If any area of the law could be shielded from the all-consuming influence
of the Internet, it ought to be the age-old law of contracts. Nothing about the
Internet changes basic elements of contract law, like requirements of offer,
acceptance, and consideration.
But one crucial bit of evidence about making contracts electronically seems
to bedevil courts: When and how does a user agree to a contract electronically?
This crucial element of contract formation — manifestation of assent — is the
Internet twist for contract making.
The Business Law Basics
Lots of contracts occur every day, with
few formalities. When you order a hamburger for lunch, you are agreeing to pay
the prescribed price, and the restaurant is agreeing to provide you the burger.
The transaction is probably over before you realize you’ve been a party to a
contract. Most transactions in daily life proceed like this.
Other contracts are attended to with a
mixture of solemnity and formality. A real estate closing may be conducted at a
special time and place, with all the parties brought together to sign the
documents, and notaries to authenticate the signatures. You’ll see similar
attention to signatures and authentication in lending agreements, legal
settlements, and major corporate transactions.
The difference between the relatively
informal everyday contracts and the formal ones that are signed in writing is a
critical element of contract law that lay people often overlook or
misunderstand. Popular sayings like “get it in writing,” or “oral contract” seem
to presume that an agreement is less valid, or less enforceable if it is not in
writing.
But in fact most contracts don’t have to
be in writing. In the long course of Anglo-American law, contracts moved to
writing (a process known as textualization) only relatively recently. Oral
contracts aren’t an aberration or mistake; they’re the foundation of our
contract law.
Even now, a formal written document
signed by the parties is rarely necessary; in fact, much commerce would grind
to a halt if a written contract were required. In many situations, a contract
may be made in any manner sufficient to show agreement, including conduct by
both parties which recognizes the existence of a contract.
Thus, writing and signature are only
required in particular situations. State laws (called “statutes of frauds”)
determine which contracts must be signed and in writing, and in most states
only six categories of contracts need to be memorialized in a writing, signed
by the party to be charged:
- Contracts
for marriage
- Contracts
that cannot be performed within one year
- Contracts
for the transfer of an interest in land
- Contracts
by the executor of a will
- Contracts
for the sale of goods totalling $500 or more
- Contracts
of suretyship
Law students often remember these
categories using the mnemonic "MY LEGS": Marriage,
contracts for more than one Year, Land, Executor
(or Estate), Goods ($500 or more), Surety.
That’s why signatures are required for
real estate contracts, but not hamburger orders (unless, perhaps, you are
ravenous and order $500 worth of burgers). In the vast majority of cases, the
key to contract formation is whether there has been a "manifestation of
assent” by written or spoken words between the parties or by other action (or
even by failure to act).
For those cases where a writing and a
signature are required, the next questions are, “What is a writing?” and “What
is a signature?” In each case, it may not be what you think.
To satisfy the statute of frauds, you
don’t need a formally written contract. Even a scrap of paper could qualify, so
long as it contained the essential terms of the deal. The signature can be as
simple as a party’s initials, his or her printed name, or even a stamp or
reference to the names tied to a description of the deal.
The Internet Law Twist
If contracts are so simple and flexible
in the bricks-and-mortar world, you’d think that contract principles should be
readily adaptable to the online world. And indeed lawmakers have taken care to
smooth the application of contract principles to the Internet.
Most states have enacted some form of
the Uniform Electronic Transactions Act (UETA). UETA provides
for recognition of electronic records and signatures. With only a few
exceptions (such as wills and trusts), if a contract requires a writing and
written signature, an electronic record and signature will work. For the few
states that haven’t enacted UETA, a federal law, Electronic
Signatures in Global and National Commerce Act (E-SIGN)
provides the same result, though it has more exceptions.
Under either UETA or E-SIGN, all parties
must consent to use of electronic records and signatures. That’s a bit of a
Catch-22, since parties that deal with one another electronically rarely
explicitly agree to electronic dealings — and if they do so electronically, how
is that consent enforceable? But in most electronic courses of dealings, the
consent of the parties is apparent, and consent is rarely contested.
The concept of an electronic signature
confuses many people. Some think of electronic signatures as a graphic
representation of their written signature — what might be called a facsimile
signature. Others think of electronic signatures as complex exchanges of
encrypted computer files — what is often called a digital signature. An
electronic signature can be either of these, or more.
Just as, for example, initials or the
imprint of a rubber stamp may qualify as a signature on paper, your initials or
name at the bottom of your email can also qualify. Even an email signature
automatically added to the text when you hit “send” can qualify as a signature
(so watch those emails more carefully — any one of them can create a contract).
Your name on a text message or instant message may qualify as well.
And perhaps most importantly, a
signature doesn’t even need to include your name or initials. The purpose of
the signature requirement of the statute of frauds was simply to clearly
establish your assent. If that can be done in other ways, a traditional
signature is not required. The ubiquitous “click-through” pages on Internet sites is a
prime example.
Under UETA and E-SIGN, a signature is
defined as “an electronic sound, symbol, or process, attached to or logically
associated with a contract or other record and executed or adopted by a person
with the intent to sign the record.” Courts have interpreted that language to
mean that the click of a button online can replace an actual signature.
And that brings us to the crucial legal
twist for online contracting: What kind of electronic dealings demonstrate a
“manifestation of assent” to make a contract? For online contracts, courts must
determine what electronic activity constitutes proof of an agreement (and, for
deals subject to the statute of frauds, whether the “writing” and “signature”
requirements have been met).
Courts often examine initially whether the
user showed assent through some kind of “click-through.” This can involve
electronically checking a graphic of some kind, clicking on “I agree,” or
clicking on a direction to enter an order where that click-through button makes
it clear that doing so subjects the buyer to the seller’s terms.
In some cases, particularly where the
statute of frauds does not require a signature, contracts can be created
without a click-through, if, in the circumstances, the user had reasonable
notice of the terms to which he or she was subject. In many cases, for example,
a website user is found to have reasonable notice of website terms that are can
be readily accessed through links on the website.
Unfortunately, as Eric Goldman, a law
professor who follows this area closely has noted, some court decisions have cast “a hazy fog of anarchy” over the nomenclature
and classifications of online assent.
For example, one important case
classified a common situation, where the buyer is clearly warned at the time of
ordering that the order will be subject to the seller’s terms, as an arguably
inferior “browse-wrap” (equivalent to simply browsing the web site or opening
the box containing a software CD) and not a classic and effective
“click-through” (requiring some affirmative “click” to indicate assent) — a
distinction that is hard to understand.
The importance of assent
Parties doing business electronically
probably should disregard these legal labels and focus simply on getting clear
evidence of the buyer’s assent. An affirmative click, especially on a button
labeled “I agree,” or otherwise unequivocally consenting to the seller’s terms,
is usually best. If a check box or order button is used, the language
surrounding it should be clear as to its meaning and significance.
Getting clear assent in real time,
however, isn’t always enough. You also may need to prove at a later date that
consent occurred. Your ordering software should record customer activity, such
as the click-through consents. And you should retain records of your past
website forms and contract terms, so that you can recreate those that were in
place at the time of any contested transaction.
Finally, in some cases even the user’s
proven consent to your terms of sale won’t save those terms. In many cases,
consumers attack certain contract terms as “unconscionable,” essentially
meaning that they were so grossly unfair that courts should not enforce them.
These claims are often made with respect to indemnity, warranty-waiver, and
arbitration provisions. Though unconscionability isn’t a unique online issue,
some courts seem especially concerned about ordinary online consumers getting
caught up in such unexpected and severe terms given our natural impatience with
wading through dense legalese (how many of us have actually read each word of
an iTunes license?).
Ultimately, assent is the big Internet
twist for contract-making. If you are doing business on the Internet, take care
to obtain clear assent from the parties with whom you are dealing, and preserve
good evidence of that assent.
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