Hill v. Gateway 2000, Inc.
105 F.3d 1147 (1997)
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Rule of Law:
A contract can be formed when a vendor makes an offer that includes terms shipped inside a product's packaging, and the consumer accepts this offer by retaining and using the product beyond the specified return period.
Facts:
- Rich and Enza Hill ordered a Gateway 2000 computer over the telephone.
- The Hills paid for the computer using a credit card.
- Gateway shipped the computer to the Hills in a box.
- The box contained the computer and a printed document with a list of terms.
- These terms stated they would govern the transaction unless the customer returned the computer within 30 days.
- One of the terms in the document was a clause requiring disputes to be resolved through arbitration.
- The Hills kept the computer for more than 30 days.
- After the 30-day period, the Hills complained about the computer's components and performance.
Procedural Posture:
- Rich and Enza Hill filed a class-action lawsuit against Gateway 2000 in federal district court.
- Gateway filed a motion with the district court to enforce the arbitration clause.
- The district court denied Gateway's motion, finding there was no valid arbitration agreement.
- Gateway, as appellant, filed an immediate appeal of the district court's denial to the U.S. Court of Appeals for the Seventh Circuit, with the Hills as appellees.
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Issue:
Are terms, including an arbitration clause, included inside a product's packaging binding on a consumer who purchases the product over the phone and keeps it beyond the specified 30-day return period?
Opinions:
Majority - Easterbrook, Circuit Judge
Yes, the terms included inside the product's packaging are binding. The court reasoned that the contract was not formed at the moment of the telephone order, but rather after the consumer had an opportunity to inspect both the product and the accompanying terms. Following the precedent set in ProCD, Inc. v. Zeidenberg, a vendor, as master of the offer, may invite acceptance by conduct. Gateway's offer was the computer plus the terms, which the Hills accepted by their conduct of keeping the computer beyond the 30-day review period. The court rejected the Hills' attempts to distinguish this case from ProCD, stating that the principle applies to the law of contract generally, not just to software, and is relevant for both consumers and merchants. Practical commercial considerations support this 'approve-or-return' method of contract formation.
Analysis:
This decision significantly extends the 'rolling contract' theory established in ProCD v. Zeidenberg from software licenses to the sale of general consumer goods. It solidifies the legal principle that a contract is not always formed at the moment of payment but can be finalized after the consumer receives the product and has an opportunity to review the accompanying terms. This ruling provides strong legal backing for modern e-commerce and mail-order business practices where it is impractical to present all terms before the transaction is complete, thereby shaping consumer contract law for decades to come.
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