Arizona Supreme Court clarifies the test for determining when the governing terms of an on-going, at-will, business-consumer relationship are effectively modified.

A consumer opened a checking and savings account with a bank, agreeing that the bank could change the terms and conditions of service at any time, and consenting to electronic delivery of future communications. The bank subsequently updated its terms, inserting a mandatory arbitration clause. The update permitted the consumer to opt out of the arbitration clause. The bank informed account holders of the change by inserting a banner in the account statements that the terms had been updated and providing a link to the changes. The consumer never read the changes. She subsequently sued the bank in federal district court on a different matter. The bank moved to compel arbitration. The District Court certified to the Arizona Supreme Court the question whether there had been a valid contract modification.

The Supreme Court held that there had been a valid contract modification. It explained that on-going, at-will, consumer-business relationships consist of daily offers and acceptances of unilateral contracts. It adopted Section 3 of the current draft of the Restatement of Consumer Contracts, which permits modifications in these relationships provided that consumers (1) receive express and reasonable notice of the business’s right to unilaterally modify the agreement, (2) receive reasonable notice of new terms and the opportunity to opt out without penalty, and (3) upon receiving actual or constructive notice of new terms, continue the business relationship past a reasonable opt-out period.

The Court found the rule to be sound policy because it facilitates economic efficiency in the context of standardized contracts. Actual notice of the changes is not required. The modifications cannot undermine negotiated parts of the original bargain. The modifications must be proposed in good faith. The consumer must be given the opportunity to opt out and continue the contractual relationship under the existing terms. The consumer must also be informed that the failure to opt out and continuing the contractual relationship constitutes acceptance. If the modification requirements of Section 3 are met, the modification is effective even though the consumer has not expressly assented to the changes.

Justice Lopez authored the opinion for a unanimous court.

Posted by: Garo Moughalian