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Company screws up incorporation by reference in consumer contract form, so arbitration clause is ineffective, class action can proceed

If an incorporation by reference of external terms is not clear and unmistakable, a court might hold that the external terms are not part of the contract. The Oklahoma supreme court ruled that a form contract for the sale of hardwood flooring, which referenced “Terms of Sale” but gave no indication where to find them, did not incorporate the external terms. The court held that:

[A] contract must make clear reference to the extrinsic document to be incorporated, describe it in such terms that its identity and location may be ascertained beyond doubt, and the parties to the agreement had knowledge of and assented to the incorporated provisions.

Walker v. BuildDirect.com Technologies, Inc., 2015 OK 30 (2015) (on certification from 10th Cir.).

In that case, a Canadian hardwood flooring company emailed a sales quotation form to an Oklahoma couple that had requested it. The problem, though, was this:

  • One of the bullet points in the sales quotation form stated, in its entirety, that “All orders are subject to BuildDirect’s ‘Terms of Sale.’”
  • The sales quotation form didn’t include the referenced terms of sale as an attachment, nor did it indicate where the terms of sale could be found.

The Oklahoma couple had, though, previously looked at the flooring company’s Web site, where the bottom of every page included a link to the terms of sale.

The couple bought and installed $8,500 worth of hardwood flooring — and then later discovered that their house had been infested with wood-boring insects, which they believed had gotten into the house from the flooring. They sued the flooring company for damages.

The flooring company moved to compel arbitration, citing a clause in the referenced terms of sale. A federal appeals court certified the following question to the Supreme Court of Oklahoma; that court ruled that the sales quotation form did not adequately incorporate the external Terms of Sale by reference. The court said:

If BuildDirect intended to make the online “Terms of Sale” part of the parties’ agreement, BuildDirect could easily have accomplished that purpose by drafting the Contract employing words of express incorporation or clearly referencing, identifying and directing the Walkers to the document to be incorporated. In this Court’s view, BuildDirect’s reliance upon incorporation by reference must, as a matter of law, fail.

Indeed, the Contract as presented gives every appearance of being a complete agreement-capturing the price, payment method, delivery and sales terms expressly enumerated in the Contract. No reasonable prudent person, under the particular facts of this case, would have notice to think otherwise.

Therefore, BuildDirect’s attempt at incorporation was nothing more than a vague allusion.

Id. at ¶ 15.

Drafting tip: At the very least, provide a Web link — preferably a short, memorable one — where the additional incorporated terms can be found.

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