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
[*215] I. INTRODUCTION
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. n1 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 [*216] 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
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. n2 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 [*217] nineteenth century, the Industrial Revolution
introduced powerful technologies that rapidly precipitated economic and cultural
changes. n3 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
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.
n4 The Internet provides rapid communication capabilities at reduced
costs and expands access to a global market. Business can be conducted almost
anywhere by [*218] using the Internet. n5 An important
product of this technological development is the increasing phenomenon of
electronic commerce, or "e-commerce," n6 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.
n7 While regulation of corporate activities and protection of consumers remain
vital in e-commerce, n8 the existing law also must address the world
of paper contracts, tangible property, and geographical boundaries.
n9 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 [*219]
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. n10
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). n11 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 [*220] areas through its use of technological innovation.
n12 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. n13 "Virtual" products
may be purchased with "virtual" currency before being transferred from one
computer to another in the form of electronic packets of information.
n14 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.
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. n16 Primarily, this article will demonstrate that commercial
[*221] 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 [*222] 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. n17
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. n18 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. n19 In other words, will agreements
made via the Internet receive the same protection under commercial and contract
law as other types of agreements. n20 A key factor to the [*223]
solution is determining how the process of transacting business on the Internet
operates and how agreements formed over the Internet are finalized.
The Internet n21 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. n22
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. n23 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. n24 The tones are carried over communications
links (usually telephone lines) to a computer network where the tones are
reassembled into several digital [*224] "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.
n25 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. n26
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" n27 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. n28
Second, individuals may use listservs or chat-rooms to form transactions.
n29 Listservs, or electronic bulletin boards, provide a forum for
individuals to discuss particular topics by "posting" messages for others
to read. n30 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 [*225]
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.
n31 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
[*226] 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. n32 The Web is a graphical user interface (GUI)
for intercommunication between a Web page and an individual who visits that
page. n33 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. n34 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 [*227] directly with potential buyers. Many
electronic commercial Web sites include on-line purchase forms and permit
payment over the Internet. n35 The individual need only type personal
information into specified fields and click on a "return" or "accept" button
to complete the transaction. n36 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. n37 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." n38 Essentially, computers act
as "electronic agents" for agreement formation without human intervention.
n39 The process may work as follows: n40 an individual completes
an electronic form [*228] 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. n41 Noticeably,
EDI not only lacks negotiation of an agreement, but may involve no human
element during the process itself. n42 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
Differences arise, however, within each class of electronic communication.
E-mail is private and sent directly among actively participating parties.
n43 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 [*229]
produce agreements that are legally enforceable as contracts. n44
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. n45 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, n46 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 [*230]
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.
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.
n48 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. n49 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, n50 the "connections," or "contacts" analysis
of personal jurisdiction addressed not only a defendant's place of residence,
but its activities in the forum. n51 [*231] 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. n52
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, n53 the Court advanced the law in
International Shoe Co. v. State of Washington n54 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. n55 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. n56 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 [*232] a State where he engages in economic activity."
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 World-Wide 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." n58 In Helicopteros Nacionales
de Colombia v. Hall n59 and Asahi Metal Industry Co. v. Superior Court
of California, n60 the Court also limited the exercise of personal
jurisdiction. Helicopteros noted the Court's aversion to general personal
jurisdiction, n61 and Asahi [*233] 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.
Today, personal jurisdiction analysis requires several components.
n63 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. n64 The contacts must be
directed at the forum and cannot be random, fortuitous, or attenuated.
n65 The contacts must be such that the defendant can reasonably anticipate
being haled into court in that forum. n66 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."
n67 If the facts satisfy these two criteria, the basic constitutional requirements
are met and the court may exercise authority over the [*234]
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. n68
Recently, courts have begun to consider whether use of the Internet constitutes
"contact" with a forum sufficient to establish personal jurisdiction.
n69 Analogous to cars and the telephone, n70 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.
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,
n72 other [*235] opinions have gone further and found
that even advertising on the Internet is a sufficient contact wherever the
advertisement can be accessed. n73 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.
n74 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. n75 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 [*236] Internet is accessible.
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. n77 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.
n78 [*237] 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. n79 The sliding scale method focuses on the level
of interactivity between the defendant's Internet presence and the forum
residents who use the Internet. n80 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." n81 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.
n82 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 . . . ." n83 Courts using this sliding scale
approach have welcomed it as a reasonable compromise to the increasingly
confusing issue of Internet contacts and personal jurisdiction. n84
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, [*238] 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
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.
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. n259 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 [*272]
power to adjudicate the dispute. n260 As the discussion in Section
III noted, courts are split widely on the jurisdictional rules applicable
to electronic transactions. n261
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.
n262 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. n263 Although choice of
law in the contract area has generally remained stable, n264 a number
of interesting issues remain. n265 One issue is [*273]
whether a jurisdiction applies either Restatement (First) of Conflict of
Laws n266 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.
n267 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. n268 Section IV, however, acknowledged the difficulty
in characterizing mixed contracts and revealed that an "electronic contract"
itself is not a special type of contract. n269 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. n270 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. n271
[*274] 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. n272 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). n273 Promoting uniformity
and "good faith in international trade," the CISG provides a substantial
body of regulation for international sales contracts. n274 A notable
highlight is the CISG's permissive stance toward contracts not evidenced
by a writing. n275 The CISG, [*275] however, applies only
to goods n276 and, moreover, presumes the parties are somewhat knowledgeable
of the customs and practices of international law. n277 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
n278 - 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. n279 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.
[*276] 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.
n1 See Ethan Katsh, Law in a Digital World: Computer Networks and Cyberspace,
38 VILL. L. REV. 403, 405-06 (1993).
n2 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.
n3 See generally LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN LAW 337 (2d
ed. 1985) (discussing legal themes of the late nineteenth century).
n4 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.
n5 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,
n6 "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,
n7 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).
n8 See id.
n9 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)).
n10 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).
n11 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).
n12 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.
n13 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).
n14 See LILIAN EDWARDS & CHARLOTTE WAELDE, LAW & THE INTERNET 15
(1997) (explaining the concept of "packet-switching" by which information
is transferred over the Internet).
n15 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).
n16 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 rules 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.
n17 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
n18 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.
n19 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 §
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. § §
164, 175 (addressing when a contract is unenforceable for fraud or coercion).
n20 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).
n21 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).
n22 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.").
n23 See Reno v. American Civil Liberties Union, 521 U.S. 844, 850 (1997);
see generally KENT D. STUCKEY, INTERNET AND ONLINE LAW § 1.02[e]
(discussing the mechanics of e-mail and how it can be used to contract).
n24 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).
n25 See id. For a short discussion of packet-switching, see Thorpe, supra
note 11, at 641-42.
n26 See Gooch, supra note 24.
n27 See infra Section IV.B.1.b.i.
n28 Two examples include a subscription newsletter published by e-mail and
the transfer of a computer application using an e-mail attachment.
n29 See Reno v. American Civil Liberties Union, 521 U.S. 844, 850 (1997).
n30 See Loundy, supra note 10, at 82-84 (discussing bulletin board functions).
n31 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.
n32 See Reno, 521 U.S. at 850.
n33 Cf. STUCKEY, supra note 23, at xvi (describing the World Wide Web).
n34 See Thorpe, supra note 11, at 642-44 (discussing the World Wide Web).
n35 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.
n36 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, § 1.02
(discussing "point-and-click" agreements).
n37 See Andrew Urbaczewski et al., A Manager's Primer in Electronic Commerce,
BUS. HORIZONS, Sept. 1, 1998, at 5.
n38 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 § 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.
n39 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 § 102(a)(27) (1999); see also STREET, supra
note 38, § 1-9(b)(4) (discussing electronic agents).
n40 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, § 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.
n41 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.
n42 See Anecki, supra note 9, at 414.
n43 The principal problem for e-mail contracts is determining manifestation
of intent when the intent is not expressed. See STUCKEY, supra note 23, §
n44 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. § 1.02.
n45 See text supra Section II.
n46 See Anecki, supra note 9, at 405.
n47 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).
n48 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
n49 See Pennoyer v. Neff, 95 U.S. 714, 733 (1877).
n50 See id. at 722.
n51 See id.
n52 See infra text accompanying notes 70-72.
n53 95 U.S. 714, 722 (1877) ("No State can exercise direct jurisdiction and
authority over persons or property without its territory. . . . The 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
n54 326 U.S. 310 (1945).
n55 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.
n56 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.").
n57 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. . . . Today's facilities for transportation
and communication have removed much of the difficulty and inconvenience formerly
encountered in defending lawsuits brought in other States.
n58 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.
n59 466 U.S. 408 (1984).
n60 480 U.S. 102 (1987).
n61 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
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.
n62 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.
n63 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).
n64 See Burger King Corp. v. Rudziewicz, 471 U.S. 462, 476 (1985).
n65 See id. at 486.
n66 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).
n67 International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation
n68 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
n69 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.
n70 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
n71 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).
n72 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).
n73 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).
n74 See Inset Sys., 937 F. Supp. at 163.
n75 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 ("While 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").
n76 See generally CompuServe, 89 F.3d at 1263-68.
n77 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).
n78 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).
n79 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).
n80 See Zippo, 952 F. Supp. at 1123-28.
n81 Id. at 1124.
n82 See id.
n84 See, e.g., SF Hotel Co. v. Energy Inv., Inc., 985 F. Supp. 1032, 1034-36
(D. Kan. 1997) (applying the sliding scale approach).
n85 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.
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).
n259 See supra notes 45-48 and accompanying text (discussing personal jurisdiction
issues and Internet contacts).
n260 See supra notes 73-85 and accompanying text (discussing the three possible
response to Internet jurisdiction).
n261 See id.
n262 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.
n263 See Nimmer, supra note 6, at 840-41 (discussing domestic choice of law
issues under UCITA).
n264 See WILLIAM M. RICHMAN & WILLIAM L. REYNOLDS, UNDERSTANDING CONFLICT
OF LAWS § 85 (2d ed. 1993).
n265 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 §
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).
n266 RESTATEMENT (FIRST) OF CONFLICT OF LAWS (1934) (applying territorial-based
rules to conflict of laws situations).
n267 See id. § 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, § 65(a)-(b).
n268 See Restatement (Second) of Conflict of Laws § § 189-90
(1971) [hereinafter (Second) Conflicts].
n269 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.
n270 See (SECOND) CONFLICTS, supra note 268, § § 6, 188 (1971)
(stating the general factors for choice of law analysis).
n271 UCITA attempts to remedy some choice of law concerns. See UCITA §
109 (1999). Absent a choice-of-law provision, UCITA provides a series of
rules for choice of law to govern the contract. See UCITA § 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. § 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.
n272 See Nimmer, supra note 6, at 841-47 (discussing international choice
of law issues).
n273 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
n274 Id., art. 7, 19 I.L.M. at 673.
n275 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.
n276 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.
n277 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.
n278 See supra notes 7-10 and accompanying text.
n279 See supra Section IV.