Rutgers Computer and Technology Law Journal
Copyright (c) 2000 Rutgers Computer and Technology Law Journal
26 Rutgers Computer & Tech. L.J. 215 (2000)
Adapting Contract Law to Accommodate Electronic
Contracts: Overview and Suggestions
Donnie L. Kidd, Jr. * and 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
* * * * *
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." n86 Formation of a legally
recognized contract requires an offer, n87 acceptance, n88
and consideration. n89 Additionally, rules addressing specific issues
of formation and enforcement supplement the basic definition. n90
[*239] 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 n91 may apply to the sale of goods
among international parties. n92 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 [*240] swift, inhuman affairs. n93 Having
identified the problem, the solution must seek to shape the law to fit the
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. n94 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. n95 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. n96 While this
manifestation of assent may arise by written document, spoken word, or other
conduct, n97 a valid contract exists if the manifestation demonstrates
that a party intended to accept the terms of the offer by exchanging promises
[*241] 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. n98
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, [*242] 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.
Unlike the first two scenarios, Examples 3 and 4 are problematic in the area
of mutual assent. Neither example incorporates a [*243] "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 "shrinkwrap" agreement.
n100 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. n101 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. n102 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. n103 By focusing on the seller's interests and demanding
non-negotiable terms, the contract leaves nothing on which the parties voluntarily
agree. n104 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 n105 and the UCITA [*244] validates
both "shrink-wrap" and "point-and-click" contracts. n106 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. n107 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) n108 states that an agreement involving an electronic agent
n109 may form a valid contract. [*245] 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.
n110 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. n111 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
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, n112 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
[*246] 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. n113 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. n114 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." n115
Although a long accepted tenet of contract law, the Statute of Frauds has
not escaped exceptions and relaxation. For example, U.C.C. § 2-201
has liberalized the rule to require only a writing that contains a quantity
term for the sale of goods. n116 Moreover, no [*247] 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. n117 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 n118 - 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, n119 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"? n120
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. n121 So long as the words were scratched onto a physical
medium serving to "memorialize," or preserve, the agreement, the Statute
of Frauds is [*248] 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? n122
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. n123 Although
the Restatement (Second) of Contracts does not define "writing," the U.C.C.
defines a "writing" as any "intentional reduction to tangible form."
n124 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. n125 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. n126 Whether [*249] 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? n127
Although some commentators have advocated discontinuance of the Statute of
Frauds for electronic contracts, n128 the UCITA has imported the rule
while revising the writing requirement. n129 UCITA makes no reference
"writings," but uses the term "record" in its place. n130 While retaining
the "tangible medium" prong, n131 a "record" includes any information
"that is stored in an electronic or other medium and is retrievable in perceivable
form." n132 When the information may be converted into perceivable
form, the [*250] information exists as a record, apparently even
if the recordation is only temporary. n133 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.
Thus, UCITA section 201 presents the new and improved Statute of Frauds by
using the concept of a "record." n135 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, n136 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). n137 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.
n138 The formalities are met if the record is capable of being perceived,
even if the record is not retained. n139
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" [*251] 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. n140 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. n141 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
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. n142 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.
n143 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.
n144 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 [*252] agreement that the writing
purports to establish). n145
UCITA advances one step further by wholly abandoning the term "signature"
in favor of the concept of "authentication." n146 UCITA uses the term
"authenticate" in place of "signature." n147 Although the definition
of "authenticate" expressly includes signing a record or adopting a symbol,
n148 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. n149
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. n150 Although
the comparison between "signing" a document and "authenticating" a record
is inexact, n151 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.
n152 While the phrase [*253] "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.
i. Digital Signatures and Authentication
Digital signature technology has become an important tool for businesses
seeking to exploit electronic commerce. n154 The reason the technology
is playing a major role in electronic transactions is that digital signatures
serve to verify and authenticate messages. n155 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. n156
The process of creating a digital signature requires encryption or
[*254] encoding. n157 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"). n158 Anyone attempting to intervene before Seller
reads Buyer's message will find only the incomprehensible hash string.
n159 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. n160
Digital signature technology operates through a similar, though more complex,
process known as "asymmetric cryptosystem" or "public-key" encryption.
n161 Each party has both a "private-key," which is used only by a single
individual, and a "public-key," which is available to others. n162
The keys are mathematically related, but it is mathematically improbable
to derive the private key from the public key that others can access.
n163 Returning to [*255] Buyer, she will encode the message using
her private key to create a "one-way hash result." n164 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. n165
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. n166
To complicate matters, suppose that Seller becomes concerned that the stream
of messages from "Buyer" are from someone who is pretending to be Buyer.
n167 Seller would like to determine whether [*256] 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.
n168 CAs issue digital certificates that contain a user's public-key
and verify that the user identified on the certificate holds the corresponding
Digital signatures promote authentication of sender identity, data integrity,
n170 and non-repudiation. n171 First, digital signatures provide
a process to determine who sends a communication and determine the identity
of the sender. n172 Second, digital signatures provide information
about whether the message has been altered. n173 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. n174 Essentially, these processes
restrain problems of verifying and authenticating electronic communications.
[*257] The security that digital signatures provide has led to growing
interest by numerous commercial industries seeking to exploit technology.
n175 A majority of states have adopted digital signature laws
n176 and others probably will follow suit upon introduction of UCITA, which
"legitimizes" digital signatures for commercial contracts. n177 The
United States Congress has become involved, as well. n178 The American
Bar Association has published guidelines and promoted a national public-key
system. n179 Private companies, such as Verisign, Inc., are stepping
forward as certification authorities to hasten the widespread use of e-commerce.
n180 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. n181 Moreover,
governmental agencies and industries are beginning to recognize the value
of digital signature technology. n182
[*258] 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.
n183 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.
n184 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. n185 Additionally, use of the process raises
an inference of intent to identify oneself with the particular record and
adopt its content. n186
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. n187 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 [*259]
"writing" requirement, n188 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.
n189 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. n190 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). n191 If X cannot
produce a record, he also is unlikely to produce any evidence of authentication.
Earlier the discussion noted the liberalization of the authentication requirement
to encompass both "signatures on the [*260] document" and "signature
by process to the document." n193 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. n194 Second,
"authentication may be on, logically associated with, or linked to the record."
n195 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. n196 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. n197 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,
n198 but a revocation of an offer is not effective until [*261]
received by the offeree. n199 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. n200
Revocation by the offeror, however, is not effective until receipt by the
offeree. n201 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. n202
Most electronic contracts are capable of formation within a matter of seconds,
even between parties that are separated by vast distances. n203 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. n204 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. n205 When parties [*262] 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. n206 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" n207 arises concerning which
terms the parties intended to incorporate into the agreement. n208
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. n209
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. n210 When common law applies, an acceptance must be
the "mirror-image" of the offer - complying [*263] with the terms
and manner of performance. n211 If the acceptance fails to mirror
the offer, it operates as a counter-offer and is therefore not an acceptance.
n212 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."
n213 Additionally important, Article 2 provides that an acceptance
providing additional terms may nonetheless operate as a valid acceptance
of the offer. n214 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. n215 Provided the
parties are merchants, the additional terms become part of the contract except
under specific circumstances. n216 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.
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, n218 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
[*264] e-mail. Given the "unrestricted nature of electronic contracting,"
n219 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. n220 For an electronic
contract outside the scope of UCITA, however, the "mirror-image" rule will
likely apply. n221
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.
n222 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. n223 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.
n224 Nevertheless, the disassociation of the [*265] "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
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. n225 If
an agreement is ostensibly only partially integrated, extrinsic evidence
of consistent additional terms is admissible. n226 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
Article 2 has adopted a variant of the parol evidence rule for the
[*266] sale of goods. n227 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."
n228 Additionally, a presumption arises that an Article 2 contract does not
contain all of the terms; n229 UCITA contains the same general rule
for electronic contracts, n230 including the presumption that the
contract is not fully integrated. n231
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. n232 Many electronic contracts
are likely to be formed by a series of communications containing various
provisions and ancillary agreements. n233 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,
n234 the rule is essential in managing the potentially large number of communications
that [*267] 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.
n235 Consideration simply requires the bargained-for performance or
return promise. n236 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. n237 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. n238 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. [*268] 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. n239 First, contracts for transactions in goods are governed
by Article 2 of the Uniform Commercial Code. n240 Goods are anything
that is "movable at the time of identification" n241 and must exist
at the time any interest in them passes. n242 Second, UCITA applies
to computer information transactions. n243 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. n244 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. n245 [*269] 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. n246 When characterizing a mixed contract, a court is
likely to employ the "predominant purpose" test, n247 but may opt
for alternative methods, especially the "gravamen of the action" test.
n248 Although mixed contracts present complications in litigation, agreements
with different subject matters are unexceptional in practice and routine
in consumer transactions. n249
2. Electronic Contracts
As already noted, n250 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. n251 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. n252
[*270] 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. n253 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.
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. n255 UCITA provides a source of contract law
only if the mix of subject matter in the agreement includes issues arising
within its scope. n256 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. n257 UCITA has limited
application to many commercial transactions. n258
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 [*271] 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.
n86 RESTATEMENT, supra note 19, § 1.
n87 See id. § 24 (stating that an offer is an act or promise that
grants another the power to create a contractual relationship).
n88 See id. § 50(1) (defining acceptance as a manifestation of
assent to the offer's terms). See also id. § 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 § 3.13 (1990).
n89 See RESTATEMENT, supra note 19, § 71(1) (defining "consideration"
in terms of a bargained-for exchange of promises or performance).
n90 See id. § § 24 to 33 (making of offers); § §
50 to 69 (acceptance of offers); § § 71 to 90 (requirements
of consideration and contracts enforceable without consideration); §
110 (statute of frauds); § § 152 to 177 (mistake, duress
and undue influence); § § 234 to 256 (performance); §
§ 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,
n91 Convention on Contracts for the International Sale of Goods, January
n92 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, § 1-7. Additionally, the Convention applies
unless the contract expressly excludes the Convention.
n93 See, e.g., UCITA § 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").
n94 See RESTATEMENT, supra note 19, § 24.
n95 See generally STUCKEY, supra note 23, § 1.01 (discussing
the general law governing contract formation).
n96 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, § 56.
n97 See RESTATEMENT, supra note 19, § 19; see also U.C.C. §
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.").
n98 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).
n99 See, e.g., U.C.C. § 2-204(1); UCITA § 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.").
n100 See STUCKEY, supra note 23, § 1.02.
n101 See JAMES V. VERGARI & VIRGINIA V. SHUE, FUNDAMENTALS OF COMPUTER
HIGH TECHNOLOGY LAW § 3.04 (1991).
n102 See id. (noting that "point-and-click" contracts also may constitute
adhesion contracts and fail for lack of consideration).
n103 See id.
n104 See STREET, supra note 38, § 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.
n105 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).
n106 See UCITA § 112 (1999) (Manifesting Assent; Opportunity to
Review). See also UCITA § 112, cmt. 5 (providing illustrations
involving "shrink-wrap" contracts).
n107 See UCITA § 112, cmt. 5, illus. 3 (clicking "I agree" button
is a manifestation of assent to the terms of an on-line license agreement).
n108 See id., cmt. 3(c).
n109 See UCITA § 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 § 102, cmt. 18 (commenting on the definition
of "electronic agents").
n110 See UCITA § 112, cmt. 3(c).
n111 A contract formed by electronic agents can be defeated through unconscionability,
fraud or electronic mistake. See UCITA § 206, cmt. 3 (1999); see
also UCITA § 111 (1999) (Unconscionable Contract or Term).
n112 See generally RESTATEMENT, supra note 19, § § 17-69
(mutual assent), § § 71-90 (consideration), §
131 (Statute of Frauds), § § 201-29 (interpretation and construction);
U.C.C. § 2-201 (Statute of Frauds), § 2-204 (formation
in general), § 2-206 (offer and acceptance), § 2-207
(additional or different terms).
n113 See RESTATEMENT, supra note 19, § 131(a) (stating that the
writing must "reasonably identify the subject matter," indicate that a contract
has been made, and contain the essential terms); see also U.C.C. §
2-201 (stating the Statute of Frauds provision for contracts for the sale
of goods of $ 500 or more).
n114 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, § 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. § 2-201).
n115 STUCKEY, supra note 23, § 1.01.
n116 See U.C.C. § 2-201. In fact, the quantity term itself need
not be stated accurately to satisfy the requirement. U.C.C. §
2-201 cmt. 1.
n117 See U.C.C. § 2-201 cmt.1.
n118 See RESTATEMENT, supra note 19, § 131; U.C.C. §
n119 See, e.g., STREET, supra note 38, § 1-9(b)(3).
n120 For a short description of "writing" and "signature," see Anecki, supra
note 9, at 406-07.
n121 See 2 RONALD A. ANDERSON, UNIFORM COMMERCIAL CODE § 2-201:132
(3d ed. 1997) (stating that a "writing" includes any "intentional reduction
to tangible form").
n122 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, §
131(a)-(c) (requiring that a writing identify the subject matter, indicate
an agreement, and contain the essential terms); U.C.C. § 2-201,
cmt. 1 (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.
n123 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.
§ 1-201(46) (1977); see also UCITA § 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.").
n124 See 2 ANDERSON, supra note 121, § 2-201:132.
n125 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 § 102, cmt. 49 (defining "record"
to include "a tape recording of an oral conversation").
n126 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).
n127 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.
n128 See STREET, supra note 38, § 1-9(b)(3).
n129 Compare UCITA § 201, cmt. 3(b) (1999) (commenting upon the
scope of the definition of "record"), with 2 ANDERSON, supra note 121, §
2-201:132 (defining "writing").
n130 See UCITA § 102(a)(54) (1999).
n131 Id. (describing a "record" as including "information that is inscribed
on a tangible medium").
n132 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. § 102 cmt. 24.
n133 See id. § 102, cmt. 47. A "record" includes text stored in
a computer's memory that could be printed, an audio-tape, and video recordings.
n134 See id.
n135 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 § 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. § 2-201 by providing
exceptions to the rule for part performance, judicial admissions, and merchant
confirmation orders. See id. § § 201(c), (d).
n136 See UCITA § 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).
n137 See UCITA § 201, cmt. 3.
n138 See id.
n139 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 § 102(a)(54) (defining "record" as including
any stored information that is "retrievable in perceivable form").
n140 See UCITA § 102(a)(54) (defining "record" as including any
stored information that is "retrievable in perceivable form").
n141 See UCITA § 102, cmt. 47 (1999) (stating that both text stored
in computer memory and tape recordings of oral conversations satisfy the
definition of "record").
n142 See RESTATEMENT, supra note 19, § 131 (writing must be "signed
by or on behalf of the party to be charged"). See also U.C.C. §
2-201(1) (writing must be "signed by the party against whom enforcement is
n143 See U.C.C. § 1-201(39) (1977) (a signature includes "any
symbol executed or adopted by a party with present intention to authenticate
n144 See U.C.C. § 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
n145 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.
n146 Cf. U.C.C. § 4A-201 (requiring methods of authentication
for security procedures, including encryption and identifying codes); U.C.C.
§ 5-104 (requiring authentication for records of letters of credit);
REVISED U.C.C. § 8-113 (1996) (noting that either a signed writing
or authenticated record may evidence a contract for transactions in securities,
but is not required).
n147 See UCITA § 201(a)(1) (1999). See also UCITA §
102, cmt. 4 (1999) (authentication "replaces 'signature' and 'signed,'" terms
that are more "adequate for what once were paper-based requirements").
n148 See UCITA § 102 (a)(6)(B). Note that the commentary states
that the term "authenticate" is "technologically neutral." Id. cmt. 4.
n149 See UCITA § 102(a)(6)(B).
n150 See UCITA § 102, cmt. 4.
n151 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.
n152 Cf. UCITA § 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 . . . . including a procedure that requires
the use of algorithms or other codes, identifying words or numbers, encryption,
or callback or other acknowledgment."); and UCITA § § 107,
Note that the term "authentication" in digital signature technology retains
two distinct meanings. See UCITA § 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.
n153 Note that the term "authentication" in digital signature technology
retains two distinct meanings. See UCITA § 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.
n154 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).
n155 See Don Clark, Overcoming the Hurdles: Virtual Safety, WALL ST. J.,
June 17, 1996, at R21.
n156 Cf. STREET, supra note 38, § 1.5 (defining general terms
used in digital signature discussions).
n157 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).
n158 See Hill, supra note 156, at 10-11.
n159 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).
n160 See Merrill, supra note 156, at 133.
n161 See id.
n162 See id. Recall that a "key" is merely terminology to describe the algorithms
that encode and decode messages.
n163 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 §
102(a)(5) (1999) (defining "attribution procedure"); UCITA § 102(a)(6)
(defining "authenticate"); see also UCITA § 107 (Legal Recognition
of Electronic Record and Authentication; Use of Electronic Agents); UCITA
§ 108 (Proof and Effect of Authentication).
n164 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
§ 102(a)(5) (1999) (defining "attribution procedure"); UCITA §
102(a)(6) (defining "authenticate"); see also UCITA § 107 (Legal
Recognition of Electronic Record and Authentication; Use of Electronic Agents);
UCITA § 108 (Proof and Effect of Authentication).
n165 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.
n166 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 §
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).
n167 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 § 108(b); see also UCITA § 102, cmt. 3 (1999)
(noting that "attribution procedure" may include an agreement made through
third party provider).
n168 See supra note 153. Note that UCITA does not require a certification
authority, but permits any authentication procedure that is commercially
reasonable. See UCITA § 108(b); see also UCITA § 102,
cmt. 3 (1999) (noting that "attribution procedure" may include an agreement
made through third party provider).
n169 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.
n170 See UCITA § 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
n171 See Merrill, supra note 156, at 133 (noting also that if CAs provide
time stamps, "when" a message was sent also can be verified).
n172 See Hill, supra note 157, at 8-10.
n173 See id.
n174 See id.
n175 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.
n176 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).
n177 See Hill, supra note 157, at 12.
n178 See Bill Expected to Support Electronic Signatures, SEC. WK., Jan. 18,
1999 at 7 ("It 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.").
n179 See Merrill, supra note 156, at 132.
n180 See Don Clark, The Internet: Buying the Goods, WALL ST. J., Dec. 7,
1998, at R14.
n181 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).
n182 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).
n183 See supra text accompanying notes 153-54.
n184 See UCITA § 102(a)(6) (1999) (defining "authentication").
n185 See supra notes 163-67 and accompanying text (discussing private keys
composed of encryption algorithms that produce unique products).
n186 See UCITA § 108(b) (stating that use of a "commercially reasonable
attribution procedure" for authenticating records authenticates the record
as a matter of law).
n187 See UCITA § 201(a)(1) (1999).
n188 The principal difference between the two is that under UCITA, a record
does not have to be signed to be authenticated, see UCITA § 102(6),
whereas the U.C.C. requires a signed writing, see U.C.C. § 2-201.
n189 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.
n190 See UCITA § 102 cmt. 47 (1999) (noting that a record merely
"must be in, or capable of being retrieved in, perceivable form").
n191 See UCITA § 201(a)(1).
n192 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 § 201 cmt. 3(b)-(c).
n193 See supra notes 153-54 and accompanying text.
n194 See supra notes 162-67 and accompanying text (noting the unique nature
of digital signatures produced from high-level encryption algorithms).
n195 UCITA § 102 cmt. 4 (1999).
n196 See id.
n197 See UCITA § 201.
n198 See RESTATEMENT, supra note 19, § 63(a). The rule requires
the offeree's reasonable diligence and also correctly address the communication
to the proper location. See id. § § 66, 67.
n199 See RESTATEMENT, supra note 19, § 68 cmt. a.
n200 See id. § 63(a).
n201 See id. § § 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.
n202 See STUCKEY, supra note 23, § 1.02[c] (discussing the
"mailbox" rule and electronic contracts).
n203 See supra notes 21-42 and accompanying text (noting the Internet's capabilities).
n204 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, § 1.02[c] n. 108.
n205 See id. § 1.02(4)(c).
n206 See RESTATEMENT, supra note 19, § 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").
n207 See U.C.C. § 2-207 (1977).
n208 See UCITA § 204 (1999). This section is analogous to U.C.C.
n209 See id. § 301.
n210 See id. § 204.
n211 See RESTATEMENT, supra note 19, § 58.
n212 See id. § 59.
n213 U.C.C. § 2-206(1)(a) (1977).
n214 See id. § 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).
n215 See U.C.C. § 2-207(2).
n216 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
n217 See id., § 2-207(3).
n218 See supra notes 21-42 and accompanying text (discussing potential processes
to enter electronic contracts).
n219 STUCKEY, supra note 23, § 1.02[a].
n220 See UCITA § 204 (1999).
n221 See STUCKEY, supra note 23, § 1.02[a].
n222 See supra notes 95-112 and accompanying text (noting the various ways
to negotiate, structure and memorialize an electronic contract).
n223 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, §
1-8 (discussing on-line agreements in the context of shrink-wrap licenses).
n224 Compare U.C.C. § 2-207 (1977) (additional or different terms),
with UCITA § 204 (acceptances with varying terms).
n225 See RESTATEMENT, supra note 19, § § 213-215.
n226 See id. § 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. § 210.
n227 See U.C.C. § 2-202 (1977).
n228 See id. § 2-202(a).
n229 See WHITE & SUMMERS, UNIFORM COMMERCIAL CODE § 2-10 (3d
n230 See UCITA § 301 (1999).
n231 See id. § 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").
n232 See STUCKEY, supra note 23, § 1.02[b].
n233 See id.
n234 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).
n235 See RESTATEMENT, supra note 19, § 79.
n236 See id., supra note 19, § 71(2) (1979); see also id. §
90 (addressing promissory estoppel as a substitute for consideration).
n237 See STUCKEY, supra note 23, § 1.01(2)(b).
n238 See UCITA § 202 (1999).
n239 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
n240 See U.C.C. § 2-102 (1977).
n241 Id. § 2-105(1).
n242 Id. § 2-105(1), (2).
n243 See UCITA § 103(a) (1999).
n244 See id. § 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.
n245 See JOHN K. HALVEY, 1 COMPUTER LAW & RELATED TRANSACTIONS §
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).
n246 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).
n247 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 § 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").
n248 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 § 103 cmt. 4(a). UCITA uses this approach whenever a
computer information transaction is mixed with a Uniform Commercial Code
n249 See UCITA § 103 cmt. 4.
n250 See supra note 239.
n251 See STREET, supra note 38, § 1-3 (discussing novel issues
for drafting electronic agreements); see also UCITA § 102 cmt.
3 (1999) (noting that the terms "signed" and "signature" are terms replaced
n252 See UCITA § 103(d) (excluding financial services transactions
and various entertainment and broadcast contracts).
n253 See supra notes 129-40 and accompanying text (discussing how the Statute
of Frauds requirement has remained identical in purpose under UCITA).
n254 See supra notes 129-40 and accompanying text. See also UCITA §
103 cmt. 4 ("In modern commerce, most contracts are governed by multiple
sources of contract law").
n255 See UCITA § 103 cmt. 4.
n256 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.").
n257 See UCITA § 103 cmt. 5(f) (1999). UCITA provides special
rules, however, when "goods," as defined by U.C.C. Article 2, are involved.
See id. § 103(b)(1).
n258 See UCITA § 103(d)(6) (excluding application of the Act when
various Articles of the U.C.C. apply). See also UCITA § 103 cmt.
4(a) (discussing mixed contracts involving computer information and U.C.C.
Article 2 goods).