Internet hotel reservations: the "terms and conditions" trap.

A review of U.S. case law finds that the web-based approach used by most hotel companies to alert customers to the terms and conditions for making an internet reservation might not hold up in the event of a lawsuit. Most courts will enforce a so-called click wrap covenant when an individual makes a reservation or purchase on the company website. In the click wrap procedure, a reservation cannot be completed until the customer clicks the "agree" button to the terms and conditions of sale. However, most hotel websites use a slightly different approach, known as "browse wrap," in which the terms and conditions are available on the site but the reservation can be completed without the customer's express assent. The terms and conditions usually dictate the controlling legal jurisdiction or mandate arbitration for disagreements, and thus it is in the hotel company's interest to demonstrate that would-be guests have read and definitively agreed to those terms and conditions.

Keywords: electronic reservations; contract law; terms and conditions of website use; click wrap; browse wrap

Most lodging companies have websites that allow potential guests to view and gather hotel information in advance of actually booking the room. Information regarding room availability, pricing, amenities, location, cancellation charges, room descriptions, restaurants, special offers, and fitness facilities are all available, and most companies attempt to make the reservation process quick and easy for even the most novice user. When an online reservation is completed, a contract is formed creating rights and obligations for the guest and for the lodging company. As past of that contract and in conjunction with the use of the website, the hotel company puts forth a series of terms and conditions meant to govern the provisions of the contract. In this article, I explain a complex area of the law that involves how those terms and conditions are presented on company websites.

The idea that a reservation of this type is a contract has long been established. While electronic reservations are of fairly recent vintage, the same principles apply as those of, say, telephone reservations. With regard to a reservation constituting a contract, Dickerson (1989, 4) stated, "A promise by a hotel to deliver a room in the future in return for payment or a promise to pay constitutes a binding contract. The hotel is obligated to deliver the room and the traveler is obligated to pay for it." A valid oral contract exists based on a telephone reservation made by a potential guest, with the reservation being either confirmed or guaranteed. According to McConnell and Rutherford (1990, 61), "A reservation, even a telephone reservation, is a contract." More telling for this discussion, courts have consistently ruled that "a hotel reservation made over the telephone is a contract that is formed in the state within which the telephone is answered, not the location of origin of the call." (1)

Most legal commentators now also maintain that a hotel reservation made either over the phone or over the internet is usually a valid, binding contract between the future guest and the hotel. The mutual promise of an offer and an acceptance is adequate consideration to support any type of contract, including a room reservation contract made online or on the phone.

An internet transaction to reserve a room becomes a binding enforceable contract if the basic contract elements are present (Wilson 2000, 56; Barth 2006, 367). In their text, Hotel, Restaurant and Travel Law, Cournoyer, Marshall, and Morris (2004, 97) stated, "Today, as a general rule, contracts reached online are as enforceable as their 'land based' counterparts. The online versions are subject to similar rules of contract law." The reader can refer to the cases cited as representative of cases involving hotel reservations entered into over the internet and determined by the courts to be valid, enforceable contracts. (2)

Most guests are not thinking in terms of contract law when they simply agree to purchase a room at a specific location for a specific time and for an agreed upon price. While the guest is probably interested only in booking a room, the lodging company must consider the contractual aspects of the transaction and attempt to protect itself by including favorable terms and conditions that will be enforceable in a court in the event that an injury or dispute leads to litigation.

A lodging company might try to include as part of the internet contract forum selection and choice of law clauses that would require the guest who wants to sue to file any lawsuit in a predetermined jurisdiction or forum (usually the location of the hotel's corporate headquarters) and employ the law of the company's home state to decide the case. The forum selection clauses and choice of law clauses are inserted primarily for the benefit of the hotel and usually give the hotel a distinct advantage when litigation occurs. The forum or venue chosen is also usually convenient to corporate lawyers, who are familiar with the jurisdiction's law, courts, judges, and local practices. Because the court chosen by the hotel is usually far from the guest's home, pursuing the case to trial becomes more time-consuming and costly for the guest. Other terms might require the guest to give up rights to proceed with a class action suit or to require arbitration in the event that a dispute arises. Frequently, the internet reservation contracts include provisions requiring that the parties enter binding arbitration to resolve disputes. The arbitration provisions may allow the hotel to choose the arbitrator, limit discovery of facts, limit the availability of court actions and class action lawsuits, and bind the parties to the results. While binding arbitration can be a consumer-friendly method of dispute resolution, the initial ground roles for the arbitration that are created in the original contract often help determine the final results.

In most cases, the guest need not be concerned about these terms and conditions because a hotel visit will almost always be completed in a satisfactory manner and without incident. According to Hillman and Rachlinski (2002, 468), "As with her paper-world counterpart, the e-consumer knows (or quickly recognizes) that reading through the boilerplate is unlikely to be of any benefit. Instead, she likely casually believes there is little risk to agreeing to standard terms."

Contracts entered into by consumers on the internet are defined by the courts to be either "click wrap" or "browse wrap" agreements. A click wrap agreement is entered into when the consumer clicks an "I agree" icon in conjunction with a detailed list of all of the terms and conditions. A browse wrap contract is entered into when the consumer has the ability to view all of the terms and conditions, in advance, through a hyperlink called "Terms and Conditions" or "Terms of Use," but is not required to provide any affirmative indication of knowledge or agreement of those terms.

This article will review the evolving legal standards that courts are applying to determine the enforceability of click wrap or browse wrap adhesion contracts that contain provisions favorable to the lodging company and unfavorable to the consumer. In addition to explaining the derivation of those contract terms, I will review suggestions that lodging companies might implement to help ensure that their desired contract language will be enforceable in a court.

Mutual assent is needed for binding forum selection clauses. The standard-form, boilerplate terms of internet-based contracts have come to be known as the Terms and Conditions or Terms of Use. As a practical matter, guests have only the choice of taking them or leaving them. This is effectively Hobson's choice, as declining the terms ends the transaction. While there may be limited opportunities to negotiate a room rate with a telephone reservation associate, one would certainly not be able to negotiate the terms of a forum selection provision.

When courts are faced with the issue of the enforceability of contracts entered into over the internet, the main issue is often whether the purchaser (hotel guest) has, in fact, assented or agreed to the terms. "The elements of a contract include offer and acceptance, consideration, and mutual assent to terms essential to the formation of a contract." (3) The Restatement (Second) of Contracts relates the standards that courts apply to help provide the basis for their decisions:

When a benefit is offered subject to stated

conditions, and the offeree makes a decision

to take the benefit with knowledge of the

terms of the offer, the taking constitutes an

acceptance of the terms, which accordingly

become binding on the offeree. (4)

Courts, including the U.S. Supreme Court, have fairly consistently approved contracts containing numerous additional terms and conditions, including forum selection provisions. In Carnival Cruise Lines, Inc. v. Shute, for instance, the court enforced a forum-selection clause where complainant Shute had actual knowledge of the forum selection provision printed on the back of a cruise ship ticket prior to leaving on the voyage. The court said,

A clause establishing ex ante the forum for

dispute resolution has the salutary effect of

dispelling any confusion about where suits

arising from the contract must be brought

and defended, sparing litigants the time

and expense of pretrial motions to determine

the correct forum and conserving

judicial resources that otherwise would be

devoted to deciding those motions. (5)