David Munn brought to my attention an interesting case dealing with how to incorporate into an agreement provisions contained in some other document.
The case is Affinity Internet, Inc. v. Consolidated Credit Counseling Services, Inc., 920 So. 2d 1286 (Fla. Dist. Ct. App. 2006). (Click here for a copy of the case.) Consolidated and Affinity entered into an agreement under which Affinity was to provide certain services to Consolidated. The contract included the following provision: “This contract is subject to all of SkyNetWEB’s terms, conditions, user and acceptable use policies located at http://www.skynetweb.com/
company/legal/legal.php.” The user agreement thus alluded to contained an arbitration provision.
Subsequently, Consolidated filed a complaint against Affinity. Affinity responded by filing a motion to compel arbitration. Consolidated opposed the motion, arguing that the contract didn’t contain an arbitration clause.
Quoting another case, the court noted that the doctrine of incorporation “requires that there must be some expression in the incorporating document … of an intention to be bound by the collateral document …. A mere reference to another document is not sufficient to incorporate that other document into a contract, particularly where the incorporation document makes no specific reference that it is ‘subject to’ the collateral document.”
Of course, the contract at issue in this case stated that it was subject to the SkyNetWEB user agreement, but the court said that “that simple statement, with nothing more, is insufficient to bind Consolidated to arbitration.” The court quoted another Florida case involving similar language. In that case, the court considered the meaning of subject to and concluded that “it is clear that the intent of the parties was to not incorporate the arbitration language of the general contract into the subcontract.”
In Affinity Internet the court also noted that the collateral document had not been attached to the contract and that Consolidated had never been given a copy of the collateral document.
What It All Means
It would appear that the court didn’t have a problem with the concept of incorporation. Instead, it didn’t think that subject to was up to the job.
In this respect, the court may be been unduly persnikety: if in this context subject to didn’t serve to incorporate the SkyNetWEB user agreement, one would be hard pressed to suggest what other function it was meant to serve. But subject to is in fact problematic, in that it means “subordinate to,” a meaning that goes beyond simple incorporation.
In a couple of minutes of rooting around, I found a relevant American Law Reports 2d annotation (41 A.L.R.2d 872) describing a comparable case, Pacific Vegetable Oil Corp. v. C.S.T., Ltd., 174 P.2d 441 (Cal. 1946). In that case, the contract was made subject to published rules of the association. The court held as follows: “That the parties agreed to be bound by the published rules of the association does not alter the result in the absence, as here, of an express incorporation into the contract of specified rules. The general reference in the contract to published rules of the association did not constitute such an incorporation.”
This case and Affinity Internet are enough for me to suggest that the cautious drafter would be advised to steer clear of subject to when incorporating a collateral document into a contract.
So what wording should you use? Not incorporate by reference: in MSDC ¶ 9.18 I suggest that it’s best not to use that phrase in a contract. In the contract at issue in the Affinity Internet case, something along the lines of the following would have worked: “The SkyNetWEB user agreement located at http://www.skynetweb.com/
company/legal/legal.php constitutes part of this agreement.” The A.L.R.2d annotation noted above discusses cases that have held comparable language to be enforceable.
Incidentally, the fact that Affinity Internet involved an ancillary document that had been posted online doesn’t serve to distinguish it from cases involving an ancillary document that hadn’t be posted online.
Also, while Affinity Internet wasn’t clear on the subject, if an ancillary document has been incorporated using appropriate language, whether a hard copy of that document was ever delivered shouldn’t be an issue.
That said, whenever you’re inclined to incorporate an ancillary document into a contract, you should ask yourself whether the benefits in terms of added efficiency are worth the risk of misunderstanding and disagreement. Unless the benefit is significant, the safest course of action would be to make a hard copy available to the parties, in which case you might as well dispense entirely with the idea of incorporating by reference.