Kara Sears
Internet-based contract law, also known as e-contracting or online contracting, is a legal framework that governs transactions conducted over the internet. The advent of the internet and e-commerce has given rise to novel legal issues, such as the formation of online contracts, jurisdiction, and enforceability. Online contracts are generally governed by state law principles, but the multi-jurisdictional nature of e-commerce means that businesses and consumers must navigate a complex web of state, national, and international laws. To address these complexities, various laws and regulations have been established, such as the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA), which recognise electronic signatures and contracts as valid and enforceable, provided they meet specific criteria. The process of enforcing an online contract depends on its content, the laws of the relevant state, and the nature of any breach. While online contracting offers advantages, such as efficiency and cost savings, it also presents challenges, including the need to ensure compliance with relevant laws and the potential for disputes over consent and agreement to terms.
| Characteristics | Values |
|---|---|
| Formation of an online contract | Requires a bargain with a manifestation of mutual assent to the exchange and a consideration |
| Online conduct | Can constitute an offer or acceptance |
| Maker of an offer | Has the right to define how the offer may be accepted |
| Act of acceptance | Clear and unambiguous |
| UCC | Provides that despite a lack of perfect agreement on contract terms, if the parties act as if a contract is in place, a contract will be held to exist |
| Multi-jurisdictional | Online businesses engage in possible activity in every nation in the world |
| E-commerce | Must comply with the basic laws of the state |
| Writing and signature requirements | The Uniform Commercial Code (UCC) Article 2B revisions propose to change some of the requirements for a writing and a signature |
| Execution or subscription requirement | The subscription (signature) requirement of the statute of frauds can be satisfied by a single writing or a series of writings |
| Clickwrap | An acceptable, binding form of signing an online contract |
| Browsewrap | Low enforceability rates because they do not give users adequate notice of the existence of terms |
| Sign-in-wrap | Lowest enforceability rates because they use a "dual-purpose" button |
| Legally binding | An online contract is legally binding if it meets the same legal requirements as a paper contract |
| E-signature | Legally binding in the same way a paper contract is a binding document |
| Enforceability | Highly dependent on the content of the contract, the laws of the state, and how the contract has been breached |
| Security and compliance | Critical in e-contracting |
| Record-keeping | Keeping detailed records of all e-contracts, including versions and amendments, is necessary for transparency and accountability |
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What You'll Learn
Online contract formation
Online contract law is a complex area, with many jurisdictions and laws to consider. The nature of e-commerce means that a business may be engaging in activity in any nation in the world that has access to the internet. This means that businesses and consumers must be aware of the basic laws that exist and apply to transactions over the internet.
Online contracting follows the same basic principles as offline contracting. The same requirements must be fulfilled for a contract to be legally binding, including an agreed set of terms and an intention to enter into a legally binding agreement. However, there are some differences and novel legal issues to consider.
Firstly, the three-stage analysis of invitation to treat, offer, and acceptance is critical to the question of how contracts are formed online. A website may be treated as a shop window, and the advertisement of an item for sale may amount to an invitation to treat. An offer is then made when a customer gives notice of their intention to buy an item, and the seller is free to accept or reject that offer. This can be a complex area, as demonstrated by the example of an online retailer mistakenly advertising televisions for £2.99 instead of £299.
Secondly, under English law, there must be consideration for a contract to be binding, meaning each party must obtain a benefit from the contract. This is rarely an issue in commercial contracts, but there are occasions when it becomes important, such as with guarantees and non-disclosure agreements. Consideration is not a requirement of Scots law.
Thirdly, the terms and conditions must be agreed upon by both parties and incorporated into the contract. Simply placing terms and conditions on a website is not enough. They must be set out clearly and be accessible and downloadable.
Finally, a choice of law and jurisdiction clause is an important term to include in an online contract. This is because there is uncertainty as to where in cyberspace a contract is made. However, consumers will always have the right to sue in the country in which they live.
It is worth noting that not all agreements can or should be e-contracts, and online contracts must comply with relevant laws and case law. Clickwrap agreements, for example, have been established as a legally legitimate form of signing an online contract, as long as they give users notice of the terms and obtain their affirmative assent.
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E-commerce and multi-jurisdictional issues
The challenge arises when online businesses inadvertently or deliberately ignore these legislative differences, leading to potential penalties and bans. Developed countries, in particular, have shown effectiveness in controlling entities within their borders that use the internet for business. Thus, it is crucial for businesses and consumers to understand the basic laws that apply to transactions over the internet.
The formation of online contracts, or e-contracts, must adhere to contract law principles such as offer and acceptance, consideration, and the requirement of a signed writing. Various forms of online conduct can constitute an offer or acceptance, and the maker of an offer has the right to define how it may be accepted. For instance, requiring the purchaser to type "I accept" in a box provides clearer intent than a vague "hit any key to accept" instruction.
To address the challenges of multi-jurisdictional e-commerce, the Uniform Commercial Code (UCC) and revisions to it, such as the Uniform Electronic Transactions Act (UETA), have been proposed for adoption. These revisions aim to make electronically formed contracts enforceable and provide clarity on the writing and signature requirements. Additionally, the federal Electronic Signatures Act (ESIGN) and UETA have established that clickwrap agreements, where users are notified of terms and provide affirmative assent, are binding and enforceable.
While the internet presents novel legal issues for businesses, most hurdles can be overcome by appropriately structuring websites, entering into electronic trading agreements, or occasionally conducting transactions offline.
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Contract enforceability
The enforceability of internet-based contracts is a complex issue that is still evolving. The very nature of e-commerce is multi-jurisdictional, and the laws relating to commercial transactions and consumer protection vary from state to state and country to country. For example, what is banned in one state may be allowed in another, and advertising and selling products online can reach consumers in all of these jurisdictions. While nations can and do seek to limit what appears on the internet, censoring is difficult and often ineffective.
In the United States, the Uniform Commercial Code (UCC) Article 2B revisions propose to change some of the requirements for a writing and a signature, making electronically formed contracts enforceable. The federal Electronic Signatures Act (ESIGN) and The Uniform Electronic Transactions Act (UETA) have also established that clickwrap is an acceptable, binding form of signing an online contract. Additionally, UETA commentary has explicitly stated that an electronic signature includes "the standard webpage click-through process." Case law has also established clickwrap as legally legitimate, as long as users are given notice of the terms and provide their affirmative assent. In contrast, browsewraps and sign-in-wraps have low enforceability rates because they do not adequately notify users of the terms and often fail to capture their affirmative assent.
Courts have also considered the manner in which companies present electronic contracts to their users and whether it is sufficient to form an enforceable contract. While there are no bright-line rules, browsewrap agreements are generally unenforceable, sign-in-wrap agreements fall into a grey area, and both clickwrap and scrollwrap agreements are generally enforceable. However, care must be taken to ensure that even generally enforceable acceptance methods are implemented in a way that increases the likelihood of enforceability. Courts typically look at whether the contract terms were reasonably conspicuous or communicated to the consumer. With the rise of "browse-wrap" contracts, where terms are not directly communicated to the consumer or where the consumer is not required to clearly manifest their assent to the terms, courts have inconsistently applied the reasonable communicativeness standard.
To ensure enforceability, companies should carefully scrutinize how the notice of the terms is presented to users, their site and app page layouts, and how they obtain user assent to the terms. Additionally, it is essential to consider the individual features of the contracting party, including their age, as this may affect the enforceability of the contract.
Furthermore, while most contract law principles, such as offer and acceptance, can be accommodated on the internet, there are practical differences between online and offline contracting that should be considered. For example, demonstrating acceptance of an offer is easier if the conduct defined as "acceptance" is clear and unambiguous. Finally, it is worth noting that even if a company follows all the advice, a court may still find the terms unenforceable with respect to its users due to the above-mentioned factors.
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E-signatures and their legality
Internet-based contract law, or e-contracting, is a relatively new area of law that is becoming increasingly important as businesses move online. E-contracting raises novel legal issues, but most can be overcome by appropriately structuring the website, entering into an electronic trading agreement, or performing one or more steps of the transaction offline.
One of the key considerations for online contracts is the use of e-signatures and their legality. In the US, the federal ESIGN Act, passed in 2000, regulates the use of electronic signatures across the nation. The act was designed to create a consistent standard for the use of e-signatures and to encourage cross-border transactions. The ESIGN Act supersedes state laws, meaning that any state laws regarding electronic signatures must conform to the act's provisions. The act states that an electronic signature or contract "may not be denied legal effect, validity, or enforceability" solely because it was executed electronically.
The Uniform Electronic Transactions Act (UETA), passed in 1999, also establishes the standards for electronic signatures to be considered legally valid. The UETA has been adopted by 49 states, the District of Columbia, Puerto Rico, and the US Virgin Islands. It should be noted that the UETA does not cover all circumstances, and there are still some instances where traditional or "wet" signatures are required for a contract to be legally binding, such as in the case of wills and trusts.
To ensure the legality of e-signatures, organizations should use software that facilitates the signing process, verifies disclosure requirements, prevents tampering, and makes it easy for the signer to download a copy of the executed document. Most e-signature software will record and timestamp each action, creating a detailed audit trail that can help establish authenticity.
In addition to federal laws, individual states may have their own laws regarding electronic signatures. For example, New York has its own Electronic Signatures Records Act, which guarantees that electronic signatures are equal to paper signatures. It is important for businesses and consumers to be aware of the laws in their jurisdiction to ensure that their online contracts are legally binding.
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Online contracting security and compliance
To ensure online contracting security and compliance, businesses should be aware of the legal issues unique to online contracting. For instance, the formation of an online contract requires a clear and unambiguous manifestation of mutual assent, which can be facilitated by requiring the purchaser to type "I accept" rather than a vague "hit any key to accept." Additionally, the Uniform Commercial Code (UCC) provides a framework for addressing conflicting terms in pre-prepared form contracts, ensuring that key terms such as number, price, and timing are agreed upon.
Furthermore, businesses should be mindful of the writing and signature requirements for enforceable contracts. While electronic signatures are acceptable under the federal Electronic Signatures Act (ESIGN) and the Uniform Electronic Transactions Act (UETA), certain agreements may still require a traditional signature. The UCC also requires authentication, which can be satisfied by a single writing or a series of writings, including electronic transactions akin to telegrams and telexes.
To streamline the contract creation process and enhance security and compliance, businesses can utilise contract management software such as Ironclad and ContractWorks. These tools offer features such as data repositories, collaborative platforms, and intuitive workflow designers, enabling businesses to efficiently create, store, monitor, and manage their contracts while ensuring compliance with relevant laws.
Additionally, businesses should be aware of the enforceability of different types of online contracts. For example, clickwrap agreements, which require users to affirmatively assent to the terms, are generally considered legally legitimate. In contrast, browsewraps and sign-in-wraps have lower enforceability rates due to inadequate notice of the existence of terms and a lack of capturing users' affirmative assent.
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Frequently asked questions
An internet-based contract is an agreement formed online, which can be made legally binding through an electronic signature.
An electronic signature is a digital signature that can be used to sign an online contract. This can be in the form of a clickwrap agreement, where a user must click "I Agree" to indicate their acceptance of the terms and conditions.
Internet-based contracts can be beneficial as they are efficient, collaborative, and integrate well with other tools. They are also often enforceable across multiple jurisdictions, which is useful for businesses operating internationally.
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