Adapting contract law to accommodate electronic contracts: overview and suggestions.
Law is not a static body of inflexible rules and unyielding tradition. The dynamism of contemporary economic, cultural, and technological evolution requires the law to adapt itself to modern demands. Attempts to graft archaic legal systems onto ever-changing circumstances result in a struggle to conform novel issues into an out-dated legal framework.(1) Currently, courts and legislatures are facing issues raised by business conducted over the Internet. Failing to blanket current developments, old law leaves new problems exposed for litigation and requires attorneys and judges to explore uncharted seas of legal complexity.
Although the continued application of traditional laws that are unresponsive to changes in the underlying society may promote injustice, a judicial activism that randomly develops "new law" to remedy inadequacies is equally deficient. When confronted with modern problems left unaddressed by existing law, a "rapid solution" is to create novel law to fit the situation. The American legal system, however, relies upon precedent and a coherent, predictable body of authority. Rather than granting arbitrary discretion to create law as needed on a case-by-case basis, the American legal regime requires application of prior law by analogizing existing authority to the issues in question. This process leads to an adaptation of the law through stretched analogies that construct a bridge between prior authority and novel legal problems.
A theory of adaptation presumes that the existing legal framework can be structured to fit novel circumstances that arise. This presumption implicitly requires that new issues can be analogized to issues already addressed by the current law.(2) Further, adaptation recognizes that politics, culture, and technology are forces that shape the social environment and the law that governs it. If the political, cultural, and technological climate remains stable, the law adapts gradually over time as circumstances remain unchanged. Stability promotes only minor variations of existing legal issues that the law can address by analogy without warping the framework. If a force that shapes society and its law rapidly changes, however, new fundamental issues may arise that do not fit within the traditional legal framework that developed under much different circumstances. At this juncture, in recognition of altered circumstances, courts and legislatures must choose to apply existing law blindly, create new law, or adapt existing law by analogy.
The history of America alone contains numerous instances when rapid alterations in the social fabric forced adaptations of the law. Following the American Revolution, the democratic government developed a legal system to reflect the new political environment, but did so through adaptation of English law. During the nineteenth century, the Industrial Revolution introduced powerful technologies that rapidly precipitated economic and cultural changes.(3) Although this era witnessed several new legal theories, including the creation of corporations and the evolution of tort law, the changes arose through adaptation by analogizing existing law to new circumstances. The Great Depression of the 1930s led to expansion of the role of federal government. Cultural revolution during the 1960s emphasized racial and gender equality, promoting affirmative action programs, as well as recognition of environmental concerns.
The Information Age has introduced unprecedented technological development. Following the millennia of an agrarian-based society, the Industrial Age centralized communities and economies in local factories and cities that could support mass populations. During the first half of the twentieth century, technological innovation expanded distribution channels through the creation of transportation and communication improvements. All points of the nation became accessible directly through the use of telephones, automobiles, and airplanes, as well as indirectly through television and radio. Today, computers and the Internet have expanded the horizon by permitting communications access to the world at large. Tasks that once required dozens of workers, weeks of preparation, and additional time for delivery may now be completed in minutes by one person using a computer connected to the Internet.
A major beneficiary of improved technology is the business sector, which utilizes improvements to enhance efficiency and reduce transactional costs.(4) The Internet provides rapid communication capabilities at reduced costs and expands access to a global market. Business can be conducted almost anywhere by using the Internet.(5) An important product of this technological development is the increasing phenomenon of electronic commerce, or "e-commerce,"(6) that harnesses the Internet's abilities for commercial purposes. Electronic commerce encompasses a broad category of economic activity conducted on-line, including everything from e-mail contracts and memoranda to advertising and on-line sales of both tangible goods and information delivered over the Internet.
The recent technological advances, however, have fundamentally altered the structures of many businesses and broadened enterprise opportunities.(7) While regulation of corporate activities and protection of consumers remain vital in e-commerce,(8) the existing law also must address the world of paper contracts, tangible property, and geographical boundaries.(9) Few companies are likely to rely exclusively on the "old ways" of doing business. Accordingly, the law governing business transactions must recognize e-commerce to promote certainty in the law, a precious goal for the business community. To retain a viable legal framework while recognizing extensive technological changes, the desirable solution is the adaptation of existing law by analogizing current problems to issues earlier addressed by the legal system.(10)
Three fundamental issues affecting a business are its amenability to suit (jurisdiction), the validity and enforceability of its agreements (contracts), and its rights and obligations in transactions (sales).(11) The existing law embodied in statutes and case precedent resolves many of the issues that arise in these three areas. Electronic commerce, however, has affected all of these areas through its use of technological innovation.(12) As mentioned, the Internet has expanded the potential geographic business market while reducing the cost of access. Contract formation and performance can be conducted over electronic media and can occur without using a single sheet of paper or a drop of ink.(13) "Virtual" products may be purchased with "virtual" currency before being transferred from one computer to another in the form of electronic packets of information.(14) Since existing law rests upon a more limited business scope, physical documentation, and transactions involving more than electronic signals, an urgent need exists to adapt the law to reflect new business practices while retaining the predictability and authority of legislation and common law.(15)
This article asserts that adaptation of current law to address the novel issues presented by e-commerce is the proper course of action. Legal problems arising in e-commerce can be analogized to issues already resolved within the established legal framework. Important variations in the legal structure will be required, however, to ensure that the law addresses the reality of e-commerce while remaining grounded in pre-existing judicial and legislative authority.(16) Primarily, this article will demonstrate that commercial law, as embodied in the Uniform Commercial Code (hereinafter "U.C.C.") and common law contract principles, can adapt to the circumstances of e-commerce and serve equally well as an analytical tool for evaluating issues that may arise in electronic contracts.
This article addresses several specific problems by analogizing e-commerce issues to issues already addressed by current law. Section II provides a general overview of Internet capabilities and how they can be used for purposes of e-commerce. Section III briefly addresses the issue of personal jurisdiction and how e-commerce may expand a business's amenability to suit in foreign courts, nevertheless limiting its focus to treatment of the three types of "Internet" jurisdiction. Additionally, Section III addresses issues concerning "Internet contracts" and enforcement. These issues include whether e-commerce contracts satisfy the traditionally required elements for valid contracts, where e-commerce contracts are formed or executed, and the application of various contractual rules to e-commerce.
Section IV continues the analysis of commercial law and e-commerce through a discussion of how to define e-commerce transactions. Beyond characterizing e-commerce transactions as "transactions in computer information," the section also analyzes application of the Uniform Computer Information Transactions Act (UCITA) to "mixed" contracts that may involve more than merely a transaction in information. Finally, Section V concludes that the obvious changes that e-commerce embodies, nonetheless, can be analogized within the context of prior circumstances. Commercial law can be adapted to analyze the issues without sacrificing predictability in the law or restricting healthy development of commercial activity.(17)
II. THE RISE OF ELECTRONIC COMMERCE
Electronic commerce does not alter the substance of business contracts so much as it alters the process of agreement.(18) For example, a magazine subscription purchase agreement will have the same terms regardless of whether it is made on a slip of paper, over the telephone, or on the Internet. The real issue is whether contract law will recognize that each process produces an equally enforceable agreement.(19) In other words, will agreements made via the Internet receive the same protection under commercial and contract law as other types of agreements.(20) A key factor to the solution is determining how the process of transacting business on the Internet operates and how agreements formed over the Internet are finalized.
The Internet(21) provides four principal processes by which parties may enter an agreement: (1) e-mail, (2) listserv and chat services, (3) World Wide Web interfaces, and (4) electronic data interchange (EDI). While each process is similar to the others, subtle differences require that each receive separate legal attention. Additionally, many agreements will utilize a combination of these processes during negotiations and in the formation of an agreement. A discussion of basic processes is the most rewarding approach for conceptualizing the electronic tools of commerce.(22)
First, electronic mail, or e-mail, is the most basic process used to form agreements. Simply stated, e-mail permits an individual to send an electronic message to another individual or group of individuals.(23) Underlying the simple definition, however, is a complex mechanical process. To create an e-mail message, an individual writes a message and the computer breaks it down into a digital stream that is further disassembled by the computer's modem into analog tones.(24) The tones are carried over communications links (usually telephone lines) to a computer network where the tones are reassembled into several digital "packets" that are each individually stamped with information concerning the content of the message, its level of confidentiality, time, and the identity of the sender and receiver.(25) The packets are then transformed back into analog form. They are sent independently over the communications link and eventually arrive at the recipient's computer network, where they are reassembled and switched to a digital form readable by the recipient.(26)
Similar to letters sent through the postal system, e-mail is usually written and distributed by a person for another specific person or group. The contents of a message generally are personal and communication includes only the sender and recipient. E-mail messages can be "digitally signed"(27) for authentication and verification purposes. Additionally, senders may "attach" other electronic files to an e-mail message that the recipient can view or use after opening the e-mail. The advantages of e-mail include ease of use, insignificant costs, direct communication, and ubiquity.
Parties can use e-mail for business or commerce in a number of ways. The text of an e-mail may include information relating to negotiations, offer and acceptance, or a draft of the contract itself. Additionally, if the transaction involves electronic products, the e-mail itself, or an attachment to the e-mail, may be the object of the transaction.(28)
Second, individuals may use listservs or chat-rooms to form transactions.(29) Listservs, or electronic bulletin boards, provide a forum for individuals to discuss particular topics by "posting" messages for others to read.(30) Similarly, chat-rooms allow individuals to have real-time dialogs as each person types messages that are immediately viewable by other individuals in the chat room.
A listserv provides a public forum for persons to communicate on a wide variety of subjects. By typing a message or attaching files, an individual creates a "post" for a listserv. The post is broken down by the individual's computer into analog pieces and transferred over communications lines to the listserv network. The listserv network computer reassembles the message and "posts" it to an electronic bulletin board with other messages from individuals. The posts are public and can be read by anyone who uses the listserv until the messages are purged after a given amount of time.(31) Posts often respond to earlier messages and a "thread" of discussion arises. A useful conceptual device is to imagine a chalk board on the hallway of a large office building. Different parts of the chalk board will have messages relating to the company picnic, job openings, office goals, current projects, marketing, and other information. Everyone who uses the building can read the chalk board and write a new message or response to an existing message at any time. Eventually, older messages will be erased to make room for new messages.
The ability to communicate with other individuals offers the opportunity to create business opportunities. As stated above, listservs, like e-mail, allow individuals to engage in negotiations, make an offer or acceptance, send a form contract, or send material that constitutes performance of an agreement. The key difference is that communication is not private but instead occurs in a public forum. Messages are not sent directly to specific individuals; they are posted to an open bulletin board. Additionally, a message is not retained indefinitely within the memory of an individual's computer, but is erased after an established time period from the listserv network computer.
Following a similar mechanism, chat-rooms are electronic fora in which individuals gather at the same time to engage in real-time dialog. Once an individual types a short text message, the message is transferred from the individual's computer to the communications lines and sent to the chat-room network. The network adds the message to a continuous string of messages that is refreshed at short-time intervals to simulate real-time conversation. All individuals using the chat-room may read the stream of messages as they are updated and respond by sending their own message to the chat-room. Often, a systems operator moderates discussion and controls a chat-room through the power to edit messages or remove chat-room users. Messages are not saved or "posted" for later perusal; rather, a message usually appears and is gone within a minute.
Again, the power of parties to pursue economic as well as social opportunities using chat-rooms is self-evident. Individuals in a chat-room can exchange messages at a rapid pace for negotiation or contract formation purposes. Similar to talking over the phone or in person, messages sent through a chat-room provide nearly instantaneous dialog, but with the disadvantage that no message is memorialized for any appreciable length of time.
The third tool for Internet communications, including agreement formation, is the World Wide Web.(32) The Web is a graphical user interface (GUI) for intercommunication between a Web page and an individual who visits that page.(33) On a basic level, an individual uses an Internet browser to type in a Web page address, and the browser displays the Web page. The individual can then "navigate" the site through links and buttons to access additional text and graphical material.(34) On a technical level, the individual types in a Web page address, or uniform resource locator (URL), which the computer transforms into a binary code that is unique for a particular Web page. Using the URL to find where the Web page is located, the individual's computer contacts the Web page server over communications lines. Once contacted, the Web page's server transforms the page, written in hypertext mark-up language (HTML), into binary code "packets" that are transferred to the individual's computer to be reassembled.
Web pages combine multimedia and the ability to intercommunicate. These characteristics not only permit a seller to provide product and service information, but also to communicate directly with potential buyers. Many electronic commercial Web sites include on-line purchase forms and permit payment over the Internet.(35) The individual need only type personal information into specified fields and click on a "return" or "accept" button to complete the transaction.(36) Transactions may include the purchase of physical goods such as luggage or clothing, or may involve the purchase of software or electronic files that are downloaded to the individual's computer immediately upon payment.(37) For these transactions, negotiations are not common.
Finally, transactions may occur electronically using electronic data interchange (EDI). The simple definition of EDI is the "computer-to-computer transmission of data in a standardized format."(38) Essentially, computers act as "electronic agents" for agreement formation without human intervention.(39) The process may work as follows:(40) an individual completes an electronic form requesting quotations for goods or services that he seeks to purchase. The request is sent electronically to a computer network that forwards the requests to bidders, who then return quotations for the suggested transaction. This process may be entirely automated without any human involvement once the process begins.(41) Noticeably, EDI not only lacks negotiation of an agreement, but may involve no human element during the process itself.(42) While convenient and efficient, EDI demands investigation of whether computers have legal capacity to contract as electronic agents.
Having examined the processes by which electronic agreements operate, several conclusions emerge: (1) all communication is paperless and without a physical signature; (2) the identity of the parties to an electronic agreement is observable only by the information that each party provides about itself; (3) the mechanics of electronic agreements are all similar insofar as electronic communication disassembles messages into analog packets for transfer over communications lines.
Differences arise, however, within each class of electronic communication. E-mail is private and sent directly among actively participating parties.(43) Bulletin boards and chat-rooms are public, but neither retain messages indefinitely. Electronic commerce Web pages contain standard forms for interested parties to complete without negotiation of the contract terms. EDI involves automated messaging without any human intent involved for the creation of the actual agreement.
Accordingly, the question raised is whether these processes produce agreements that are legally enforceable as contracts.(44) Do these electronic processes fit within traditional concepts of contract law? Will proposed changes in commercial law effectively resolve problems generated by electronic agreements? Will a "one-size" legal framework fit all electronic processes or will different rules be required for different types of electronic contracts? Although this article argues that agreements created by various electronic processes can be enforced as contracts, the analysis to arrive at that conclusion requires explanation. Primarily, this article analyzes traditional contract requirements of a written document, signatures and intent in conjunction with recent proposals for changes in commercial law, technological innovation and electronic commerce. Before beginning that analysis, however, a brief review of jurisdiction is required to set the stage for any subsequent contract enforcement action.
III. PERSONAL JURISDICTION AND COMMERCIAL USE OF THE INTERNET
The Internet provides businesses with an additional way to communicate with customers and prospective customers.(45) Whether using a Web site to provide information about the company, sending e-mail to solicit potential clients or allowing customers to purchase and download software directly from the World Wide Web,(46) sellers can use the Internet to conduct operations around the world. Commercial activity is no longer necessarily confined to regional boundaries. Instead, the Internet allows a company to expand its commercial endeavors globally to all persons who can access the Internet. Companies that were once unable to afford mass advertising campaigns or national sales representatives now can use the Internet's technology to turn a one-person home office into a global competitor. For many businesses, access to the national or international markets is available because the Internet ignores boundaries and provides links to areas once commercially inaccessible.
Expansion of markets, however, includes an increased risk of litigation. The threat of litigation not only concerns lawsuits by an expanding number of customers, but where those customers can sue the Internet businesses. As businesses increase their market area they become subject to the jurisdiction of a greater number of courts. While companies now have the power to access national markets, they also may be subject to suit in any court of the nation. Focusing upon issues of greater personal jurisdiction due to Internet commerce, this section examines the courts' evolving treatment of businesses' amenability to suit in a particular forum as a result of their Internet activities.(47)
As is well known, personal jurisdiction permits a court to exercise its authority over a defendant based upon the defendant's connection with the forum.(48) Personal jurisdiction imposes a due process limitation upon the courts insofar as no court may exercise its power over a defendant who has no connection with the forum in which the court is located.(49) The decisive question, however, is the kind of "connections" the defendant must have to satisfy the due process requirement. Formerly based solely upon a defendant's physical presence in the forum,(50) the "connections," or "contacts" analysis of personal jurisdiction addressed not only a defendant's place of residence, but its activities in the forum.(51) When telephones and automobiles made it easier for business to expand its boundaries, courts responded by expanding their jurisdiction to include those geographic areas which the defendant purposefully selected for economic gain.(52)
The relaxed basis for jurisdiction notwithstanding, a court located in a specific forum could not exert its power over a defendant whose activities had no substantial contact with the forum itself. The United States Supreme Court, addressing the issue of personal jurisdiction, has developed the law to reflect the increasing ability of businesses and others to "reach out" into distant areas of the nation. Having provided a baseline rule of personal jurisdiction in Pennoyer v. Neff,(53) the Court advanced the law in International Shoe Co. v. State of Washington(54) to reflect the reality that automobiles permitted companies to expand their business into distant forums and thus, appropriately render the entrepreneurs subject to the power of courts beyond their home ports.(55) Establishing the "minimum contacts" doctrine, International Shoe permitted courts to exercise personal jurisdiction over businesses or other persons not residing in the forum so long as they engaged in continuous activities in the forum.(56) The Court continued to expand the test for personal jurisdiction as "modern transportation and communication ... made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity."(57)
Although adjusting the scope of personal jurisdiction by recognizing the increased fluidity of national transportation, the Court began to restrain the minimum contacts doctrine. In WorldWide Volkswagen Corp. v. Woodson, the Court found that, although technology had permitted increased access to distant places, personal jurisdiction was not proper when the defendant's contact with the forum was not substantial enough for the defendant to "reasonably anticipate being haled into court there."(58) In Helicopteros Nacionales de Colombia v. Hall(59) and Asahi Metal Industry Co. v. Superior Court of California,(60) the Court also limited the exercise of personal jurisdiction. Helicopteros noted the Court's aversion to general personal jurisdiction,(61) and Asahi Metal introduced the "stream of commerce" argument that limits personal jurisdiction even if the defendant is aware that its products likely will end up in the forum.(62)
Today, personal jurisdiction analysis requires several components.(63) First, a plaintiff invoking jurisdiction must establish that the defendant has sufficient "minimum contacts," which include any business activities or purposeful availment of the forum's residents for business, as well as obtaining the benefit of the forum's laws.(64) The contacts must be directed at the forum and cannot be random, fortuitous, or attenuated.(65) The contacts must be such that the defendant can reasonably anticipate being haled into court in that forum.(66) Second, assertion of personal jurisdiction must satisfy due process such that maintenance of the suit does not offend "traditional notions of fair play and substantial justice."(67) If the facts satisfy these two criteria, the basic constitutional requirements are met and the court may exercise authority over the defendant. Although state courts may further limit assertions of personal jurisdiction beyond the constitutional minimum, many states have enacted "long-arm" statutes permitting state courts to assert personal jurisdiction to the full extent allowed by due process.(68)
Recently, courts have begun to consider whether use of the Internet constitutes "contact" with a forum sufficient to establish personal jurisdiction.(69) Analogous to cars and the telephone,(70) the Internet permits companies to communicate and do business with persons in distant places. Unlike cars and telephones, however, the Internet permits a company to be everywhere at the same time. Given the Internet's ubiquity, courts have had to question whether mere use of the Internet subjects a defendant to personal jurisdiction anywhere a user may log on to the Internet. Different courts have arrived at three possible, but significantly different, responses.(71)
Response One (Simplistic Approach): Several courts have held that use of the Internet is alone sufficient to assert personal jurisdiction. While some of these holdings have noted that the specific use of the Internet to transfer a product on-line or contracting via e-mail meets the minimum contacts analysis,(72) other opinions have gone further and found that even advertising on the Internet is a sufficient contact wherever the advertisement can be accessed.(73) Courts adopting the "simplistic rule" have addressed the global nature of the Internet as well as the ability to access Internet information at any time by any potential user.(74) Additionally, courts using this analysis have relied upon the historical expansion of personal jurisdiction whenever improvements in technology have permitted persons greater access to distant areas.(75) Given the Internet's power to reach a national audience, coupled with the conduct of businesses that target commercial markets through the Internet, courts adopting the "simplistic approach" have held that use of the Internet in this manner constitutes a "minimum contact" and places the party on notice that it may be haled into court in any forum where the Internet is accessible.(76)
Response Two (Balancing Approach): Other courts have held that use of the Internet alone is not sufficient to satisfy the minimum contact requirement for personal jurisdiction.(77) Several of these cases involved Internet websites that merely served as the defendant's advertisements and were not targeted for a national audience, although the sites were accessible nationwide.(78) Recognizing the informational and passive character of these Internet advertisements, courts adopting the "balancing approach" have refused to assert personal jurisdiction merely because information concerning a company was available to forum residents.
Response Three (Sliding Scale Approach): Several cases provide intermediate analysis synthesizing the two approaches previously discussed. This third line of analysis adopts a "sliding scale" approach that examines how a defendant uses the Internet.(79) The sliding scale method focuses on the level of interactivity between the defendant's Internet presence and the forum residents who use the Internet.(80) Thus, the "likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet."(81) One end of this sliding scale consists of those defendants who do business over the Internet, while the other end consists of defendants who only use the Internet to post information passively.(82) All other activity falls between the two ends of the spectrum, and assertions of personal jurisdiction depend upon the "level of interactivity and commercial nature of the exchange...."(83) Courts using this sliding scale approach have welcomed it as a reasonable compromise to the increasingly confusing issue of Internet contacts and personal jurisdiction.(84)
Issues of personal jurisdiction are an important consideration for businesses seeking to expand their customer market. Such issues are acute for businesses seeking to take advantage of the Internet because courts vary significantly in their exercise of personal jurisdiction based upon Internet contacts. Following this section, the authors present a series of non-jurisdictional issues that may arise whenever businesses electronically enter contracts using the Internet. These issues may give rise to litigation. If a company uses the Internet to actually conduct business, rather than the mere passive presentation of advertisements or other information, suits could be filed against it anywhere in the United States, absent a forum-selection clause.(85)
IV. ELECTRONIC CONTRACTS: TRADITIONAL LAW AND MODERN PROBLEMS
Contract law consists of a large body of rules and guidelines that address contract formation and enforcement. Stating the fundamental principle in basic terms, a contract is nothing more than "a promise or [a] set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty."(86) Formation of a legally recognized contract requires an offer,(87) acceptance,(88) and consideration.(89) Additionally, rules addressing specific issues of formation and enforcement supplement the basic definition.(90)
Some contracts, depending on their subject matter, are governed by specialized areas of contract law that address the specific needs of certain bargaining relationships. An important subset exists for commercial contracts. Beyond some court interpretations under general contract law, contracts for the sale of goods receive unique treatment to promote commercial certainty, predictability, and uniformity. Article 2 of the Uniform Commercial Code (U.C.C.) is the foremost example of this "specialized" law for contracts, extending general contract law to address issues of importance in the formation and enforcement of certain commercial agreements, specifically the sale of goods. Outside the domestic arena, the United Nations Convention on Contracts for the International Sale of Goods(91) may apply to the sale of goods among international parties.(92) The most recent addition to the panoply of specialized contract law is the UCITA, which addresses transaction agreements for the exchange of computer information.
Provided the expanse of contract law to address an innumerable variety of agreements and relationships, application of traditional law to electronic contracts may seem perfunctory. After all, parties to an electronic contract appear to conduct themselves and expect others to conduct themselves in the same manner as they have under traditional rules. The fatal error, however, in this simplistic approach is that electronic contracts do not always fit the traditional framework that structures general contract law. Electronic contracts may never appear on a piece of paper, may involve instantaneous transactions, may involve minimal or no negotiation or interaction, and may involve no human interaction at all. Far from the concept of genteel business persons meeting together to negotiate with caution and deliberation, electronic contracts may be swift, inhuman affairs.(93) Having identified the problem, the solution must seek to shape the law to fit the circumstances.
Since electronic contracts significantly alter the environment in which agreements are formed, the following sections of this article address several important issues regarding contract formation. These sections focus on electronic contracts for the sale of goods and other commercial transactions. Beginning with basic questions surrounding mutual assent in an electronic world, the discussion moves on to analyze additional issues involving contract formalities, characterization of electronic contracts, application of the U.C.C., and broader potential problems yet to be resolved.
A. Mutual Assent
Mutual assent consists of an offer by one party and an acceptance of that offer by another.(94) Generally, failing to satisfy a "meeting of the minds" on the terms and content of an agreement means that no contract arises. Contract law liberalizes this fundamental requirement, however, through a set of rules and interpretations to determine when an offer is made and when a manifestation of assent is present.(95) Although no formalities are required for making an offer, recognition of an acceptance requires additional rigor in order to rise to the level of mutual assent.(96) While this manifestation of assent may arise by written document, spoken word, or other conduct,(97) a valid contract exists if the manifestation demonstrates that a party intended to accept the terms of the offer by exchanging promises or performance.
While not all electronically formed contracts demand legal inquiry into the existence of mutual assent, "point-and-click" contracts and EDI transactions present their distinct characteristics. Consider the following four examples:
Example 1: Shareware, Inc., develops a computer game. America Online (AOL) wants to create a virtual arcade for its Internet subscribers and wants to buy the exclusive rights to Shareware's game. AOL sends an e-mail from an Ohio-based computer to Patterson, Shareware's director of operations in Texas. The e-mail offers $50,000 in exchange for rights to the game. Patterson sends a reply by e-mail stating that Shareware will sign over the rights upon deposit of the $50,000 with a designated escrow agent.(98)
Example 2: Having sold its first game to AOL, Shareware wants to develop and market another. While logged onto a chat-room discussion of new game development strategies, Patterson sends a message to another person logged onto the room who is using the name "T-Mek." Responding instantly with his own typed message, T-Mek assures Patterson that Java-script is the wave of the future for game programmers and informs Patterson that he will sell Patterson an instruction book on Java programming. Patterson replies that he is interested, but only if the book costs twenty-five dollars or less and can be shipped within twenty-four hours. T-Mek agrees to the twenty-five dollars price, but wants forty-eight hours to ship the book. Patterson agrees and promises to wire the twenty-five dollars to T-Mek's address within seven days and T-Mek types "okay" in reply.
Example 3: Mario subscribes to AOL and visits its new virtual arcade. Mario plays a demo version of the game that Shareware sold and notices that the entire game may be purchased over the Internet from AOL. Interested, Mario follows a few links until he reaches a web page filled with legalese. At the top of the page is the phrase, "Virtual Arcade Game Purchase Agreement," followed by a series of provisions stating that the cost of the game is $10, that AOL is not responsible for content or damage, that all legal disputes will be governed by Ohio law and filed in Ohio courts, and provides a place for Mario to enter his credit card number. At the bottom are two clickable buttons that are labeled "accept" and "reject." Mario types in the necessary information and clicks the "accept" button.
Example 4: Shareware's programming staff consumes a large amount of junk food, and must continuously stock its vending machines. The company that stocks these machines uses an EDI system to accept orders and process them electronically for immediate shipment. In an effort to avoid frequent inventorying, Shareware develops a program for the vending machines that will keep track of the supply of food in the machines. When the inventory reaches a low level, the program automatically dials vending corporation's EDI system and places an electronic order to refill the machines. The vending corporation's EDI system confirms the order and transmits a purchase order to the warehouse for immediate shipment.
Each of the above examples involves a transaction that occurs within an electronic medium. Assuming that no other issues regarding contract formalities or formation are relevant, the sole issue for consideration is whether mutual assent (as defined by general contract law) is manifested.
The first two examples pose no significant problem for mutual assent. Following explication of the terms, the parties exchange promises in a manner no different than if they were sending letters or talking on the telephone. Although not face-to-face, the involved parties communicate between themselves to reach assent through the exchange of e-mail in Example 1, and by real-time chat in Example 2. Disregarding other issues, the language and conduct of the parties in each case manifests an intent to enter into a sales transaction.(99)
Unlike the first two scenarios, Examples 3 and 4 are problematic in the area of mutual assent. Neither example incorporates a "meeting of the minds" nor a contemporaneous exchange by conscious entities to set the terms of the agreement. Example 3 finds a person faced with a take-it-or-leave-it purchase agreement for software. Example 4 finds no person at all, but merely two computer systems exchanging pre-programmed data to order and ship merchandise. Whether either situation involves mutual assent deserves scrutiny.
Example 3 embodies the "point-and-click" contract or "shrink-wrap" agreement.(100) Commonly used in software packaging, "shrink-wrap" contracts provide that an offeree accepts all provisions of the sales agreement simply by opening the software package.(101) Similarly, when items are sold over the Internet, a "point-and-click" contract provides that by clicking on an "accept" button, a person accepts all provisions of the seller. The hallmark of these "agreements" is that they are non-negotiable and non-acceptance of any provision requires the buyer to refrain from opening the package or clicking the "accept" button.
"Point-and-click" contracts may lack mutual assent.(102) Such a contract often contains numerous detailed provisions that many consumers may not read or may misunderstand, such that a meeting of the minds as to the provisions never occurs.(103) By focusing on the seller's interests and demanding non-negotiable terms, the contract leaves nothing on which the parties voluntarily agree.(104) A judicial finding of mutual assent would appear to be difficult in these circumstances.
While "point-and-click" contracts raise the issue of mutual assent, courts probably will enforce their terms. Several decisions have upheld the use of "shrink-wrap" contracts(105) and the UCITA validates both "shrink-wrap" and "point-and-click" contracts.(106) Additionally, the UCITA provision for manifesting assent expands the scope of conduct that demonstrates intent to accept an offer by expressly including "point-and-click" agreements.(107) Provided with the liberal boundaries of mutual assent, the mere fact that an agreement is provided on a "take-it-or-leave-it" basis, without any opportunity for negotiation, will not likely prevent formation of a contract, albeit an electronic contract.
The problem suggested in Example 4 faces a similar legal conclusion. The significant circumstance in this scenario is that an electronic transaction occurs without any human involvement during the transaction; the offer, acceptance and mutual assent all occur between electronic agents. How can computers arrive at a meeting of the minds to produce an enforceable contract?
Although no reported case addresses this issue, the UCITA provides that transactions between electronic agents are enforceable contracts. Section 112, comment 3(c)(108) states that an agreement involving an electronic agent(109) may form a valid contract. Justifying the result through reduced transactional costs and enhanced purchasing capabilities, UCITA promotes the use of electronic agents while avoiding fundamental issues of assent. Agreeing that an electronic agent cannot assent "based on knowledge or reason to know" of the terms, comment 3(c) provides that assent is determined by whether the operations of the electronic agent system indicate assent.(110) Thus, the electronic agent's "assent" is traced back to the human mind that programmed the system or entered the data that the system utilized to search for purchases and accept them.(111) Regardless of whether the effectuating agents are human, electronic, or both, the concept of mutual assent has been broadened to include combinations of these types of effectuating agents.
B. Formalities and Interpretation
Given that the liberalized concept of mutual assent may support the finding of an electronic contract, the next hurdle to overcome is determining whether an electronic contract is otherwise enforceable and, if so, how to determine its legal effect. Principally, these concerns focus upon compliance with contract formalities and rules of interpretation. Absent a coherent framework for enforcement of electronic agreements, predictability and commercial practicality suffer. Although general contract law and the U.C.C. have developed bright-line rules to address these issues,(112) the electronic medium undercuts several basic assumptions that structure established rules. Whether a string of electronic bits stored in the memory cache of a laptop satisfies the writing requirement of the Statute of Frauds - or whether instantaneous messaging obviates the mailbox rule for delivery of acceptances - are issues that infect the core purpose of traditional contract formalities. While parties may assent to create electronic contracts, the enforcement and interpretation of these agreements as valid contracts is an equally vital concern for business.
The following discussion centers upon several key concepts, including the Statute of Frauds, delivery of communications, the parol evidence rule, and consideration. Following the initial decision to adapt existing contract law to the electronic medium, the authors' development of issues traces a path that attempts to retain the traditional concepts, yielding to innovation only when technology has rendered these concepts obsolete.
1. Statute of Frauds
A basic rule of contract law is that certain types of agreements must be in writing before they may be enforced.(113) Absent a writing and the signature of the party charged, a court will refuse to enforce what may be an otherwise valid agreement that fits one of the six categories of contracts within the typical American Statute of Frauds.(114) Employed over the years to guard against fraud and discourage perjury, the Statute of Frauds continues to require written contract in certain instances to "promote certainty and deliberation ... while limiting memory problems when the contract terms are questioned in court."(115)
Although a long accepted tenet of contract law, the Statute of Frauds has not escaped exceptions and relaxation. For example, U.C.C. [sections] 2-201 has liberalized the rule to require only a writing that contains a quantity term for the sale of goods.(116) Moreover, no writing is required unless the contract price is $500 or more. So long as the writing provides a sufficient basis to determine that it is part of an actual transaction, the Statute of Frauds is satisfied.(117) Further, the writing requirement may become inapplicable through part performance and where promissory estoppel may defeat a Statute of Frauds defense to yield a more equitable result.
Electronic contracts provide an opportunity to revisit the Statute of Frauds to determine its modern vitality. As previously mentioned, the rule requires a written memorial and the signature of the party charged(118) - simple concepts in a paper-and-ink world that are obviously different in a paperless electronic universe. Thus, the question is whether the Statute of Frauds can apply to electronic contracts whose components simply do not fit the traditional interpretations of "writing" and "signature" that the Statute originally intended. Although several modern commentators view continued use of the Statute of Frauds as an outmoded anachronism,(119) the Statute can retain its place and, the author's believe, in light of its purposes, should remain an integral part of contract law in the electronic world. To understand its continued importance, the concepts of "writing" and "signature" must be developed to fit the electronic environment.
a. What is a "writing"?(120)
The Statute of Frauds formulation implies that a "writing" is itself a basic and understood concept. Obviously, the term includes paper-and-ink "writings" on stationery, napkins or cardboard, but could also include spray-painted contract terms on a fifty-foot billboard or statements carved into the trunk of a tree.(121) So long as the words were scratched onto a physical medium serving to "memorialize," or preserve, the agreement, the Statute of Frauds is satisfied. Numerous hypotheticals (e.g., the contract written in sand on the beach) were generated to raise an interesting problem. While these contracts are preserved in a tangible medium, the short duration of their existence poses a deeper question - does the Statute of Frauds require a writing qua writing, or is the writing necessary for some other purpose.(122)
The evolving definition of a "writing" in contract law points toward a more fundamental purpose served by the Statute of Frauds: preservation of the terms of a contract in a semi-permanent fixed medium.(123) Although the Restatement (Second) of Contracts does not define "writing," the U.C.C. defines a "writing" as any "intentional reduction to tangible form."(124), A "writing" preserves the agreement in a medium independent of the parties' memories and protects against the impermanence of oral promises that dissipate into thin air the moment they are made.(125) If an agreement is recorded within a medium that preserves the intention of the parties, the writing requirement surely would be satisfied.
The current concern is whether electronic contracts classify as "writings." While a printed copy of a contract formed electronically is identical to any other "pen and paper" writing, the less certain case involves "paperless" electronic contracts that exist only in computer memories or on computer screens.(126) Whether the terms of an agreement appear on a web page, in an e-mail, or within a word processing file, the terms are not "etched" onto a permanent medium; rather, the terms exist only as a continuous stream of electrons visible momentarily on a computer screen or as a long string of binary code cached in memory and processed by a program that enables one to view (and in many cases alter) the information. Electronic contracts are not "reductions" to a tangible form at all, but instead are an intangible composite of electricity, computer code, and algorithms that lacks any "fixed" status. Accepting this as true, how should the law enforce electronic contracts without requiring that each agreement or alleged agreement be reduced to a physical copy or print out?(127)
Although some commentators have advocated discontinuance of the Statute of Frauds for electronic contracts,(128) the UCITA has imported the rule while revising the writing requirement.(129) UCITA makes no reference "writings," but uses the term "record" in its place.(130) While retaining the "tangible medium" prong(131) a "record" includes any information "that is stored in an electronic or other medium and is retrievable in perceivable form."(132) When the information may be converted into perceivable form, the information exists as a record, apparently even if the recordation is only temporary.(133) Further, fixation in the medium need not be permanent, so long as the information is capable of being recalled from a computer's memory, with or without the aid of a machine.(134)
Thus, UCITA section 201 presents the new and improved Statute of Frauds by using the concept of a "record."(135) If a record indicates that a contract was formed and reasonably identifies the subject matter of the transaction, the "record requirement" is met. Integrating both U.C.C. and common law contract concerns,(136) the intent of the rule follows traditional lines by focusing on formalities for significant transactions without imposing the requirement on smaller contracts of less significance (i.e., those under $5,000 or lasting for less than one year).(137) If the record evidences that the contract falls within the scope of UCITA, is authenticated, and specifies the copy or subject matter involved, the formalities are satisfied.(138) The formalities are met if the record is capable of being perceived, even if the record is not retained.(139)
If UCITA responds to the advent of electronic contract law, the Statute of Frauds' writing requirement is now evolving into an amorphous "recording" requirement. Parties need not "reduce" their agreement to a concise written document; rather, the parties merely need to "record" their agreement so that it could be read or heard again.(140) Use of a computer screen to view a transcript of negotiations or a tape player to listen to an audiocassette of telephone bargaining is analyzed no differently than drafting a written document.(141) If an independent electronic source contains authenticated evidence of agreement, the writing or record requirement is satisfied, even if that source exists only for a very short time.
b. What is a "signature"?
In addition to a "writing," the Statute of Frauds also requires the signature of the party charged with breaching the contract.(142) A party who physically signs a contract with his or her full legal name satisfies the signature requirement; however, due to the liberalization in the application of the Statute of Frauds, a full signature has never been required to satisfy this element. Generally, any mark or symbol executed by a party who intends to use that symbol as its signature when signing the writing is legally sufficient.(143) Initials, the letter "X," corporate letterhead, or even a thumbprint may serve as a signature so long as it appears anywhere on the contract and was executed or adopted with the present intent to authenticate the writing.(144) The purpose of requiring a signature is not an empty formality, but serves to "authenticate" a contract (i.e., to identify the party and the party's intent to enter the agreement that the writing purports to establish).(145)
UCITA advances one step further by wholly abandoning the term "signature" in favor of the concept of "authentication."(146) UCITA uses the term "authenticate" in place of "signature."(147) Although the definition of "authenticate" expressly includes signing a record or adopting a symbol,(148) the term's broad definition includes sounds, encryption, or any other process that indicates the intent of the party to identify itself, adopt or accept the terms, or verify the content of the record.(149) The definition, while technologically neutral, requires that a process of authentication be commercially reasonable, and provide evidence of intent to authenticate as well as proof that the method was used.(150) Although the comparison between "signing" a document and "authenticating" a record is inexact,(151) authentication may be conceptualized as either a signature on the document or a signature by process applied to the document, either of which serves to indicate intent, acceptance, and verification.(152) While the phrase "signature on the document" is rather easily understood, "signature by process applied to the document" is more difficult to understand. An explanation of digital signatures will provide an excellent foundation for the examination of signature by process.(153)
i. Digital Signatures and Authentication
Digital signature technology has become an important tool for businesses seeking to exploit electronic commerce.(154) The reason the technology is playing a major role in electronic transactions is that digital signatures serve to verify and authenticate messages.(155) Before explaining how digital signatures resolve authentication and verification problems for electronic contracts, however, a brief explanation of what they are and how their work is instructive.(156)
The process of creating a digital signature requires encryption or encoding.(157) To begin, assume that Buyer types a message on her computer that she will send to Seller. Buyer could send the message as it is, but a third party could intercept the message or change its contents before Seller received it. Alternatively, Buyer could encrypt the message before she sends it to keep its contents secret and unchanged until Seller receives the message. To encrypt the message, Buyer's computer will use a complex mathematical formula (algorithm or "hash function"), or "key" to change the content of the message into an unintelligible string of symbols ("hash string").(158) Anyone attempting to intervene before Seller reads Buyer's message will find only the incomprehensible hash string.(159) Once Seller receives the message, he will decode or "unlock" the message using the same "key." This process is called "symmetric cryptosystem" or "private-key" encryption.(160)
Digital signature technology operates through a similar, though more complex, process known as "asymmetric cryptosystem" or "public-key" encryption.(161) Each party has both a "private-key," which is used only by a single individual, and a "public-key," which is available to others.(162) The keys are mathematically related, but it is mathematically improbable to derive the private key from the public key that others can access.(163) Returning to Buyer, she will encode the message using her private key to create a "one-way hash result."(164) This hash result is a "digital signature" that is unique both to Buyer's private-key and the particular message. When Seller receives the message, Seller will apply Buyer's public-key to the message to create a second hash result. The second hash result should match the first hash result so long as the message is encoded by Buyer's private-key and the message has not been changed since Buyer sent it. If the public-key does not work, Seller is alerted that the message supposedly sent by Buyer was not "signed" by her private-key and, therefore, the message likely is the product of an imposter.(165) Additionally, if the public-key works, but the second hash result is not identical to the one-way hash result, seller knows that the message has been altered since Buyer signed it with her private-key.(166)
To complicate matters, suppose that Seller becomes concerned that the stream of messages from "Buyer" are from someone who is pretending to be Buyer.(167) Seller would like to determine whether the person using Buyer's private-key is actually the Buyer. If only two parties are involved, the Buyer's identity is likely to remain unreliable. If an independent third party verifies Buyer's identity, however, reliability is restored. Recognizing this advantage, digital signature technology relies upon certification authorities ("CAs") to assure the identity of senders.(168) CAs issue digital certificates that contain a user's public-key and verify that the user identified on the certificate holds the corresponding private-key.(169)
Digital signatures promote authentication of sender identity, data integrity,(170) and non-repudiation.(171) First, digital signatures provide a process to determine who sends a communication and determine the identity of the sender.(172) Second, digital signatures provide information about whether the message has been altered.(173) Third, if a digital signature demonstrates that a message has not been altered and identifies the sender, the sender is unable to repudiate either the contents of the message or that it was sent by her.(174) Essentially, these processes restrain problems of verifying and authenticating electronic communications.
The security that digital signatures provide has led to growing interest by numerous commercial industries seeking to exploit technology.(175) A majority of states have adopted digital signature laws(176) and others probably will follow suit upon introduction of UCITA, which "legitimizes" digital signatures for commercial contracts.(177) The United States Congress has become involved, as well.(178) The American Bar Association has published guidelines and promoted a national public-key system.(179) Private companies, such as Verisign, Inc., are stepping forward as certification authorities to hasten the widespread use of e-commerce.(180) Additionally, Intel has developed the Pentium III microchips with embedded serial numbers that can be used in conjunction with digital signatures not only to authenticate communications, but also to determine the specific computer that sent the communication.(181) Moreover, governmental agencies and industries are beginning to recognize the value of digital signature technology.(182)
ii. Digital Signatures as "Signature by Process to the Document"
Earlier, the law introduced "signature by process to the document" concept as an alternative to the traditional "signature on the document" concept.(183) With the explanation of digital signatures, the meaning of the former phrase is easier to grasp. A "digital signature" is not a "signature" at all, but a process that uses encryption and algorithms to encode a document.(184) The process, however, creates a product that uniquely identifies the particular individual who uses the process. Thus, when a person "digitally signs" an electronic record, she applies a process to the record, but that process specifically identifies her because she is the only person who uses the particular process.(185) Additionally, use of the process raises an inference of intent to identify oneself with the particular record and adopt its content.(186)
c. Records, Authentication, and Electronic Contracts
Currently, as noted, the Statute of Frauds equivalent for electronic contracts demands a record authenticated by the party to be charged in order to be enforceable.(187) The question posed initially, however, is whether the Statute of Frauds retains vitality in light of these changes or whether relaxation of the requirements eviscerates its stated purposes. The answer appears clearly to be that the Statute of Frauds remains both viable and potent for electronic contracts.
Although the "record" requirement is more lenient than the "writing" requirement,(188) authentication serves to remedy issues raised by the relaxed rule. The definition of "record" includes any "fleeting fixation" of terms, so long as the record is capable of being perceived.(189) Suppose person X asserts that person Y sent an e-mail accepting an offer or typed a contract on a word-processing program, but that the e-mail or contract was not saved to memory. Nonetheless, X sues Y, alleging that the record requirement was met by a "fleeting fixation" that was perceived on a computer screen for several moments.(190) What prevents X from winning his lawsuit? The authentication requirement prevents the fraud. The Statute of Frauds requires not only evidence of the contents of a contract (record), but also requires evidence that the party charged intends to enter the contract and accepts its terms (authentication).(191) If X cannot produce a record, he also is unlikely to produce any evidence of authentication.(192)
Earlier the discussion noted the liberalization of the authentication requirement to encompass both "signatures on the document" and "signature by process to the document."(193) This expansion does not alter the Statute of Frauds' viability for two reasons. First, authentication merely expands available methods to evidence intent to enter an agreement, but the "new methods" appear to bolster identification rather than open the door to perjury. The use of processes to "sign" a document involves complex, statistically unique formulae that are identified with particular individuals and are more difficult to replicate than other types of signatures.(194) Second, "authentication may be on, logically associated with, or linked to the record."(195) Authentication is not merely evidence that a person intended to enter the alleged contract, but requires evidence that a party intended to enter a specific contract evidenced by a record that itself contains indicia of authentication.(196) The Statute of Frauds operates healthily through the interrelation of a record and authentication; satisfaction of the rule is not permitted without the concurrence of both elements.(197) Although both "record" and "authentication" are more expansive concepts than the traditional "signed writing," the terms achieve the same purposes in light of technology that no longer requires physical writings or signatures on a document. Rather than reinvent the wheel, electronic contract law has reformulated the requirements to achieve an identical purpose - leaving the Statute of Frauds as a prophylactic against fraud and perjured testimony.
Another traditional rule governing the formation of contracts is the "mailbox" rule, which provides that an acceptance is effective upon dispatch,(198) but a revocation of an offer is not effective until received by the offeree.(199) Acceptance by a manner and medium acceptable under the circumstances renders it effective as soon as it leaves the offeree's possession, even if the acceptance never reaches the offeror.(200) Revocation by the offeror, however, is not effective until receipt by the offeree.(201) When the rule arose to remedy the problems of long distance negotiation by telegram or posted letter, the bright-line test worked well to establish when a contract is formed through delivery of an acceptance. Today, instantaneous communication by electronic means either complicates the rule or obviates its continuance for electronic contracts.(202)
Most electronic contracts are capable of formation within a matter of seconds, even between parties that are separated by vast distances.(203) Regardless of whether an acceptance is communicated by an e-mail, typed within a real-time chat-room, or sent by one electronic agent to another using a dedicated EDI telephone line, the delivery of the acceptance is almost instantaneous, and unlikely to take more than a few minutes.(204) If two-way communications are immediate, the rules governing offer and acceptance when parties are in the presence of each other may apply and prevent application of the mailbox rule.(205) When parties can communicate with one another without a substantial lapse of time, the Restatement (Second) of Contracts requires application of the delivery rules used when the parties are negotiating face-to-face.(206) Provided that the vast majority of electronic contracts will be formed by a method of communication that is substantially instantaneous, the mailbox rule should be of little import for electronic contracts. Thus, parties should anticipate that the rules governing communication of offers and acceptances by persons engaged in face-to-face negotiations will apply.
D. Interpretation: "Battle of the Forms" and Parol Evidence Rule
Assuming the existence of a valid contract enforceable within the Statute of Frauds, the next consideration is interpreting the contract's contents. This process may involve two distinct questions: first, what are the contents of the contract, and, second, whether the parties' agreement is limited to the contract's contents. If the contract is not evidenced by a single record, but consists of a series of communications, different terms may arise within the series and a "battle of the forms"(207) arises concerning which terms the parties intended to incorporate into the agreement.(208) Additionally, whether the agreement is contained in a single record or is a composite of several records, a party may attempt to introduce additional extrinsic evidence because the existing record did not contain all of the terms of the parties' agreement. If this happens, the court must then look to the parol evidence rule for construction of the contract.(209)
When an acceptance varies the terms of an offer, a "battle of the forms" issue arises concerning which terms the parties agree to and which terms are discarded.(210) When common law applies, an acceptance must be the "mirror-image" of the offer - complying with the terms and manner of performance.(211) If the acceptance fails to mirror the offer, it operates as a counter-offer and is therefore not an acceptance.(212) Avoiding the effect of this rule, Article 2 of the U.C.C. provides that acceptance may be made "in any manner and by any medium reasonable."(213) Additionally important, Article 2 provides that an acceptance providing additional terms may nonetheless operate as a valid acceptance of the offer.(214) These different or additional terms, however, create a battle between the parties over which terms become part of the contract. If the parties are non-merchants, the additional terms merely become proposals that the other party is free to accept or reject.(215) Provided the parties are merchants, the additional terms become part of the contract except under specific circumstances.(216) Where the parties' conduct demonstrates that a contract exists, their agreement will include the terms they agree to and the supplemental "gap-filling" terms that Article 2 provides.(217)
Electronic contracts are as prone to "mirror-image" problems and the "battle of the forms" issues as are non-electronic contracts. Due to the wide variety of methods to contract electronically,(218) these issues may arise in numerous ways. For example, a person assenting to a form contract that appears on an Internet site for downloading software will be limited to accepting the terms as they appear, but the same person will encounter fewer restrictions on the manner of acceptance if he bargains with another individual using e-mail. Given the "unrestricted nature of electronic contracting,"(219) uniform interpretive rules are needed to determine which terms become part of the contract, or whether the "mirror-image" rule will apply to prevent contract formation. If the contract is within the scope of UCITA, a "battle of the forms" tracks the Article 2 rules.(220) For an electronic contract outside the scope of UCITA, however, the "mirror-image" rule will likely apply.(221)
When the "mirror-image" rule applies to non-UCITA electronic contracts, no significant problem arises regarding contract terms. The attractiveness of electronic contracts is due in part to the efficiency and ease of negotiating and forming an agreement. The flexibility of the medium, however, also permits wide variance in the manner and method of communicating offers and acceptances.(222) A strict application of the "mirror-image" rule would appear to defeat many otherwise valid contracts and render electronic contracting less desirable. Additionally, offerors would find solace only in boilerplate contracts limiting the manner of acceptance.(223) Whether this temptation is a significant problem, however, is another question. First, most commercial contracts for standard goods or services are form contracts even when printed or written. Accordingly, no surprise or undue burden should be expected when formed electronically. Second, Article 2 has made a marked impact on the traditional "mirror-image" rule and shifted the trend toward advancing formation rather than delaying or frustrating it by strict adherence to inflexible rules. As an authoritative voice concerning electronic contracts, UCITA should establish a similar standard for electronic contracts and avoid the opportunity to reestablish a "mirror-image" rule for non-UCITA electronic contracts.(224) Nevertheless, the disassociation of the "mirror-image" rule from contract theory comes a caveat: the ease of contracting electronically may lead to the ability to form contracts too easily.
Although the rule for electronic contracts should not be so rigid to prevent contract formation, neither should the rule become so lenient. A myriad of electronic communications may be construed objectively as binding contracts even though the parties may not have intended such a result. While a "mirror-image" rule would have minimal effect on commercial electronic agreements, a court's interest in denying enforcement of non-identical electronic offers and acceptances is not justified if it means returning to the "mirror image" rule's inflexibility. Instead, the leniency of Article 2 should apply to commercial agreements formed electronically rather than treat such contracts differently.
Once an electronic contract is established, a related problem concerns whether the stated terms are the only terms the parties intended. When litigation concerns the scope of the contract, should a court look only to the terms of the contract or should it include extrinsic evidence to construct the terms of an electronic contract? The parol evidence rule, thus, enters the picture.
The parol evidence rule is a canon of contract law preventing the introduction of extrinsic evidence under certain circumstances. When parties have reduced their contract to what appears to be a fully or partially integrated memorialization, no party may introduce evidence of communications prior to or contemporaneous with the contract's execution to vary its integrated terms.(225) If an agreement is ostensibly only partially integrated, extrinsic evidence of consistent additional terms is admissible.(226) The parol evidence rule gives stability to written agreements by preventing oral evidence to contradict the meaning of the writing, absent fraud or mistake in the writing's preparation.
Article 2 has adopted a variant of the parol evidence rule for the sale of goods.(227) Although retaining the general prohibition on evidence of prior or contemporaneous communications to vary the terms of an integrated agreement, Article 2 permits supplementation of the terms "by course of dealing," trade usage, and "course of performance."(228) Additionally, a presumption arises that an Article 2 contract does not contain all of the terms;(229) UCITA contains the same general rule for electronic contracts,(230) including the presumption that the contract is not fully integrated.(231)
The near universal adoption of the parol evidence rule provides strong support that the rule also should apply to electronic contracts. A concern, however, arises since the nature of electronic contracting promotes a series of records rather than a single integrated document.(232) Many electronic contracts are likely to be formed by a series of communications containing various provisions and ancillary agreements.(233) Even the simplest consumer transaction probably will involve a record of the offeror's terms in the form of an e-mail or Web page followed by an acceptance by separate e-mail or telephone call. In light of the expanded (and fragmented) negotiations that an increasingly varied communications medium provides, the parol evidence rule becomes an important doctrine when the court must determine the admissibility of prior or contemporaneous dealings. Although the rule may become more difficult to apply insofar as identifying when an integrated contract arises,(234) the rule is essential in managing the potentially large number of communications that could be admitted or excluded when interpreting the contract. Further, as a rule of substantive contract law to determine a party's intent, no cogent reason exists to deny the continued viability of the rule on the ground that an electronic medium radically alters its application. The parol evidence rule should apply to electronic contracts to promote continued certainty, despite increasing challenges to the mechanical application of the rule to electronic contracts.
Finally, although a contract requires consideration, the rules regarding this essential element are rather generous, favoring enforceability of promises.(235) Consideration simply requires the bargained-for performance or return promise.(236) Generally, a "peppercorn" of consideration is sufficient, and a court of law will not inquire into the adequacy of consideration so long as a bargained-for exchange is found.(237) Regarding electronic contracts, consideration presents no novel problem. As with any other type of contract, an electronic agreement will require a bargained-for exchange consisting of performance or return promises.(238) Thus, it appears that no unique distinction should be made regarding consideration for electronic contracts as opposed to other types of contracts.
F. Characterization of Electronic Contracts
Up to this point, the analysis of electronic contracts has relied upon provisions of Article 2, UCITA, and general contract law without strictly applying any particular law to the discussion. Now, however, the distinctions among the various applicable laws require elaboration. When enforcement of an electronic contract is sought, a court is unlikely to examine the issues using a heterogeneous mixture of general and specialized contract law. The source of law that the court applies will depend upon the predominant subject matter of the contract.
1. Goods, Services, and Computer Information Transactions
Considering electronic contracts, three kinds of contracts are of special importance.(239) First, contracts for transactions in goods are governed by Article 2 of the Uniform Commercial Code.(240) Goods are anything that is "movable at the time of identification"(241) and must exist at the time any interest in them passes.(242) Second, UCITA applies to computer information transactions.(243) A transaction in computer information requires the acquisition, development or distribution of information that is "in an electronic form that is obtained from, accessible with, or useable by, a computer," particularly information that is susceptible to immediate modification or perfect reproduction.(244) Lastly, service contracts generally are governed by common law and predominantly address personal services rather than the transfer of goods.
Although seemingly bright-line definitions of special types of contracts have been carved, a contract often satisfies several different descriptions. When confronted with a "hybrid" or "mixed" contract, a court must determine which law governs.(245) Thus, if a contract requires both goods and services, such as a construction contract, a court must discern the character of the contract to determine whether Article 2 or general contract law governs.(246) When characterizing a mixed contract, a court is likely to employ the "predominant purpose" test,(247) but may opt for alternative methods, especially the "gravamen of the action" test.(248) Although mixed contracts present complications in litigation, agreements with different subject matters are unexceptional in practice and routine in consumer transactions.(249)
2. Electronic Contracts
As already noted,(250) no special law of "electronic contracts" exists since electronic contracting is a method of forming agreements, not a subset based upon any specialized subject matter. Nevertheless, the prior discussion clearly reveals the burden that electronic contracts place upon existing contract law and the potential problems of applying existing rules to electronic commerce.(251) Although UCITA addresses many of these changes insofar as it encompasses some transactions that are uniquely electronic, not all electronic transactions are within the scope of UCITA.(252)
The key problem for courts facing electronic contract issues now becomes clear. On the one hand, a unique "law of electronic contracts" appears to be unnecessary and redundant. The purposes of general contract law continue to apply to electronic transactions (even if the terminology is archaic), and it is unnecessary to reinvent contract law to achieve an identical result possible under current law.(253) A specialized law of electronic contracts would add little to the existing rules other than duplicative statements of law subtly rephrased to encompass electronic contracting.(254)
While the use of UCITA to resolve basic issues plaguing electronic contracts is an apparent solution, its use is not a complete solution. UCITA presumes that most, if not all, contracts are mixed contracts governed by multiple bodies of contract law.(255) UCITA provides a source of contract law only if the mix of subject matter in the agreement includes issues arising within its scope.(256) UCITA, however, is applicable only if an UCITA issue is presented to the court or if an UCITA subject is the predominant (but not the only) purpose of the contract.(257) UCITA has limited application to many commercial transactions.(258)
Given the narrow focus of UCITA, is it proper to use selective portions of UCITA as guidelines that apply to all electronic contracts? Alternatively, do UCITA's provisions concerning electronic contracts merely clarify existing law, such that their use as guides is both helpful and encouraged? Although the answer is unclear, UCITA appears only to rephrase existing law to address electronic contracts, rather than radically altering the purpose and effect of the law for electronic contracting. UCITA provides guidance for understanding the process of electronic contracting.
If this analysis is accepted, the subject matter of the electronic agreement will determine the governing rules. The application of those rules, however, is likely to be interpreted in light of UCITA's provisions regarding the formation, interpretation, and enforcement of electronic contracts.
V. ELECTRONIC CONTRACTS AND THE EXPANDING HORIZON OF TRANSACTIONAL CAPABILITY
The preceding discussion, addressing concerns raised by the application of existing contract law to the formation of electronic agreements, focuses on the known rules and their application to the electronic phenomenon. Electronic contracts present challenges on a macro-level, as evidenced by an analysis of the formation and enforcement of contracts. Contract law (like other areas of the law) does not operate in a vacuum. Thus, examination of the technological world in which electronic contracts operate is as essential as the foregoing discussion of how electronic contracts fit into existing rules. In light of this additional concern, the article now shifts its analysis to the broader issues that electronic contracts raise in other areas of the law, including jurisdiction, choice of law, international concerns, and, ultimately, the problem of comparative legal analysis.
A. Due Process
Jurisdictional problems arise because advanced and advancing technology transcends geographical boundaries.(259) First, addressing only contracts formed within the United States, the attempt to enforce an electronic contract requires a threshold determination of whether the parties (or their transaction) have sufficient contacts with a forum to provide the courts requisite power to adjudicate the dispute.(260) As the discussion in Section III noted, courts are split widely on the jurisdictional rules applicable to electronic transactions.(261)
Electronic contracts exacerbate jurisdictional issues. Transnational communications by e-mail or the Internet are fast, efficient, and inexpensive - often requiring merely the clicking of a button or the pressing of a key. Additionally, transactions may arise through negotiations and require performance that has no distinct geographical location. Similar to automobiles and the telephone, computer technology is likely to stretch the fabric of due process across an expanded framework of "presence" when establishing the parameters of personal jurisdiction.(262) Unless due process demands are satisfied, the court does not resolve issues involving contract existence and its terms.
B. Choice of Law
Choice of law issues arise concerning not only the appropriate body of law to be applied to an electronic contract, but also the issue of identifying the factors that influence choice of law.(263) Although choice of law in the contract area has generally remained stable,(264) a number of interesting issues remain.(265) One issue is whether a jurisdiction applies either Restatement (First) of Conflict of Laws(266) or the Restatement (Second) of Conflict of Laws. Although a majority of jurisdictions have adopted the modern trend followed by the latter, jurisdictions that follow the Restatement (First) may encounter problems similar to those encountered in determining personal jurisdiction.(267) Even under the modern "interest analysis" approach, however, problems may arise in grafting conflict of law rules onto electronic contracts. Notably, the Restatement (Second) details rules for specific types of contracts based on their character.(268) Section IV, however, acknowledged the difficulty in characterizing mixed contracts and revealed that an "electronic contract" itself is not a special type of contract.(269) For other cases, the Restatement (Second) requires the "most significant relationship" test that focuses on the geographic locations for negotiations, performance, formation, and place of the subject matter.(270) Yet again, the concentration on geographic location falls short of providing a strong method of analysis for electronic contracting with its unlimited expanse. Thus, even if the applicable substantive law addresses electronic contracts, choice of law rules may fail to recognize the methods of electronic contracting and thereby cripple predictability and certainty of party expectations.(271)
C. International Agreements
Moving to international business transactions, the technological revolution has expanded the ability to communicate and interact across the globe. Problems arising domestically regarding electronic contracts (such as jurisdictional and choice of law issues) are also of critical importance for international parties.(272) The Internet and related electronic components are parts of a global media that spin an intricate web of connections useful for inducing and entering business deals. If an electronic contract arises, the most basic questions - which countries have jurisdiction, whose law applies, and which rules of the chosen law apply - quickly become intertwined.
A potential solution to these dilemmas is the Convention on Contracts for the International Sale of Goods (CISG).(273) Promoting uniformity and "good faith in international trade," the CISG provides a substantial body of regulation for international sales contracts.(274) A notable highlight is the CISG's permissive stance toward contracts not evidenced by a writing.(275) The CISG, however, applies only to goods(276) and, moreover, presumes the parties are somewhat knowledgeable of the customs and practices of international law.(277) Whereas the CISG abandons rigid rules by reliance on the strength of international custom and the presumption of sophistication of international traders, this reliance may not translate into a viable system of law to govern a vast subset of electronic contracts entered by everyday persons who have access to the entire world at their fingertips.
The final point returns to the concerns raised at the beginning of this article(278) - establishing a legal framework for electronic contracts. Parties rely on traditional legal rules for certainty, predictability, and satisfaction of expectations. Methods of electronic contracting do not challenge the purpose of the rules. Rather, they challenge the application and interpretation of the existing rules. Section IV of this article highlights the important point that rules such as the Statute of Frauds and the parol evidence rule further the purposes and principles important to the success of e-commerce. Problems arise in litigation, however, because technology has significantly challenged the concepts used to express the traditional values.(279) Additionally, the recent explosion of available technological manipulations is neither easy to understand nor is the full potential completely realized. Thus, courts, legislatures, and lawyers are left to explore an uncharted sea of legal possibilities, trying neither to restrain modern developments nor relax the law to invite unforeseen and undesirable consequences.
Examining the problem closely, electronic contracting challenges the usual benefits of legal analogy. The mechanics of electronic contracting cover a broad range of possibilities that existing rules and concepts define without contemplation of e-commerce. The analogies sometimes are not a good fit, thereby requiring expansion. The expansion, however, must continue to fit the purposes underlying the rules of contract law. The important task is to redefine the terms without undermining the purposes. The law governing electronic contracts must navigate around technological shoals and hold the safe course in the interest of commerce and sound social policy. Contract law need not be reinvented because of the advent of electronic contracts. It needs, simply, to adjust to continue its longstanding policies in domestic and foreign commerce.
The term "electronic contract" is not self-defining - other than to hint that one of a variety of electronic methods was used to form an agreement. As such, the legal community should not expect that the phrase talismanically will invoke a separate and special body of contract rules. Neither should one expect traditional law to remain stagnant despite significant new processes for forming and recording agreements. Since technological leaps affect almost the entire legal system, contract law must recognize and reasonably regulate the radical alterations in contract formation. The goal, however, is not to draft an untested legal framework, but to rely on the purposes of rules that have, for decades and even centuries, encouraged commerce and protected participants. While the electronic revolution provides new processes that allow the formation of contracts, contract law remains to solve mundane, yet important, problems - remedied by common sense solutions.
(1.) See Ethan Katsh, Law in a Digital World: Computer Networks and Cyberspace, 38 VILL. L. REV. 403, 405-06 (1993).
(2.) The [legal] metaphor was a symbolic attempt to promote the law's legitimacy and to bring order to the law.... [It] paralleled the attempts of scholars ... to portray the law as possessing an all-encompassing structure, to identify links between apparently inconsistent judicial decisions and to demonstrate that natural connections can be found in seemingly disparate parts of the law.
Id. at 405.
(3.) See generally LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN LAW 337 (2d ed. 1985) (discussing legal themes of the late nineteenth century).
(4.) See Craig W. Harding, Trends in Electronic Commerce: Doing Business over the Internet, 509, 512 (PLI Pat., Copyrights, Trademarks & Literary Prop. Course Handbook Series No. G4-3988, 1996); see also Raymond T. Nimmer, Information Age in Law: New Frontiers in Property and Contract, N.Y. ST. B.J., May/June 1996, at 28.
(5.) A striking example is the Internet company CDNow. Following unsuccessful attempts to locate Miles Davis recordings, the CDNow founders spent $1,500 to buy an Internet server they set up in the basement of their parents' home and began an on-line music store. Today, CDNow is a multimillion-dollar enterprise and at one point owned one-third of the market share for on-line music retailing. See Gus Venditto, Building a Better Music Store, INTERNET WORLD, Dec. 1997, at 52.
(6.) "E-commerce," as used in this article, includes two facets. First, e-commerce includes the "automation of business-business transactions through the use of telecommunications and computers to exchange and process electronically commercial information and business transaction documents." Harding, supra note 4, at 514. Second, e-commerce includes the sale of both tangible and intangible property, the latter of which may be delivered in the form of information or software transferred by electronic means. See Raymond T. Nimmer, Selling Product Online: Issues in Electronic Contracting, 823, 825 (PLI Pat., Copyrights, Trademarks & Literary Prop. Course Handbook Series No. G4-4000, 1997).
(7.) See The White House, A Framework for Global Electronic Commerce (visited Aug. 15, 1999) <http://www.ecommerce/framewrk.htm> [hereinafter Framework] (detailing President Clinton's initiative for electronic commerce).
(8.) See id.
(9.) Simply stated, "`law lags technology.'" John Anecki, Comment, Selling in Cyberspace: Electronic Commerce and the Uniform Commercial Code, 33 GONZ. L. REV. 395 (1998) (quoting HENRY H. PERRITT, JR., LAW AND THE INFORMATION SUPERHIGHWAY 2 (1996)).
(10.) The White House's Framework for Global Electronic Commerce proposes a "simple legal environment based on a decentralized, contractual model of law" that recognizes the Internet's unique qualities, but also remains rooted in existing commercial laws that will be modified only to the extent necessary to support electronic technologies. Framework, supra note 7. But see David J. Loundy, E-Law: Legal Issues Affecting Computer Information Systems and Systems Operator Liability, 3 ALB. L.J. SCI. & TECH. 79, 88-89 (1993) (discussing some analogies that have been used to characterize cyberspace and dismissing them as being inappropriate); Tammy S. Trout-McIntyre, Comment, Personal Jurisdiction and the Internet: Does the Shoe Fit?, 21 HAMLINE L. REV. 223, 250-51 (1997) (discussing the idea of declaring cyberspace a sovereign state and the creation of "cybercourts" of extraterritorial jurisdiction). See generally Scott E. Bain, Book Note, 12 BERKELEY TECH. L.J. 231 (1997) (reviewing HENRY H. PERRITT, JR., LAW AND THE INFORMATION SUPERHIGHWAY 2 (1996), for the assertion that existing legal metaphor is the proper guide for structuring Internet law).
(11.) This statement does not infer that these are the only concerns of electronic commerce. See, e.g., Elizabeth K. King, Technology and the Securities Markets, 459 (PLI Corp. L. & Prac. Course Handbook Series No. B4-7241, 1998) (discussing securities regulations in light of technological change); Walter A. Effross, Withdrawal of the Reference: Rights, Rules, and Remedies for Unwelcomed Web-Linking, 49 S.C.L. REV. 651 (1998) (discussing litigation and theory concerning web-linking); Janine S. Hiller and Don Lloyd Cook, From Clipper Ships to Clipper Chips: The Evolution of Payment Systems for Electronic Commerce, 17 J.L. & COM. 53, 55 (1997) (discussing the evolution of electronic payment systems); David S. Prebut, State and Local Taxation of Electronic Commerce: The Forging of Cyberspace Tax Policy, 24 RUTGERS COMPUTER & TECH. L.J. 345, 345 (1997) (discussing the conflict between federal tax policy and state and local government attempts to tax burgeoning e-commerce); Kyrie E. Thorpe, Comment, International Taxation of Electronic Commerce: Is the Internet Age Rendering the Concept of Permanent Establishment Obsolete?, 11 EMORY INT'L L. REV. 633 (1997) (discussing the international taxation difficulties due to Internet components and noting that e-commerce businesses do not qualify as permanent establishments).
(12.) Prominent e-commerce businesses have begun to address these issues through the Global Business Dialogue on E-Commerce, an initiative which seeks to impose self-regulation on taxation, privacy, security, jurisdiction, and content problems arising in e-commerce. See Andrea Petersen, Electronic-Commerce Initiative Is Set by Top Executives at 17 Companies, WALL ST. J., Jan. 15, 1999, at B6.
(13.) Nonetheless, paper-based transactions are presumed in commercial law and they remain viable in the Information Age. See Patricia Brumfield Fry, X Marks the Spot: New Technologies Compel New Concepts for Commercial Law, LOY. L.A. L. REV. 607, 607, 610-11 (1993).
(14.) See LILIAN EDWARDS & CHARLOTTE WAELDE, LAW & THE INTERNET 15 (1997) (explaining the concept of "packet-switching" by which information is transferred over the Internet).
(15.) See generally David R. Johnson & Kevin A. Marks, Mapping Electronic Data Communications onto Our Existing Legal Metaphors: Should We Let Our Conscience (and Our Contracts) Be Our Guide?, 38 VILL. L. REV. 487 (1993) (discussing the use of traditional legal metaphors to describe legal issues involving the Internet).
(16.) See I. Trotter Hardy, The Proper Legal Regime for "Cyberspace," 55 U. PITT. L. REV. 993, 994-96, 1053-54 (1994) (proposing that Internet regulation will require application of current law, modification of existing law, or creation of new law depending upon the specific issue); David R. Johnson & David Post, Law and Borders - The Rise of Law in Cyberspace, 48 STAN. L. REV. 1367 (1996); Katsh, supra note 1 (arguing that changes in communications structures have altered fundamental legal analysis).
One of the most extensive forays into this area was the drafting of proposed Article 2B of the U.C.C. The drafters of Article 2B engaged in an ambitious effort to develop an extensive framework for agreements covering transactions in computer information. Following completion of draft Article 2B, however, the American Law Institute (ALI) and the National Conference of Commissioners on Uniform State Laws (NCCUSL) announced that the proposed roles would not be promulgated as Article 2B, but instead would be promulgated as an independent uniform law called the Uniform Computer Information Transactions Act (UCITA). See NCCUSL to Promulgate Freestanding Uniform Computer Information Transactions Act (visited Feb. 16, 2000) <http://www.2bguide.com/docs/040799pr.html>. UCITA retained virtually all of proposed Article 2B's language and comments, and the ALI and NCCUSL's decision appeared to rest upon the belief that codification of the material within the U.C.C. was inappropriate. See id.
Since the draft of proposed Article 2B was well circulated for some time, a number of articles - including several cited herein - were prepared prior to the NCCUSL's announcement. Because the UCITA does not alter the draft of Article 2B in substantive effect, the commentary that these sources provide remains pertinent to an analysis of UCITA.
(17.) Although this article addresses only issues of commercial law, discussion of contract principles that apply to Internet transactions may also provide valuable insight into other Internet legal issues. Many commentators argue that on-line governance is a matter of contract law. See Johnson, supra note 15, at 490-91; Framework, supra note 7; see also Hardy, supra note 16, at 1028-32.
(18.) See, e.g., Thorpe, supra note 11, at 646-51 (defining e-commerce as a "methodology" and listing numerous examples of e-commerce). For a business perspective on the characteristics of e-commerce and the digital economy, see generally Harding, supra note 4.
(19.) Another example is a contract for the sale of land by either written or oral promises. While both the written and oral contract will have the same substantive terms, the law will enforce only the written contract because the Statute of Frauds operates against the process of making the same agreement by oral representations. See RESTATEMENT (SECOND) OF CONTRACTS [sections] 110(d) (1981) [hereinafter RESTATEMENT]. These examples are in contrast to the unenforceability of agreements produced by the influence of fraud, duress, or coercion, in which the circumstances underlying the process of contract formation probably have affected the substantive terms. See id. [subsections] 164, 175 (addressing when a contract is unenforceable for fraud or coercion).
(20.) See generally 1 JOHN K. HALVEY, COMPUTER LAW AND RELATED TRANSACTIONS 565-96 (1994 & Supp. 1997) (addressing general contract and commercial law for computer transactions).
(21.) The Internet is a "bundle" of various services, including e-mail, the World Wide Web, Internet Relay Chat (IRC), listservs, telephony services, and video-conferencing. See M. Louise Turilli & Joseph Kershenbaum, Securities on the Internet: Changes in Laws Required to Increase Online Offerings, N.Y. ST. B.J., Dec. 1998, at 22, 24; see also Ilene Knable Gotts & Alan D. Rutenberg, Navigating the Global Information Superhighway: A Bumpy Road Lies Ahead, 8 HARV. J.L. & TECH. 275 (1995).
(22.) See Loundy, supra note 10, at 154 ("If judges, juries, lawyers and legislators do not understand current technology, the technology will have changed before the law catches up to it. Many of our current laws will work if adapted to computer information systems.").
(23.) See Reno v. American Civil Liberties Union, 521 U.S. 844, 850 (1997); see generally KENT D. STUCKEY, INTERNET AND ONLINE LAW [sections] 1.02[e] (discussing the mechanics of e-mail and how it can be used to contract).
(24.) See J. Christopher Gooch, The Internet, Personal Jurisdiction, and the Federal Long-Arm Statute: Rethinking the Concept of Jurisdiction, 15 ARIZ. J. INT'L & COMP. L. 635, 640-41 (1998) (explaining the "anatomy" of e-mail).
(25.) See id. For a short discussion of packet-switching, see Thorpe, supra note 11, at 641-42.
(26.) See Gooch, supra note 24.
(27.) See infra Section IV.B.1.b.i.
(28.) Two examples include a subscription newsletter published by e-mail and the transfer of a computer application using an e-mail attachment.
(29.) See Reno v. American Civil Liberties Union, 521 U.S. 844, 850 (1997).
(30.) See Loundy, supra note 10, at 82-84 (discussing bulletin board functions).
(31.) An electronic bulletin board is much like a physical bulletin board used by individuals to post flyers, pamphlets, posters, for-sale signs, employment opportunities and other information. At the end of the week, the maintenance staff clears the bulletin board, and the process begins again.
(32.) See Reno, 521 U.S. at 850.
(33.) Cf. STUCKEY, supra note 23, at xvi (describing the World Wide Web).
(34.) See Thorpe, supra note 11, at 642-44 (discussing the World Wide Web).
(35.) A proposed model electronic contract requires a personal computer, Internet connection, electronic commerce software for payment services, a credit card, and a digital signature. See Anecki, supra note 9, at 408. Many current electronic agreements, however, will lack at least one of these elements.
(36.) See Holly K. Towle, Electronic Transactions and Contracting, 515, 519 (PLI Pat., Copyrights, Trademarks, & Literary Prop. Course Handbook Series No. G0-0001, 1998); see also STUCKEY, supra note 23, [sections] 1.02 (discussing "point-and-click" agreements).
(37.) See Andrew Urbaczewski et al., A Manager's Primer in Electronic Commerce, Bus. HORIZONS, Sept. 1, 1998, at 5.
(38.) John P. Fischer, Computers as Agents: A Proposed Approach to Revised U.C.C. Article 2, 72 IND. L.J. 545, 547 (1997). EDI has been used since the 1960s between trading partners in on-going relationships, usually with a signed document entered into prior to using EDI for future orders, by use of a Value-Added Network (VAN) dedicated to EDI. See F. LAWRENCE STREET, LAW OF THE INTERNET [sections] 1-4(a) (1998). Use of Internet EDI, however, creates two problems: (1) a dedicated EDI network no longer insures communications integrity and (2) parties may not have executed a physical document prior to using EDI. See id.
(39.) An "electronic agent" is a "computer program, or electronic or other automated means, used by a person to initiate an action, or to respond to electronic messages or performances, on the person's behalf without review or action by an individual at the time of the action, or response to a message or performance." UCITA [sections] 102(a)(27) (1999); see also STREET, supra note 38, [sections] 1-9(b)(4) (discussing electronic agents).
(40.) See generally Harding, supra note 4, at 528-33; see also ABA, Electronic Messaging Task Force Subcommittee, Model Electronic Data Interchange Trading Partner Agreement and Commentary, [sections] 1.1 (1990), in The Commercial Use of Electronic Data Interchange - a Report and Model Trading Partner Agreement, BUS. LAW., June 1990, at 1645, 1723 (specifying a process for EDI purchase orders). Additionally, the process may be partially automated, such as when a person places a telephone order and keys requests into a computer by using the phone's number pad. See Anecki, supra note 9, at 414-15.
(41.) For example, Company X maintains a computerized inventory system that is programmed to send out a request for offers when less than ten widgets are in inventory. When the inventory falls, the computer will automatically send out a request to bidders. The bidders' computers may be programmed to respond immediately with quotes that are sent back to Company X's computer, which then will select the best quote and send an electronic confirmation.
(42.) See Anecki, supra note 9, at 414.
(43.) The principal problem for e-mail contracts is determining manifestation of intent when the intent is not expressed. See STUCKEY, supra note 23, [sections] 1.02[e].
(44.) The basic issues of electronic contracts involve the "battle of the forms," the parol evidence rule, the "mailbox rule," and determining assent through authentication of signature. See id. [sections] 1.02.
(45.) See text supra Section II.
(46.) See Anecki, supra note 9, at 405.
(47.) For purposes of simplicity, the authors address only personal jurisdiction for domestic litigation and do not attempt to provide an analysis of Internet activity and international jurisdiction. The global reach of the Internet and the threat of international judicial actions relating to on-line operations, however, has been the subject of commentary. See Stephen Wilske & Teresa Schiller, International Jurisdiction in Cyberspace: Which States May Regulate the Internet?, 50 FED. COMM. L.J. 117 (1997).
(48.) A plethora of articles concerning personal jurisdiction and the Internet continue to appear in print. See, e.g., William S. Byassee, Jurisdiction of Cyberspace: Applying Real World Precedent to the Virtual Community, 30 WAKE FOREST L. REV. 197 (1995); Christine E. Mayewski, Note, The Presence of a Web Site as a Constitutionally Permissible Basis for Personal Jurisdiction, 73 IND. L.J. 297 (1997); Timothy B. Nagy, Comment, Personal Jurisdiction and Cyberspace: Establishing Precedent in a Borderless Era, 6 COMM. L. CONSPECTUS 101 (1998).
(49.) See Pennoyer v. Neff, 95 U.S. 714, 733 (1877).
(50.) See id. at 722.
(51.) See id.
(52.) See infra text accompanying notes 70-72.
(53.) 95 U.S. 714, 722 (1877) ("[N]o State can exercise direct jurisdiction and authority over persons or property without its territory.... [T]he laws of one State have no operation outside of its territory, except so far as is allowed by comity...."). For further discussion, see infra notes 55-69 and accompanying text (discussing court decisions that address problems of personal jurisdiction).
(54.) 326 U.S. 310 (1945).
(55.) See id. at 313-14. International Shoe found that courts in the state of Washington had jurisdiction over a business that did not have offices or make sales contracts in the state, but had sent traveling salesmen into the forum, made numerous sales to state residents, and kept permanent display rooms in the state. See id.
(56.) See id. at 317-320; see also Shaffer v. Heitner, 433 U.S. 186, 202 (1977) ("The advent of automobiles, with the concomitant increase in the incidence of individuals causing injury in States where they were not subject to in personam actions under Pennoyer, required further moderation of the territorial limitations on jurisdictional power.").
(57.) World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 293 (1980). See also McGee v. International Life Ins. Co., 355 U.S. 220, 223 (1957) (holding that personal jurisdiction by California court was appropriate where defendant based in Texas had sold and maintained a single insurance policy in California). See also Gray v. American Radiator & Standard Sanitary Corp., 176 N.E.2d 761, 766 (Ill. 1961).
Advanced means of distribution and other commercial activity have made possible these modern methods of doing business, and have largely effaced the economic significance of State lines.... [T]oday's facilities for transportation and communication have removed much of the difficulty and inconvenience formerly encountered in defending lawsuits brought in other States.
(58.) Id. at 297. World-Wide Volkswagen decided whether an Oklahoma state court could assert personal jurisdiction over a New York defendant with regard to an automobile accident that occurred in Oklahoma where persons who had purchased a car from the New York defendant were injured while traveling through Oklahoma. See id. at 288-89. Although the defendant could foresee that one of its cars could end up in Oklahoma, the Court held that mere foreseeability of possible contacts with the forum was insufficient to assert personal jurisdiction; instead, the Court required that the defendant must also have a reasonable belief of being subject to suit in the forum as a result of such contacts. See id. at 295, 297.
(59.) 466 U.S. 408 (1984).
(60.) 480 U.S. 102 (1987).
(61.) See Helicopteros, supra note 59, at 413-19. General personal jurisdiction arises when the defendant's contacts with the forum are unrelated to the cause of action. See id. Helicopteros involved a Colombian defendant in a wrongful death action that resulted from an accident that occurred in South America. See id. at 409-11. The plaintiff brought suit in Texas, asserting that the defendant's purchase of several helicopters and its contract negotiations in the state sufficed for personal jurisdiction. See id. Finding the defendant's contacts with Texas both unrelated to the cause of action and insufficient, the Court dismissed the suit for lack of personal jurisdiction. See id. at 412-13.
A given State exercises "specific jurisdiction" over a particular defendant when "[that] State exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's contacts with the forum...." Id. at 414 n.8. In contrast, a State exercises "general jurisdiction" over a particular defendant when "[that] State exercises personal jurisdiction over a defendant in a suit not arising out of or related to the defendant's contacts with the forum...." Id. at 414 n.9.
(62.) See Asahi, supra note 60, at 111-12. The Court determined that merely placing an item into the stream of commerce with the ability to foresee that product ending up in a particular forum was insufficient to establish personal jurisdiction in that forum. See id. Asahi Metal involved a Japanese manufacturer which sold valves to a Taiwanese tire company, which then sold its tires equipped with these valves to a California distributor. Id. at 105-106. Following a fatal accident resulting from a defective valve, the plaintiffs attempted to assert personal jurisdiction over the Japanese manufacturer in California. See id. at 106.
(63.) Federal courts, as well as most state courts, require the defendant to assert lack of personal jurisdiction at the beginning of a suit. See FED. R. CIV. P. 12(b). Failure to assert the defense constitutes a waiver of objection to the court' s lack of personal jurisdiction and permits the court to continue presiding over the action. See FED. R. CIV. P. 12(b), (h).
(64.) See Burger King Corp. v. Rudziewicz, 471 U.S. 462, 476 (1985).
(65.) See id. at 486.
(66.) See id.; see also World-Wide Volkswagen, 444 U.S. 286, 295-97 (1980) (noting that mere foreseeability of suit is not sufficient for personal jurisdiction).
(67.) International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation omitted).
(68.) See generally, Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 713 (1982) (Powell, J., concurring) (discussing the role of long-arm statutes in personal jurisdiction analysis); see, e.g., Synergetics v. Marathon Ranching Co., 701 P.2d 1106, 1109-10 (Utah 1985) (examining a long-arm statute that expanded protection of constitutional due process).
(69.) For a detailed and often-cited review of personal jurisdiction and the Internet, see William S. Byassee, Jurisdiction of Cyberspace: Applying Real World Precedent to the Virtual Community, 30 WAKE FOREST L. REV. 197, 199 (1995). See also Stephan Wilske & Teresa Schiller, International Jurisdiction in Cyberspace: Which States May Regulate the Internet, 50 FED. COMM. L.J. 117 (1997).
(70.) The use of cars and telephones gave rise to the significant expansion of the court's jurisdictional powers. See supra notes 55-58 and accompanying text.
(71.) See generally, Donnie L. Kidd, Jr., Note, Casting the Net: Another Confusing Analysis of Personal Jurisdiction and Internet Contacts in Telco Communications v. An Apple A Day, 32 U. RICH. L. REV. 505, 520-28 (1998) (discussing the three approaches in light of existing case law).
(72.) See CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1264-65 (6th Cir. 1996) (asserting personal jurisdiction over a defendant that had used the Internet to transfer and sell goods within the forum, sent e-mail into the forum concerning its business, and advertised on an Internet service based in the forum); Gary Scott Int'l, Inc. v. Baroudi, 981 F. Supp. 714, 716 (D. Mass. 1997) (asserting personal jurisdiction over a defendant who had advertised humidors on the Internet and sold the products to twelve residents of the state); Digital Equip. Corp. v. Altavista Tech., Inc., 960 F. Supp. 456, 465-66 (D. Mass. 1997) (asserting personal jurisdiction over software company based upon Internet advertising in the forum and three sales to forum residents); Maritz v. Cybergold, Inc., 947 F. Supp. 1328, 1330, 1333-34 (E.D. Mo. 1996) (asserting personal jurisdiction over defendant who solicited potential advertisers in the forum and had generated a list of potential customers from Internet users who lived in the forum); Edias Software Int'l, L.L.C.v. Basis Int'l Ltd., 947 F. Supp. 413, 415, 422 (D. Ariz. 1996) (asserting personal jurisdiction over software company through use of the Internet and e-mail to communicate with customers in the forum and solicit almost $1 million in sales); State v. Granite Gate Resorts, Inc, No. C6-95-7227, 1996 WL 767431, at *1 (Ramsey County Dist. Ct. Minn. Dec. 11, 1996) (asserting personal jurisdiction over an off-shore gambling service operated using the Internet when evidence showed forum residents were using the service and actively targeted as customers).
(73.) See Inset Sys., Inc. v. Instruction Set, Inc., 937 F. Supp. 161, 164 (D. Conn. 1996). See also Animation Station, Ltd. v. The Chicago Bulls, L.P., 992 F. Supp. 382, 383-84 (S.D.N.Y. 1998); Telco Communications v. An Apple A Day, 977 F. Supp. 404, 406-07 (E.D. Va. 1997).
(74.) See Inset Sys., 937 F. Supp. at 163.
(75.) See CompuServe, 89 F.3d at 1262 (noting the Internet's role in a continuing trend of technological improvements that effect personal jurisdiction analysis). See also Maritz, 947 F. Supp. at 1334 ("[W]hile modern technology has made nationwide commercial transactions simpler and more feasible, even for small businesses, it must broaden correspondingly the permissible scope of jurisdiction exercisable by the courts").
(76.) See generally CompuServe, 89 F.3d at 1263-68.
(77.) See Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 419-20 (9th Cir. 1997) (dismissing for lack of personal jurisdiction based upon lack of evidence that defendant intended to target forum residents with its website and lack of any actual contact with forum residents); Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27, 29 (2d Cir. 1997) (finding that mere Internet advertisement was not sufficient to assert personal jurisdiction); SF Hotel Co. v. Energy Investments, Inc., 985 F. Supp. 1032, 1036 (D. Kan. 1997) (holding that a website that did not permit viewers to interact with the defendant was not a contact sufficient to assert personal jurisdiction).
While such a "single contact" rule limiting personal jurisdiction based on Internet use may appear expansive, a similar line of cases has held that telephone calls by the defendant into a forum gave that forum personal jurisdiction over a defendant for actions related to the substance of the telephone calls. See Grand Entertainment Grp., Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 481-84 (3d Cir. 1993) (asserting personal jurisdiction over Spanish defendants based upon contract negotiations commenced by defendants over the telephone); English & Smith v. Metzger, 901 F.2d 36, 38-39 (4th Cir. 1990) (asserting personal jurisdiction over a California defendant based upon defendant's telephone calls into Virginia for initiating contract negotiations); Continental Am. Corp. v. Camera Controls Corp., 692 F.2d 1309, 1311-15 (10th Cir. 1982) (asserting personal jurisdiction over defendant based upon a contract formed by defendant over the telephone); Memorial Hosp. Sys. v. Fisher Ins. Agency, Inc., 835 S.W.2d 645, 650 (Tex. Ct. App. 1992) (asserting personal jurisdiction over non-resident defendant based upon a single phone call made by defendant). But see Wilson v. Belin, 20 F.3d 644, 651 (5th Cir. 1994) (holding that an assertion of personal jurisdiction based upon telephone contacts in a defamation case would violate due process). See Bensusan Restaurant, 126 F.3d at 29 (finding by New York court that Internet advertisement for restaurant in Missouri was limited to local residents and not intended for New York residents who could nevertheless view the advertisement on-line); see also IDS Life Ins. Co. v. Sunamerica, Inc., 958 F. Supp. 1258 (N.D. Ill. 1997) (comparing an Internet advertisement to an advertisement in a nationally published magazine and refusing to assert personal jurisdiction).
(78.) See Bensusan Restaurant, 126 F.3d at 29 (finding by New York court that Internet advertisement for restaurant in Missouri was limited to local residents and not intended for New York residents who could nevertheless view the advertisement on-line); see also IDS Life Ins. Co. v. Sunamerica, Inc., 958 F. Supp. 1258 (N.D. Ill. 1997) (comparing an Internet advertisement to an advertisement in a nationally published magazine and refusing to assert personal jurisdiction).
(79.) See Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1997); see also Weber v. Jolly Hotels, 977 F. Supp. 327, 333 (D.N.J. 1997) (using Zippo's sliding scale to test to deny an assertion of personal jurisdiction over an Internet advertiser).
(80.) See Zippo, 952 F. Supp. at 1123-28.
(81.) Id. at 1124.
(82.) See id.
(84.) See, e.g., SF Hotel Co. v. Energy Inv., Inc., 985 F. Supp. 1032, 1034-36 (D. Kan. 1997) (applying the sliding scale approach).
(85.) Recall that courts using the simplistic approach to personal jurisdiction and Internet contacts hold that mere use of the Internet extends personal jurisdiction to any place where the Internet is accessible. See supra notes 73-77, and accompanying text. Since a person may access the Internet from anywhere (by telephone line or satellite link), the import is that personal jurisdiction also would extend anywhere.
(86.) RESTATEMENT, supra note 19, [sections] 1.
(87.) See id. [sections] 24 (stating that an offer is an act or promise that grants another the power to create a contractual relationship).
(88.) See id. [sections] 50(1) (defining acceptance as a manifestation of assent to the offer's terms). See also id. [sections] 22(1) (stating that an offer and acceptance manifest mutual assent to the contractual relationship and its terms). The three basic requirements for an assent are (1) acceptance is made only by the offeree, (2) acceptance must be unconditional and unqualified, and (3) the offeree must be aware of the offer and intend acceptance. See FARNSWORTH ON CONTRACTS [sections] 3.13 (1990).
(89.) See RESTATEMENT, supra note 19, [sections] 71(1) (defining "consideration" in terms of a bargained-for exchange of promises or performance).
(90.) See id. [subsections] 24 to 33 (making of offers); [subsections] 50 to 69 (acceptance of offers); [subsections] 71 to 90 (requirements of consideration and contracts enforceable without consideration); [sections] 110 (statute of frauds); [subsections] 152 to 177 (mistake, duress and undue influence); [subsections] 234 to 256 (performance); [subsections] 347 to 377 (remedies). An underlying premise of all contract law is the ability to negotiate face-to-face. See Raymond T. Nimmer, Electronic Contracting Legal Issues, 14 J. MARSHALL J. COMPUTER & INFO. L. 211,211-13 (1996).
(91.) Convention on Contracts for the International Sale of Goods, January 1, 1980.
(92.) The Convention applies only to the sale of goods among contracts between parties that are members of different ratifying states. Notably, the Convention does not contain a Statute of Frauds provision. See id. art. 1; see also STREET, supra note 38, [sections] 1-7. Additionally, the Convention applies unless the contract expressly excludes the Convention.
(93.) See, e.g., UCITA [sections] 102, cmt. 25 (1999) (noting that in automated transactions one must "take into account that the electronic `actions or messages of one or both parties which establish the contract' are not necessarily undertaken by a human agent").
(94.) See RESTATEMENT, supra note 19, [sections] 24.
(95.) See generally STUCKEY, supra note 23, [sections] 1.01 (discussing the general law governing contract formation).
(96.) See supra note 88 (noting the three requirements for acceptance). Additionally, an offeree generally must provide notice to the offeror of acceptance. See RESTATEMENT, supra note 19, [sections] 56.
(97.) See RESTATEMENT, supra note 19, [sections] 19; see also U.C.C. [sections] 2-204(1) ("A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.").
(98.) Cf. CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1260-61 (6th Cir. 1996) (involving contract negotiations by e-mail between a software developer and an Internet subscriber service).
(99.) See, e.g., U.C.C. [sections] 2-204(1); UCITA [sections] 202(a) (1999) (Formation in General) ("A contract may be formed in any manner sufficient to show agreement, including offer and acceptance or conduct of both parties or operations of electronic agents which recognize the existence of a contract.").
(100.) See STUCKEY, supra note 23, [sections] 1.02.
(101.) See JAMES V. VERGARI & VIRGINIA V. SHUE, FUNDAMENTALS OF COMPUTER HIGH TECHNOLOGY LAW [sections] 3.04 (1991).
(102.) See id. (noting that "point-and-click" contracts also may constitute adhesion contracts and fail for lack of consideration).
(103.) See id.
(104.) See STREET, supra note 38, [sections] 1-8(b). While a "point-and-click" agreement raises issues for mutual assent, it removes "mirror-image" rule problems by strictly limiting the method of acceptance. See infra notes 212-25 & accompanying text.
(105.) See ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640 (W.D. Wis. 1996), rev'd, 86 F.3d 1447 (7th Cir. 1996) (holding that a "shrink-wrap" contract is enforceable even though the purchaser did not have the opportunity to bargain for or object to the terms); Arizona Retail Sys., Inc. v. Software Link, Inc., 831 F. Supp. 759 (D. Ariz. 1993) (holding that "shrink-wrap" license agreement bound the original purchaser but not subsequent purchasers who had not seen the agreement prior to delivery). But see Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91 (3d Cir. 1991) (holding that warranty exclusions and remedy limitations in "shrink-wrap" contract were unenforceable under the U.C.C. as modifications that were not disclosed to the buyer); Vault Corp. v. Quaid Software Ltd., 655 F. Supp. 750 (E.D. La. 1987), aff'd, 847 F.2d 255 (5th Cir. 1988) (holding "shrink-wrap" license agreement unenforceable as an adhesion contract in violation of federal copyright law).
(106.) See UCITA [sections] 112 (1999) (Manifesting Assent; Opportunity to Review). See also UCITA [sections] 112, cmt. 5 (providing illustrations involving "shrink-wrap" contracts).
(107.) See UCITA [sections] 112, cmt. 5, illus. 3 (clicking "I agree" button is a manifestation of assent to the terms of an on-line license agreement).
(108.) See id., cmt. 3(c).
(109.) See UCITA [sections] 102(a)(28) (defining "electronic agent" as "a computer program, or electronic or other automated means, used by a person to initiate an action, or to respond to electronic messages or performances, on the person's behalf without review or action by an individual at the time of the action, or response to a message or performance."). The term "electronic agent" has been defined to recognize "automated means for making or performing contracts." See UCITA [sections] 102, cmt. 18 (commenting on the definition of "electronic agents").
(110.) See UCITA [sections] 112, cmt. 3(c).
(111.) A contract formed by electronic agents can be defeated through unconscionability, fraud or electronic mistake. See UCITA [sections] 206, cmt. 3 (1999); see also UCITA [sections] 111 (1999) (Unconscionable Contract or Term).
(112.) See generally RESTATEMENT, supra note 19, [subsections] 17-69 (mutual assent), [subsections] 71-90 (consideration), [subsections] 131 (Statute of Frauds), [subsections] 201-29 (interpretation and construction); U.C.C. [sections] 2-201 (Statute of Frauds), [sections] 2-204 (formation in general), [sections] 2-206 (offer and acceptance), [sections] 2-207 (additional or different terms).
(113.) See RESTATEMENT, supra note 19, [sections] 131(a) (stating that the writing must "reasonably identif[y] the subject matter," indicate that a contract has been made, and contain the essential terms); see also U.C.C. [sections] 2-201 (stating the Statute of Frauds provision for contracts for the sale of goods of $500 or more).
(114.) The five types of contracts within the Statute of Frauds are as follows: promises in consideration of marriage, contracts that cannot be performed within one year, contracts transferring an interest in land, executor's contracts, and guarantor contracts. See RESTATEMENT, supra note 19, [sections] 110. Note that the sixth type of contract, a contract for the sale of goods for $500 or more, is not governed by the typical American Statute of Frauds. These are now explicitly governed by the Statute of Frauds section of the U.C.C.. See id. (citing U.C.C. [sections] 2-201).
(115.) STUCKEY, supra note 23, [sections] 1.0112].
(116.) See U.C.C. [sections] 2-201. In fact, the quantity term itself need not be stated accurately to satisfy the requirement. U.C.C. [sections] 2-201 cmt. 1.
(117.) See U.C.C. [sections] 2-201 cmt. 1.
(118.) See RESTATEMENT, supra note 19, [sections] 131; U.C.C. [sections] 2-201(1).
(119.) See, e.g., STREET, supra note 38, [sections] 1-9(b)(3).
(120.) For a short description of "writing" and "signature," see Anecki, supra note 9, at 406-07.
(121.) See 2 RONALD A. ANDERSON, UNIFORM COMMERCIAL CODE [sections] 2-201:132 (3d ed. 1997) (stating that a "writing" includes any "intentional reduction to tangible form").
(122.) The Statute of Frauds itself provides a simple answer to this question by requiring a writing that provides specific evidence of an agreement and contains specific information. See RESTATEMENT, supra note 19, [sections] 131(a)-(c) (requiting that a writing identify the subject matter, indicate an agreement, and contain the essential terms); U.C.C. [sections] 2-201, cmt. I (noting that a writing must evidence a contract, include authentication, and specify a quantity term). Thus, the Statute of Frauds does not just require a writing, but a writing that contains specific information and serves a specific evidentiary purpose.
(123.) The U.C.C. only requires an intentional reduction to tangible form and contains no provisions concerning the preservation of a writing. See U.C.C. [sections] 1-201(46) (1977); see also UCITA [sections] 201, cmt. 3(b) (1999) ("This section does not require that the record be retained or contain all material terms of the contract or even be designated as a contract.").
(124.) See 2 ANDERSON, supra note 121, [sections] 2-201:132.
(125.) Interestingly, a tape recorded conversation of an oral contract, although preserved on physical tape, is unlikely to satisfy the Statute of Frauds writing requirement. But see UCITA [sections] 102, cmt. 49 (defining "record" to include "a tape recording of an oral conversation").
(126.) The Ninth Circuit has held that loading software from a disk into the computer's random access memory constitutes fixation in a tangible medium for cases involving copyright infringement. See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 518-19 (9th Cir. 1993).
(127.) See, e.g., Department of Transp. v. Norris, 474 S.E.2d 216, 218 (Ga. Ct. App. 1996), rev'd on other grounds, 486 S.E.2d 826 (Ga. 1997) (holding that a facsimile transmission was not a "writing" that satisfied the Statute of Frauds"). The Georgia Court of Appeals noted that "beeps and chirps along the telephone line is not a writing, as that term is customarily used. Indeed, the facsimile transmission may be created, transmitted, received, stored and read without a writing, in the conventional sense, or a hard copy in the technical vernacular...." Id.
(128.) See STREET, supra note 38, [sections] 1-9(b)(3).
(129.) Compare UCITA [sections] 201, cmt. 3(b) (1999) (commenting upon the scope of the definition of "record"), with 2 ANDERSON, supra note 121, [sections] 2-201:132 (defining "writing").
(130.) See UCITA [sections] 102(a)(54) (1999).
(131.) Id. (describing a "record" as including "information that is inscribed on a tangible medium").
(132.) Id. Note that "electronic" is defined broadly as "open-ended, technology neutral, and encompasses forms of information processing technology that may be developed in the future." Id. [sections] 102 cmt. 24.
(133.) See id. [sections] 102, cmt. 47. A "record" includes text stored in a computer's memory that could be printed, an audio-tape, and video recordings. See id.
(134.) See id.
(135.) Section 201 requires that a contract lasting more than one year or having a value of $5,000 or more is not enforceable absent a record authenticated by the party to be charged. See UCITA [sections] 201(a)(1) (1999). The record must indicate that a contract was formed and reasonably identify the copy or subject matter to which the record itself refers. See id. Notably, the section mirrors the provisions of U.C.C. [sections] 2-201 by providing exceptions to the rule for part performance, judicial admissions, and merchant confirmation orders. See id. [subsections] 201(c), (d).
(136.) See UCITA [sections] 201, cmt. 1 (noting that the "record" requirement addresses both the concern for a writing when the contract price is above a certain threshold amount as well as the common law concern for a writing when a contractual relationship exists for more than a year).
(137.) See UCITA [sections] 201, cmt. 3.
(138.) See id.
(139.) The exact meaning of this statement is not made clearer by the commentary, which provides an ambiguous treatment of the "record requirement." See id. cmt. 3(b).See UCITA [sections] 102(a)(54) (defining "record" as including any stored information that is "retrievable in perceivable form").
(140.) See UCITA [sections] 102(a)(54) (defining "record" as including any stored information that is "retrievable in perceivable form").
(141.) See UCITA [sections] 102, cmt. 47 (1999) (stating that both text stored in computer memory and tape recordings of oral conversations satisfy the definition of "record").
(142.) See RESTATEMENT, supra note 19, [sections] 131 (writing must be "signed by or on behalf of the party to be charged"). See also U.C.C. [sections] 2-201(1) (writing must be "signed by the party against whom enforcement is sought").
(143.) See U.C.C. [sections] 1-201(39) (1977) (a signature includes "any symbol executed or adopted by a party with present intention to authenticate a writing").
(144.) See U.C.C. [sections] 1-201, cmt. 39. Although the variety of potential "signatures" that serve to authenticate is quite large, determination of whether a mark or symbol is a signature rests upon "common sense and commercial experience." Id.
(145.) See id. (noting that "authentication" is added to the definition of "signature" to clarify that a complete signature is not required). Authentication merely requires indicia that the document is what it purports to be, namely, a contract that binds the signatory.
(146.) Cf U.C.C. [sections] 4A-201 (requiring methods of authentication for security procedures, including encryption and identifying codes); U.C.C. [sections] 5-104 (requiring authentication for records of letters of credit); REVISED U.C.C. [sections] 8-113 (1996) (noting that either a signed writing or authenticated record may evidence a contract for transactions in securities, but is not required).
(147.) See UCITA [sections] 201(a)(1) (1999). See also UCITA [sections] 102, cmt. 4 (1999) (authentication "replaces `signature' and `signed,'" terms that are more "adequate for what once were paper-based requirements").
(148.) See UCITA [sections] 102 (a)(6)(B). Note that the commentary states that the term "authenticate" is "technologically neutral." Id. cmt. 4.
(149.) See UCITA [sections] 102(a)(6)(B).
(150.) See UCITA [sections] 102, cmt. 4.
(151.) See id. Generally, a "signature" involves displaying some type of mark on the document itself. An "authentication" also may be made on a document, but could involve a process that is "logically associated with, or linked to the record" that is authenticated. Id. This concept of "signature as process" is best exemplified by digital signature technology. See infra Section IV.B.1.b.i.
(152.) Cf. UCITA [sections] 102(a)(5) (defining an "attribution procedure" as a process established to "verify that an electronic authentication, display, message, record, or performance is that of a particular person or to detect changes or errors in the information.... includ[ing] a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or other acknowledgment."); and UCITA [subsections] 107, 108.
Note that the term "authentication" in digital signature technology retains two distinct meanings. See UCITA [sections] 102(a)(6)(A), (B) (1999). Although "authentication" applies to the process of encrypting a message to create a digital signature, "authentication" sometimes refers to another party's action to confirm (or "authenticate") that an encrypted message was sent by a particular individual. See id. cmt. 4. When analyzing the authentication requirement for the purposes of the Statute of Frauds, only the first meaning of the term is relevant for digital signatures.
(153.) Note that the term "authentication" in digital signature technology retains two distinct meanings. See UCITA [sections] 102(a)(6)(A), (B) (1999). Although "authentication" applies to the process of encrypting a message to create a digital signature, "authentication" sometimes refers to another party's action to confirm (or "authenticate") that an encrypted message was sent by a particular individual. See id. cmt. 4. When analyzing the authentication requirement for the purposes of the Statute of Frauds, only the first meaning of the term is relevant for digital signatures.
(154.) See Russell B. Stevenson, Jr., The Regulation of Electronic Payment Systems: Ten Obvious Observations, Glasser LegalWorks (1998), at *122 (addressing how digital signature technology provides the foundation for secure on-line payment systems), available in Westlaw, JLR Database; see also JONATHAN ROSENOER, CYBERLAW: THE LAW OF THE INTERNET 237-47 (1997) (discussing digital signature technology and state digital signature laws).
(155.) See Don Clark, Overcoming the Hurdles: Virtual Safety, WALL ST. J., June 17, 1996, at R21.
(156.) Cf. STREET, supra note 38, [sections] 1.5 (defining general terms used in digital signature discussions).
(157.) A concise, step-by-step explanation of how digital signature technology works is available in James Hill, Lock and Load, Bus. L. TODAY, Nov.-Dec. 1998, at 8. See also Charles R. Merrill, Proof of Who, What and When in Electronic Commerce Under the Digital Signature Guidelines, 129, 135-37 (PLI Pat., Copyrights, Trademarks, & Literary Prop. Course Handbook Series No. G0-000E, 1998) (explanation and examples of how digital signature technology works); Clark, supra note 155 (brief explanation of public-key encryption).
(158.) See Hill, supra note 156, at 10-11.
(159.) A person could "break" the code and decipher the message, but breaking most computer encryption codes would require several thousand years of continuous analysis. See Thinh Nguyen, Note, Cryptography, Export Controls, and the First Amendment in Berstein v. United States Department of State, 10 HARV. J.L. & TECH. 667, 669 n.14 (1997).
(160.) See Merrill, supra note 156, at 133.
(161.) See id.
(162.) See id. Recall that a "key" is merely terminology to describe the algorithms that encode and decode messages.
(163.) See id. at 134.
See id. Note that use of the private key to create a digital signature is the intentional act that serves to authenticate the message. See UCITA [sections] 102(a)(5) (1999) (defining "attribution procedure"); UCITA [sections] 102(a)(6) (defining "authenticate"); see also UCITA [sections] 107 (Legal Recognition of Electronic Record and Authentication; Use of Electronic Agents); UCITA [sections] 108 (Proof and Effect of Authentication).
(164.) See id. Note that use of the private key to create a digital signature is the intentional act that serves to authenticate the message. See UCITA [sections] 102(a)(5) (1999) (defining "attribution procedure"); UCITA [sections] 102(a)(6) (defining "authenticate"); see also UCITA [sections] 107 (Legal Recognition of Electronic Record and Authentication; Use of Electronic Agents); UCITA [sections] 108 (Proof and Effect of Authentication).
(165.) See Merrill, supra note 156, at 134. Note that this is the alternative definition of "authentication" that is not essential for UCITA's definition of that term. See supra note 153 and accompanying text.
(166.) Note that in the example above, Buyer did not encrypt the message itself, but only applied her own private-key to create a digital signature. See Merrill, supra note 157, at 133-34. If Buyer wanted to encrypt the text itself, she would (1) use the Seller's public-key to encrypt the message and (2) use her private-key to create a digital signature. The Seller would then (3) use her private-key to decode the message before she posted the information and (4) readers could then use Buyer's public-key to examine the digital signature. See id.
Additionally, use of the digital signature to determine if the message has been altered is described as the "integrity" function. See UCITA [sections] 102, cmt. 4 (stating that authentication may be used to confirm the record's content or the sender's identity); see also supra notes 148-52 and accompanying text (discussing the uses of authentication).
(167.) Note that this is the alternative definition of "authenticate" for digital signature technology that is useful to understand, but does not concern the "authentication" requirement for the Statute of Frauds. See supra note 153. See supra note 153. Note that UCITA does not require a certification authority, but permits any authentication procedure that is commercially reasonable. See UCITA [sections] 108(b); see also UCITA [sections] 102, cmt. 3 (1999) (noting that "attribution procedure" may include an agreement made through third party provider).
(168.) See supra note 153. Note that UCITA does not require a certification authority, but permits any authentication procedure that is commercially reasonable. See UCITA [sections] 108(b); see also UCITA [sections] 102, cmt. 3 (1999) (noting that "attribution procedure" may include an agreement made through third party provider).
(169.) See, eg., ROSENOER, supra note 154, at 240-41. Note that CAs digitally sign the certificates to verify that the certificate itself is issued by the CA and not an unknown source. See id.
(170.) See UCITA [sections] 102, cmt. 4 (1999) ("The ordinary effects [of authentication] are (i) accepting an agreement, and (ii) adopting of a record or specific term(s). Authentication may serve other functions such as confirming the content of the record or identifying the person. What effects are intended are determined by the context and objective indicia associated with that context.").
(171.) See Merrill, supra note 156, at 133 (noting also that if CAs provide time stamps, "when" a message was sent also can be verified).
(172.) See Hill, supra note 157, at 8-10.
(173.) See id.
(174.) See id.
(175.) See William M. Bulkeley, Information Age: Electronic Signatures Boost Security of PCs, WALL. ST. J., June 7, 1993, at B7 ("`standardized digital signature will be more important for commerce than the invention of the computer....'"). Provisions concerning authentication, or "attribution," of a communication using a digital signature (or similar procedure) are new features of UCITA. See Anecki, supra note 9, at 409-10.
(176.) See Thomas J. Smedinghoff, Overview of State Electronic and Digital Signature Legislation, Glasser LegalWorks (1998), at *239, available in Westlaw, JLR Database; John P. Tomaszewski, Comment, The Pandora's Box of Cyberspace: State Regulation of Digital Signatures and the Dormant Commerce Clause, 33 GONZ. L. REV. 417, 422 (1998).
(177.) See Hill, supra note 157, at 12.
(178.) See Bill Expected to Support Electronic Signatures, SEC. WK., Jan. 18, 1999 at 7 ("[I]t is unlikely their [electronic signatures'] usage will become commonplace, especially in the securities industry, until there is a law validating their use and rendering them legal and binding.").
(179.) See Merrill, supra note 156, at 132.
(180.) See Don Clark, The Internet: Buying the Goods, WALL ST. J., Dec. 7, 1998, at R14.
(181.) See Jeffrey Kutler, Electronic Commerce: Vendors to Use Intel Serial Number Design, AM. BANKER, Mar. 2, 1999, at 16 (noting that serial numbers were designed for added protection in e-commerce sites and chat-rooms).
(182.) See Computer Gives Blessing to Digital Signatures, BANK MUT. FUND REP., Jan. 19, 1998, at 1 (detailing the Office of the Comptroller's authorization for national banks to use digital signatures for transactions), available in 1998 WL 5109871; Electronic Commerce: SIA Panel Takes Steps to Create Facility to Aid Authentication, Privacy Efforts, BNA SEC. L. DAILY, Sept. 3, 1998 at D5(noting the securities industry's establishment of a "root certificate authority" for monitoring signatures), available in Westlaw, 9/3/1998 SLD d5; George Anders, Online: It's Digital, It's Encrypted-It's Postage, WALL ST. J., Sept. 21, 1998, at B1 (describing the Postal Service's "digital postage" project).
(183.) See supra text accompanying notes 153-54.
(184.) See UCITA [sections] 102(a)(6) (1999) (defining "authentication").
(185.) See supra notes 163-67 and accompanying text (discussing private keys composed of encryption algorithms that produce unique products).
(186.) See UCITA [sections] 108(b) (stating that use of a "commercially reasonable attribution procedure" for authenticating records authenticates the record as a matter of law).
(187.) See UCITA [sections] 201(a)(1) (1999).
(188.) The principal difference between the two is that under UCITA, a record does not have to be signed to be authenticated, see UCITA [sections] 102(6), whereas the U.C.C. requires a signed writing, see U.C.C. [sections] 2-201.
(189.) The "fleeting fixation" problem may appear to involve two distinct concerns. First, one may imagine an electronic contract that is typed on a word-processor or memorialized by an e-mail that is erased from memory once it is read. The contract simply does not exist anymore in any form and its fixation was fleeting, but neither was the contract entirely ephemeral to place it outside the Statute of Frauds. Second, one may consider the same contract, but this time the word-processing file or e-mail is saved to memory. One does not print out every file nor does one continuously display the text on the computer screen. Instead, the information is stored as a code in memory and recalled later. While in memory, the "contract" is nothing more than a long series of code that is unintelligible without a computer program to display the information in perceptible form. The term "record" would appear to apply more aptly to this second consideration-a contract that does not exist "physically" in any fixed medium, but that can be recalled at a later time in a form that may be perceived within a fixed medium.
(190.) See UCITA [sections] 102 cmt. 47 (1999) (noting that a record merely "must be in, or capable of being retrieved in, perceivable form").
(191.) See UCITA [sections] 201(a)(1).
(192.) Although an authentication may exist separately from a record, the Statute of Frauds requires proof of an authenticated record, or, in other words, proof of an authentication and a record that are combined or logically related to one another. See UCITA [sections] 201 cmt. 3(b)-(c).
(193.) See supra notes 153-54 and accompanying text.
(194.) See supra notes 162-67 and accompanying text (noting the unique nature of digital signatures produced from high-level encryption algorithms).
(195.) UCITA [sections] 102 cmt. 4 (1999).
(196.) See id.
(197.) See UCITA [sections] 201.
(198.) See RESTATEMENT, supra note 19, [sections] 63(a). The rule requires the offeree's reasonable diligence and also correctly address the communication to the proper location. See id. [subsections] 66, 67.
(199.) See RESTATEMENT, supra note 19, [sections] 68 cmt. a.
(200.) See id. [sections] 63(a).
(201.) See id. [subsections] 42, 68. Note that instances of crossed acceptances and rejections also may occur by the offeree who sends both an acceptance and rejection, rendering the application of the mailbox rule less palatable.
(202.) See STUCKEY, supra note 23, [sections] 1.02[c] (discussing the "mailbox" rule and electronic contracts).
(203.) See supra notes 21-42 and accompanying text (noting the Internet's capabilities).
(204.) One could conceive of situations where an acceptance and a revocation are typed in a chat-room that uses a periodic "refresh" every minute to update messages, such that the communication is not truly instantaneous. Additionally, one could send an e-mail acceptance to a re-mailer or to an out-box that delivers gathered e-mails at specific intervals, while in the meantime the offeror has delivered his revocation. Whether these are justifications for an "e-mailbox" rule or simply instances of hard cases that would make bad law is unclear, but the ability of computers to "stamp" messages with the date and time would make application of the rule a simple task. See STUCKEY, supra note 23, [sections] 1.02[c] n. 108.
(205.) See id. [sections] 1.02(4)(c).
(206.) See RESTATMENT, supra note 19, [sections] 64 cmt. a (noting that when the parties are face-to-face, an "offeree can accept without being in doubt as to whether the offeror has attempted to revoke his offer or whether the offeror has received the acceptance").
(207.) See U.C.C. [sections] 2-207 (1977).
(208.) See UCITA [sections] 204 (1999). This section is analogous to U.C.C. [sections] 2-207.
(209.) See id. [sections] 301.
(210.) See id. [sections] 204.
(211.) See RESTATEMENT, supra note 19, [sections] 58.
(212.) See id. [sections] 59.
(213.) U.C.C. [sections] 2-206(1)(a) (1977).
(214.) See id. [sections] 2-207(1) (noting that the acceptance is valid, "unless acceptance is expressly made conditional on assent to the additional or different terms"). Note also that different terms, rather than mere additional ones, in an offer and acceptance drop out of the contract and the U.C.C. default rules fill the gap created where the parties' actions demonstrate that a contract exists. See Northrop Corp. v. Litronic Ind., 29 F.3d 1173, 1179 (7th Cir. 1994).
(215.) See U.C.C. [sections] 2-207(2).
(216.) The terms do not become part of the merchant's contract if the "acceptance expressly limits acceptance to the terms," the terms "materially alter" the agreement, or if notification of objection to the terms is provided. See id.
(217.) See id., [sections] 2-207(3).
(218.) See supra notes 2142 and accompanying text (discussing potential processes to enter electronic contracts).
(219.) STUCKEY, supra note 23, [sections] 1.02[a].
(220.) See UCITA [sections] 204 (1999).
(221.) See STUCKEY, supra note 23, [sections] 1.02[a].
(222.) See supra notes 95-112 and accompanying text (noting the various ways to negotiate, structure and memorialize an electronic contract).
(223.) The epitome of "boilerplate" electronic contracts are the currently prevalent "point-and-click" Internet contracts. See supra notes 101-09 and accompanying discussion; see generally STREET, supra note 38, [sections] 1-8 (discussing on-line agreements in the context of shrink-wrap licenses).
(224.) Compare U.C.C. [sections] 2-207 (1977) (additional or different terms), with UCITA [sections] 204 (acceptances with varying terms).
(225.) See RESTATEMENT, supra note 19, [subsections] 213-215.
(226.) See id. [sections] 216. The determination of whether a contract is fully or partially integrated is a question of the parties' intent as determined by the court. See id. [sections] 210.
(227.) See U.C.C. [sections] 2-202 (1977).
(228.) See id. [sections] 2-202(a).
(229.) See WHITE & SUMMERS, UNIFORM COMMERCIAL CODE [sections] 2-10 (3d ed. 1988).
(230.) See UCITA [sections] 301 (1999).
(231.) See id. [sections] 301, cmt. 3 ("Records of an agreement are to be read on the assumption that the course of prior dealings between the parties and the usage of trade were taken for granted when the record was drafted").
(232.) See STUCKEY, supra note 23, [sections] 1.02[b].
(233.) See id.
(234.) The simplest method to "manufacture" an integrated agreement is to insert a merger clause within one of the communications to create a presumption of integration. See id. (discussing merger clauses).
(235.) See RESTATEMENT, supra note 19, [sections] 79.
(236.) See id., supra note 19, [sections] 71(2) (1979); see also id. [sections] 90 (addressing promissory estoppel as a substitute for consideration).
(237.) See STUCKEY, supra note 23, [sections] 1.01(2)(b).
(238.) See UCITA [sections] 202 (1999).
(239.) Two important points are emphasized at this juncture. First, an electronic contract is not a special type of contract, but a method of contracting. A special kind of contract is identified by the subject matter of the contract rather than the manner in which the contract is formed. Second, since contracting electronically is only a process for creating contracts, many different kinds of contracts for virtually any type of subject matter may be created electronically. The discussion here focuses on contracts for goods, services, and licenses in information since these types of contracts are often encountered in electronic commerce.
(240.) See U.C.C. [sections] 2-102 (1977).
(241.) Id. [sections] 2-105(1).
(242.) Id. [sections] 2-105(1), (2).
(243.) See UCITA [sections] 103(a) (1999).
(244.) See id. [sections] 102 cmt. 11. UCITA defines "computer information transaction" and notes that merely because parties communicate electronically "does not bring" the underlying transaction within the scope of UCITA. Id. [sections] 102(11).
(245.) See JOHN K. HALVEY, 1 COMPUTER LAW & RELATED TRANSACTIONS [sections] 5-2(A) (1994) (discussing the issue of whether a sale of computer hardware and software is a mixed contract for goods and services). See also Anecki, supra note 9, at 399-400 (noting a sizeable gap between the law governing the sale of goods and the proposed law governing licenses in information).
(246.) Characterization of electronic transactions as goods or services is also an issue for application of state sales and use taxes. See Edward A. Morse, State Taxation of Internet Commerce: Something New Under the Sun?, 30 CREIGHTON L. REV. 1113, 1130-38 (1997).
(247.) The "predominant purpose" test examines the overall transaction and applies the law of the predominant subject matter to the whole contract. See, e.g., UCITA [sections] 103(b)(2) ("In all cases not involving goods, this [Act] applies only to the computer information or informational rights in it, unless the computer information and information rights are, or access to them is, the primary subject matter, in which case this [Act] applies to the entire transaction").
(248.) The "gravamen of the action" test determines which subject matter is in dispute and then applies the specialized law of that particular subject. See UCITA [sections] 103 cmt. 4(a). UCITA uses this approach whenever a computer information transaction is mixed with a Uniform Commercial Code subject matter.
(249.) See UCITA [sections] 103 cmt. 4.
(250.) See supra note 239.
(251.) See STREET, supra note 38, [sections] 1-3 (discussing novel issues for drafting electronic agreements); see also UCITA [sections] 102 cmt. 3 (1999) (noting that the terms "signed" and "signature" are terms replaced by "authenticate").
(252.) See UCITA [sections] 103(d) (excluding financial services transactions and various entertainment and broadcast contracts).
(253.) See supra notes 129-40 and accompanying text (discussing how the Statute of Frauds requirement has remained identical in purpose under UCITA).
(254.) See supra notes 129-40 and accompanying text. See also UCITA [sections] 103 cmt. 4 ("In modern commerce, most contracts are governed by multiple sources of contract law").
(255.) See UCITA [sections] 103 cmt. 4.
(256.) See id. ("Since virtually all contracts of all types involve `mixed' law, the issue is not whether multiple sources of contract law apply, but to what extent this Act applies in lieu of another law.").
(257.) See UCITA [sections] 103 cmt. 5(f) (1999). UCITA provides special rules, however, when "goods," as defined by U.C.C. Article 2, are involved. See id. [sections] 103(b)(1).
(258.) See UCITA [sections] 103(d)(6) (excluding application of the Act when various Articles of the U.C.C. apply). See also UCITA [sections] 103 cmt. 4(a) (discussing mixed contracts involving computer information and U.C.C. Article 2 goods).
(259.) See supra notes 45-48 and accompanying text (discussing personal jurisdiction issues and Internet contacts).
(260.) See supra notes 73-85 and accompanying text (discussing the three possible response to Internet jurisdiction).
(261.) See id.
(262.) Although states with long-arm statutes may consider adding special provisions for electronic contracts, the statutes are constrained by the Due Process Clause, which requires expanded application to address the increased ability of persons to electronically reach out into distant forums.
(263.) See Nimmer, supra note 6, at 840-41 (discussing domestic choice of law issues under UCITA).
(264.) See WILLIAM M. RICHMAN & WILLIAM L. REYNOLDS, UNDERSTANDING CONFLICT OF LAWS [sections] 85 (2d ed. 1993).
(265.) The easiest solution to any potential problem is to use a choice-of-law clause. See Willis Reese, Choice of Law in Torts and Contracts and Directions for the Future, 16 COLUM. J. TRANSNAT'L L 1, 22 (1977) (noting that both traditional and modern choice of law jurisdictions will enforce choice-of-law clauses). So long as the clause does not violate public policy, the provision will be upheld. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS [sections] 187 (1971). See, e.g., DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 678, 681 (Tex. 1990) (refusing to enforce a no-compete clause that was valid under the law specified by the parties); General Elec. Co. v. Keyser, 275 S.E.2d 289, 295 (W. Va. 1981) (refusing to recognize a choice-of-law provision due to lack of connection between the law chosen and the parties).
(266.) RESTATEMENT (FIRST) OF CONFLICT OF LAWS (1934) (applying territorial-based rules to conflict of laws situations).
(267.) See id. [sections] 332 (relying on "place-of-the-making" to determine which forum's law applies). Note that even if one can easily identify the arbitrary locations demanded by the Restatement (First), the escape devices that arose to defeat application of those rules present an entirely different problem that is independent of the electronic contract. See RICHMAN & REYNOLD, supra note 264, [sections] 65(a)-(b).
(268.) See Restatement (Second) of Conflict of Laws [subsections] 189-90 (1971) [hereinafter (Second) Conflicts].
(269.) See supra note 239 and accompanying text. The upshot to this concern is that a court applying clever choice of law rules by manipulating characterization could defeat an electronic contract that fails under the chosen law due to formation defects arising under undeveloped, inflexible contract law.
(270.) See (SECOND) CONFLICTS, supra note 268, [subsections] 6, 188 (1971) (stating the general factors for choice of law analysis).
(271.) UCITA attempts to remedy some choice of law concerns. See UCITA [sections] 109 (1999). Absent a choice-of-law provision, UCITA provides a series of rules for choice of law to govern the contract. See UCITA [sections] 109(b). If information is delivered electronically, the law of the licensor's jurisdiction applies; however, if a consumer transaction requires delivery in a tangible medium, the law of the place of delivery governs. See id. Otherwise, the "most significant relationship" test is applied to determine applicable law. Id. Additionally, UCITA anticipates contracts with foreign parties and provides that the law of the foreign jurisdiction may apply only if "it provides substantially similar protections and rights" as UCITA. Id. [sections] 109(c). If the foreign jurisdiction does not provide this protection, the law of the jurisdiction in the United States with the most significant contacts will apply. See id.
Although UCITA provides a starting point, the default rule remains grounded in the "most significant contact" rule that is attacked above for lacking a strong correlation with a "non-geographical" electronic medium. Further, the attempt to address problems with international contracts yields some guidance, but again lapses into geographic analysis that may be inappropriate for electronic commerce.
(272.) See Nimmer, supra note 6, at 841-47 (discussing international choice of law issues).
(273.) U.N. Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, 19 I.L.M. 668 (entered into force Jan. 1, 1988) [hereinafter after CISG].
(274.) Id., art. 7, 19 I.L.M. at 673.
(275.) See id., art. 11, 19 I.L.M. at 674. This single three line article obviates the "signed writing" and "authenticated record" problems arising for electronic contracts and the Statute of Frauds.
(276.) See id., art. 1(1), 19 I.L.M. at 672. Section IV discussed the fact that the subject matter of electronic contracts is not limited, but extends over the field of all possible subjects - not just transactions in goods. See supra notes 250-58 and accompanying text.
(277.) See CISG, supra note 273, art. 9(2), 19 I.L.M. at 674 (stating that "parties are considered ... to have implied" into their agreement or its formation, international trade usages for that particular type of contract). Modern communications enable parties to enter simple "one-shot" contracts without any prior dealing or opportunity to establish a trade usage, not to mention that the average person in the United States surfing the Internet for a good deal on tea sold by web-sites based in India is not likely to appreciate or intend to incorporate the international customs applicable to his contract.
(278.) See supra notes 7-10 and accompanying text.
(279.) See supra Section IV.
DONNIE L. KIDD, JR.(*) & WILLIAM H. DAUGHTREY, JR.(**)
(*) B.A., University of Virginia, J.D., University of Richmond. He is former Lead Articles Editor of the University of Richmond Law Review. He is an Associate in the litigation section of Squire, Sanders & Dempsey, L.L.P., Washington, D.C. The views and opinions expressed herein are those of the authors and are not necessarily the views or opinions of Squire, Sanders & Dempsey, L.L.P.
(**) Professor of Business Law, Virginia Commonwealth University.
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|Author:||Kidd, Donnie L., Jr.; Daughtrey, William H., Jr.|
|Publication:||Rutgers Computer & Technology Law Journal|
|Date:||Mar 22, 2000|
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