Shrink-wrap agreements: Are they valid contracts?

By Atty. KRISANTO KARLO E. NICOLAS
LEGALLY BUSINESS

A PERSON who purchases a cellphone, portable dvd player, a coffee maker, or toy finds warranty cards and other written contract terms inside the box. If the product is contained in a cellophane-wrapped box, sealed, with tamper-proof packaging, these terms are available for review only after the product has been bought and then opened, in a usually different and distant location from the place where the sale was made.

The same is true when software or hardware peripheral of a computer is purchased. The licensing agreements, commonly known as End-User Licensing Agreements or EULAs, are read only during the installation of the software in the computer or before use of the same, and not before the software or hardware is actually purchased.

Finally, there are those transactions which are completed in the Internet, which usually include downloading software or entering a site, for a fee or sometimes for free. The assent of the user to the terms and conditions required by the proprietor of the website, prior to the entering the site or downloading, is made by clicking either an “Ok” or “Yes” or “I accept” key. In most instances, the terms and conditions are not seen in the same page, but viewable in another web page.

These are called shrinkwrap agreements. Shrinkwrap agreements are terms and conditions of use that accompany products, and are available for review only after the product has been opened or once the product’s seal has been broken. They also accompany software purchased in a similar packaging. The term is taken from the method of packaging products in cellophane-wrapped boxes. While the terms and conditions are contained inside the box along with the product, the outside of the box usually contains a notice stating “The product is subject to license terms available for review inside.” The shrinkwrap agreement are customarily read something like, “By opening this envelope, you are bound by the terms and conditions of this license” or “Upon breaking this seal, you are bound by the terms and conditions included with the product.”

Under the law, these are actually contracts. They in fact bind the contracting parties, especially the purchaser whose consent was procured, albeit irregularly. But are they valid under Philippine contract law?

There are foreign cases which treat these agreements with skepticism. They hold that since the parties form the contract at the time of the purchase, the terms contained “inside the box” are not binding for lack of consent. These additional conditions and terms which the parties left out during the formation of the primary contract and which are contained in the shrinkwrap agreement are void.

Because they are not part of the bargain, they are generally not binding under contract law. Being new terms or additional agreements, they require new and unambiguous consent by the purchaser and the consent previously given cannot be deemed to extend to these new terms, conditions and stipulations.

Whether these agreements are valid or not in the Philippines will be finally determined only by a Supreme Court ruling, hopefully in the near future. However, since these agreements are becoming very common today, the most that a person can do is be wary of its terms and if possible, read them before purchasing the electronic equipment or software.

The best consumer is always an informed consumer. If, upon reading the shrinkwrap agreement, you feel that the item you are purchasing is laden with impossible or burdensome conditions, then that should be a red flag for your not to make the purchase.

(Atty. Krisanto Karlo Nicolas is a founding partner of Nicolas & De Vega Law Offices located at Unit 101 One Primrose Place 663 Boni Avenue, Mandaluyong City, Metro Manila. He practices corporate law, franchise law, intellectual property law and litigation. He graduated from the Ateneo de Manila School of Law with honors. You may contact him at knicolas@ndvlaw.com.)

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