Pub. 5 2014 Issue 4

www.wvbankers.org 16 West Virginia Banker L ate last year, the West Virginia Supreme Court of Appeals provid- ed critically important guidance to banks and other businesses that regular- ly incorporate multiple agreements by reference into their customer contracts. In State ex rel. U-Haul Co. of West Virginia v. Zakaib, U-Haul Co. of West Virginia (“U-Haul”) sought to enforce an arbi- tration agreement set out in an unsigned “rental contract addendum” that was provided to customers after they signed a rental contract. In holding that U-Haul’s rental contract did not properly incorpo- rate the addendum, the Court established legal principles that directly affect the types of documents financial institutions commonly use to enter into agreements with their customers. State ex rel. U-Haul Co. of West Virginia v. Zakaib (“U-Haul”) also affects the mechanics and processes utilized by financial institutions in the opening of deposit accounts and loans. Process and Mechanics Matter The U-Haul case highlights the impor- tance of process and mechanics in deter- mining the enforceability of a consumer contract. According to the Court, U-Haul custom- ers entered into one-page “rental con- tracts” one of two ways. Under the first option, contract terms were presented to customers on a computerized terminal. Because it was not feasible to display all of the terms at once, the terms were displayed on a series of screens. To view contractual terms on subsequent screens, customers had to click on a button indicating their acceptance of the terms displayed on the current screen. After every screen had been viewed, customers were required to sign their names on the terminal using a stylus. Directly above the place where customers were required to sign their names, the terminal displayed the following phrase: “I acknowledge that I have received and agree to the terms and conditions of this Rental Contract and the Rental Contract Addendum.” After customers signed the terminal, a one-page paper rental contract was printed that contained all of the contractual terms previously displayed on each screen to customers on the computerized terminal, including the language referring to the “Rental Contract Addendum” (Adden- dum). Under the second option, customers were presented with a pre-printed one-page paper rental contract that displayed all of the contractual terms, including the refer- ence to the Addendum. The pre-printed one-page rental contract was essentially identical to the paper document generated under the first option. Once customers signed the pre-printed rental contract, a photocopy of the document was provided to the customers. Under both options, U-Haul folded the paper rental contracts and placed them within copies of the Addendum, which was printed on “cardstock” paper and served as a “document holder” for the rental contracts. The Addendum, which enclosed the customers’ one-page rental contracts, was then presented to customers with keys to the rental equipment. The Addendum contained various addi- tional contractual terms and conditions, including an agreement to submit all claims arising out the of the rentals to binding arbitration. The arbitration pro- vision also required renters to refrain from bringing claims on a class action basis. The plaintiffs sued U-Haul alleging that they were improperly charged certain “environmental fees” ranging from $1 to $5. In addition, the plaintiffs sought to represent a class of similarly situated West Virginia renters who had also been assessed with environmental fees. In response, U-Haul asked the trial court to compel the plaintiffs to pursue their claims out-of-court through binding arbitration as required by the arbitration agreement in the Addendum. The plaintiffs argued that the arbitration agreement set forth in the Addendum was not binding on them because it never became a part of their rental contracts. In particular, the plaintiffs argued that the Supreme Court of Appeals Defines Parameters of Incorporation By Reference By Sandra Murphy and Floyd Boone, Bowles Rice LLP