Legal rules, convenient fictions, and figuring out when you’ve agreed to something you haven’t read.

I wrote on Friday about one legal fiction — that a corporation is a “person” entitled to First Amendment free speech rights — and today I can write about another: that contractual relationships are founded on agreement.

I can get one level of the point out of the way quickly. As first year law students learn right at the beginning of their first year contracts course, it is the objective manifestation of agreement that matters, not the subjective intent. You cannot agree to buy a “white” horse and then argue that delivery of a white horse is a breach of your agreement because you subjectively intended “white” to mean black. To suppose otherwise would create a practical nightmare — every contractual dispute potentially would have to be resolved by determining which party to the contract was a liar.

But how do you determine the “objective” meaning of someone’s expressed intent? As a general rule, if you sign an agreement that says you’ve agreed to X, a court will rule you agreed to X. In the online world, if you click on a button that says “I agree,” a court will rule that you agreed even if, as is likely, you didn’t read the agreement.

But there are more complicated possibilities. In Specht v. Netscape Communications Corp. (pdf)(S.D.N.Y. 2001), Judge Alvin K. Hellerstein (someone I once, many years ago, worked for) ruled that an agreement to arbitrate contained in an online agreement Netscape purported to bind anyone who downloaded a certain program from the internet was not enforceable. Why? Because under California law (which the court had determined was applicable to the dispute), someone, “‘regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious. . . . ‘” Slip op. at 16 (citation omitted).

In Specht, Judge Hellerstein found that the provision in dispute was too inconspicuous to be enforced because the person downloading the program could have done so without even knowing he was agreeing to contractual terms that would limit him in certain ways. Why? Because the language indicating that there even was such an agreement could have been entirely missed — it appeared via a link that could not even be seen unless the user scrolled down on the appropriate page. In other words, the user could click through to the download page without even seeing language indicating that his download represented an agreement to terms he could find by clicking on a link. Id. at 17.

Judge Hellerstein clearly preferred online agreements that require the affirmative act by the user of clicking on a button that says “I agree” and made plain that Netscape’s failure to do that in itself (even if the link to the applicable terms had been visible without scrolling down a page) was enough to undermine its argument that an agreement had been formed:

Netscape argues that the mere act of downloading indicates assent. However, downloading is hardly an unambiguous indication of assent. The primary purpose of downloading is to obtain a product, not to assent to an agreement. In contrast, clicking on an icon stating “I assent” has no meaning or purpose other than to indicate such assent. Netscape’s failure to require users of SmartDownload to indicate assent to its license as a precondition to downloading and using its software is fatal to its argument that a contract has been formed. Id.

Recently, however, as Techdirt pointed out, the court in PDC Laboratories Inc. v. Hach Co., No. 09-1110 (pdf) (C.D. Ill., Aug. 25, 2009), disagreed with Judge Hellerstein and ruled that under Illinois law a contract provision available for viewing behind a hyperlink was an enforceable term in the parties’ contract for the sale of goods.

So, online sellers: if you want to be sure your agreements are enforceable, do what most online sites do — require your customers to click on a button that expresses their agreement before the transaction is complete.

Online buyers: be careful. Don’t believe that you’re getting what you think you’re getting. You’re only getting what the fine print says you’re getting. But if you do get screwed, remember too that even when you sign something it might be so unfair it is unenforceable.

If, like my law students, you’re shaking your head, thinking this guy is not cutting to the bottom line — what does the law say? — understand this: the law is not like the Ten Commandments, setting forth brief rules that are always applicable. Rather, much of the time it gives you guidance on how to minimize your risks. Assume that you’ve minimized your risks as an online seller if you require someone to click on an “I agree” button, and assume you’ve minimized your risks as a buyer if you’ve read and understood the fine print.

Then again, even the Ten Commandments are not as clear cut as most people think. Thou shalt not kill? Unless you’re a Jain, you don’t really believe in the literal truth of that rule.