Gateway to Arbitration: Issues of Contract Formation under the U.C.C. and the Enforceability of Arbitration Clauses Included in Standard Form Contracts Shipped with Goods

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Tempora mutantur, nos et mutamur in illis.1


Mass production and distribution dominate today's economy.2 Consequently, the use of standard form contracts3 prevails in today's ordinary, routine commercial transactions.4 Standard form contracts are "neither good nor bad, and neither just nor unjust, for they are necessary and generally mutually beneficial."5 They permit companies to reduce the cost of negotiations and save time that each party would otherwise spend bargaining over terms.6 Courts generally enforce standard form contracts,7 and the ReIMAGE FORMULA6

statement of Contracts recognizes and approves their existence.8

A particular issue involving standard form contracts has recently presented itself. In the computer sales industry, where most transactions occur through telephone orders between the consumer and a sales representative, a standard form agreement is made available by the seller only after the consumer has paid for the purchase and the seller has shipped the goods. An increasingly common practice within the computer sales industry is to include in the standard form contract an arbitration clause that prevents the consumer from filing any claims he might have against the seller and forces him to arbitrate any disputes with a designated arbitration organization. This situation presents enforceability issues regarding such clauses, as evidenced by the debate within the legal community caused by the recent litigation9 over the arbitration clause that appears in Gateway 2000, Inc.'s Standard Terms and Conditions Agreement package and is shipped with Gateway's computers.10

Many of the courts dealing with the Gateway situation, that is, "money now, terms later," have framed the issue as one of contract formation.11 Because these transactions are conducted over the phone or mail, however, the question of contract formation is difficult.12 The issue is whether the contract is formed when the buyer hands over payment and the seller ships IMAGE FORMULA8

the goods, or whether the contract is formed later, after the customer has had time to review the product and the terms that come along with it.13 Determining the point of contract formation is crucial when analyzing the situation under the Uniform Commercial Code ("U.C.C.").14 In the U.C.C. framework, whether the arbitration provision is enforceable depends on whether it is characterized as being part of the existing contract, or merely as a proposal for addition to the contract.15 These two characterizations lead to different results.16

Courts facing the "Gateway Problem" have not been uniform in their decisions.17 Although all of these courts have looked to the U.C.C. to guide their analysis,18 some have enforced the arbitration clause provided in the Standard Terms and Conditions Agreement'9 while others have refused to enforce the provision, asserting that the clause never became part of the parties' agreement.20

While the "Gateway Problem" is generally one of "money now, terms later," since terms other than arbitration clauses are also vulnerable to a court's determination of the point of contract formation,21 this Comment argues that the recent decisions in the Gateway, Inc. cases have brought to particular attention the feasibility of arbitration clauses. Arbitration clauses are becoming a common feature of standard form commercial contracts.22 Many businesses prefer to arbitrate consumer claims because of their dissatisfaction with the civil justice system, which has "its problems of delay, expense, technicality, and judicial gridlock."23 However, arbitration clauses have come under heave attack in the legal community.24 Decisions upholdIMAGE FORMULA10

ing arbitration clauses, such as Hill v. Gateway 2000, Inc.,25 have sparked an uproar, as legal scholars lament the disappearance of consumers' constitutional right to a jury through the use of arbitration clauses in standard form contracts. …