to make the consumer click through the provisions to ensure that there is ample opportunity to read them (especially those terms that are not standard for the industry). More generally, Mint is in a unique position in that it sells both to other business and to consumers (generally thought to be less sophisticated, although this may not necessarily be the case with professional coin collectors). A court may have stricter standards for a form contract between a business and a consumer than a business-to-business contract. A major issue here, as discussed above, is the allocation of the risk. It will be important that Mint is clear in its presentation of the terms, so that consumers understand exactly which risks have been allocated to them.
At the same time, you may wish to add additional protection for Mint, especially in regard to the customer's ability to return rare coins. While it appears that most of Mint's raw coins are slabbed, some are still rare. For these coins, Mint may wish to impose additional safeguards. For example, if a buyer wishes to return one of these raw, rare coins, they might only be allowed to return them on the condition that they sign a separate statement, attesting to the fact that the coin is the same one which was sent to them by Mint. This protection may be especially important when the sale is an online transaction, due to the loss of a personal relationship and trust between the buyer and the seller.
In summary, while these terms have operated successfully for over a year on the Mint website, there exist opportunity to clarify statements and ensure that buyers are aware of the risks and rights that they hold under the contract; this will help Mint escape future liability and protect Mint's interests against opportunistic buyers.
[AKs: On general issues, you could use a little more attention to form contract issues of and procedural unconscionability. Essay is slightly wordy in some places, and more concise expression would allow you to cover these additional points.]
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Question 2, Answer 3
Dear Ms. Mint,
I have reviewed your terms governing online sales as they appear on your website. Although you have had success to date in avoiding legal issues, I outline below suggestions for making these terms even more effective should a legal problem arise.
Location on Site
Because mutual assent is required prior to formation of a contract, the nondrafting party of any contract must have clear notice that such terms exist. Therefore, placement of the terms on your site is critical. Specifically, I recommend having the terms of sales available from a prominent link featured on the home page of Mint Condition. This link should be placed in a position where a person will see it without having to scroll down or over on the screen.
In addition, when a customer is preparing to make a purchase, I recommend having the terms of sale appear on a webpage in between one page where the party fills out his shipping information and the page where the party enters his payment information. I recommend having a box on the terms page where the customer enters his name and, if applicable, company name as indicate that he has reviewed and consents to the terms. By setting up the sales process in this manner, a purchaser clearly has the opportunity to review the terms and is more likely to do so since he must take action in order to move ahead in the purchasing process.
Statute of Frauds
Sales of coins are governed by the Unifonn Commercial Code. Under UCC § 2-201, a contract for goods with a price of $500 or more is not enforceable unless there is a written agreement evidencing the contract that is signed by the party against whom the contract is being enforced. Documents generated online that specify certain terms of the contract, such as item purchased and price, are likely sufficient as a writing under the statute. In order to ensure the signature requirement, however, I recommend using the process described in (l) as an opportunity for obtaining an electronic signature. I recommend labeling this box as an electronic signature for purposes of satisfying the statute of frauds.
Clarification of Contract Formation
I recommend Mint add a clause specifying the process of contract formation on its website. In its "Money-Back Guarantee" clause, Mint suggests that the customer is making an offer to Mint who then accepts or rejects the offer. However, because Mint's website contains a catalog of products it will sell to anyone for a certain price, one could conclude Mint's website is a standing offer to anyone who seeks to purchase, and the act of ordering online constitutes acceptance. This is particularly a risk in light of the DCC's liberal contract formation policy under § 2-204. One area where offer and acceptance may be important is under Mint's "Subject to Availability" clause. While Mint indicates it will not fulfill orders for which it does not have merchandise, someone could still sue Mint for breach of contract, arguing that failure to tender the ordered coin was a breach of contract. This is especially concerning because some of Mint's customers are dealers.
To avoid this problem, I recommend Mint adopt a practice of confirming orders within a specified time (i.e., three days) via email. This confirmation would act as Mint's acceptance of a customer's offer. If Mint is out of stock, Mint should reject the email within that time via email as well. Mint should communicate this process in its terms. One issue, however, is that Mint must communicate that the customer is adopting Mint's terms as the terms of the customer's offer. I propose adding the following clause to its terms:
By placing an order for purchase on Mint Condition's web site, you are offering to purchase the selected items from Mint Condition on the terms provided on this page. Mint Condition will confirm via email within three business days whether it is able to accept your offer, subject to the provisions below titled "Sales Subject to Availability.
Liquidated Damages
Mint's "Lay Away Sales" term contains a liquidated damages term. Under UCC §2-718, liquidated damages are only permissible "at an amount which is reasonable in the light of the anticipated or actual harm caused" by the breach of contract. Depending on the circumstances, therefore, Mint's liquidated damage clause could be unenforceable as a penalty. As the clause is defined, it does not correlate to Mint's expected damages due to breach. Therefore, I recommend Mint re-draft its liquidated damage clause so that it is less contestable.
Any attempt to draft the clause to ensure Mint receives its full expectation damage is likely infeasible. In any case, Mint could invoke either UCC §§ 2-706 or 2708. § 2-708 would be more desirable; § 2-706 would be contingent on resale, and certain rare coins may not have a liquid market facilitating a quick resale. Applying § 2708, Mint is likely not a lost volume seller. The supply of many coins is limited, and it is likely that no two coins are exactly alike. Therefore, Mint's damages under UCC § 2-708 are either 1) the difference between the market price at time and place of tender and the unpaid contract price, plus incidentals (§ 2-708(1)), or 2) its lost profit with "due allowance for costs reasonably incurred and due credit for payments or proceeds of resale (§2-708(2))." Damages in any case, therefore, are highly tailored to the particular sale.
As a result, I recommend employing a deposit scheme. Under UCC § 2-718, Mint can arrange its layaway sales so that it is entitled to keep 20% of the value of its expected profit from the transaction or $500, whichever is less. True, Mint will get less than its expectation in transactions worth more than $10,000. However, high value transactions are probably the most likely to lead to litigation over the liquidated damages clause.
Disclaimer of Express Warranty by Description
In order to avoid disputes related to bullion coins under its "Money-Back Guarantee" provision, I recommend adding a sentence to the term expressly disclaiming a warranty that the coin tendered will meet the on-line description to exact specification. In practice, if a tendered coin differs from the on-line description to the extent that the customer is convinced Mint tendered the wrong product, the customer will likely contact Mint. In such a situation, Mint should probably rectify any genuine mistakes. However, given the unique nature of coins, reasonable people may disagree over whether a particular description matches a tendered coin. Therefore, I recommend that Mint add a clause along the following lines (meant to disclaim warranties arising under UCC§ 2-313):
Due to the volatile nature of the bullion market, all gold, silver, and platinum bullion purchases are final once accepted by the company. Descriptions of and pictures of bullion coins online do not amount to a warranty that the coin will conform identically to the picture or description.
Disclaiming Consequential Damages
I recommend that Mint disclaim consequential damages provided under UCC § 2-715.
Mint deals with a variety of customers, including fellow dealers. It is foreseeable that, should something go wrong in a sale from Mint to a dealer, the dealer could lose a subsequent sale and sue Mint for lost profits. A standard disclaimer of consequential damages should provide protection to Mint.
Disclaiming Fitness for a Particular Purpose
Along the same lines, I recommend Mint disclaim damages arising from fitness for a particular purpose under UCC § 2-315. Mint sells to investors, but coins are not appropriate investments for investors who need current income or are unable to assume price fluctuation risk. To avoid being sued by an investor that incurs investment losses from coins purchased from Mint, I would alter the language of Mint's "Money-Back Guarantee" provision: ...you may return your order within 14 days of receipt for a full refund including shipping charges both ways upon proof of appraisal by a certified appraiser as of the date you received your purchase.
Arbitration Clause
I recommend increasing the prominence of your arbitration clause. Because the clause requires a purchaser to restrict his legal rights, it may be more susceptible to scrutiny by courts under UCC § 2-302 for unconscionability, particularly with respect to transactions between Mint and amateur collectors. Arbitration clauses are typically deferred to if reasonable, but a court may conclude that the clause, buried in a form contract, is unconscionable if it forces an ordinary consumer to travel a great distance to assert his rights is. If the clause is more prominent and, therefore, less likely to be skimmed over by a purchaser, a court may be more likely to enforce it on balance.
[AK: Only weaknesses are limited discussion of counterarguments or disadvantages, and perhaps a bit of a laundry list on the warranty disclaimers. A bit more attention to the distinctions among the different kinds of transactions engaged in would also be good.]
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