Electronic Contracts – The “New” Agreement?


Its hardly news that in today’s market place the Internet plays a significant role in conducting business. The Internet is involved in everything from downloading purchased software to filing trademarks. Even checks are being phased out in favor of electronic transactions. Whether or not the parties realize it, prior to completing any type of online transaction, the consumer enters into an agreement with the provider. That process may be as simple as checking a box, scrolling through its terms or even just entering a password, but the purpose is the same–to enter into an agreement that controls the rights and obligations of the parties. An email exchange can also create an agreement, even without the parties intending to be bound to anything.

E-contracts were designed to make buying or subscribing to online products and services easier and quicker, without the need for the time consuming exercise of formally executing a paper contract. E-contracts were not intended to reinvent the wheel of an enforceable contract but to broaden the medium by which enforceable contracts can be prepared and executed. In a practical sense, an electronic agreement is no different than a traditional paper contract.

Just as minimum requirements are necessary for enforceable paper contracts, electronic agreements must also satisfy basic minimums.

Although using the Internet and e-contracts to purchase goods and conduct business has pitfalls, such as the possibility for abuse and the possible loss of confidentiality, when done correctly it offers many advantages. What happens when a problem arises? Are electronic agreements always enforceable? Do all e-contracts satisfy the requirements for a valid and binding relationship? Are hyperlinks embedded in an online contract binding as part of the contract? Are there any exceptions that require formal signatures? Although this is a relatively new form of contract formation, at least from an enforceability perspective, a framework to ensure the enforceability of these types of agreements has emerged, and is the focus of this article.

In the early days of e-contracts, a consumer simply had to check “I accept” on a website. Although the consumer typically knew the product purchased, usually software that was downloaded, the consumer did not always know the terms of the agreement that had been accepted. (Even today, some of the terms of e-contracts are suspect, particularly as they concern the release of personal information.) As e-contracts evolved and developed, to encourage the consumer’s review of the parties’ agreement, a site would force a buyer to at least go through the motion of reading the agreement, by scrolling through an agreement or allowing an agreement to be downloaded, before being allowed to confirm acceptance. Today, some agreements refer to additional terms, usually by providing a hyperlink, as incorporated in the agreement and controlling between the parties.

It took some time, but eventually e-contracts ended up in court, where the consumer sought to avoid the terms of the e-contract and the provider sought to enforce it. Interestingly, when this happened, the medium of the agreement was given little consideration by the court. The court’s focus was usually on the scope of the agreement, and the information and notice provided to the consumer.

Where the scope and terms of the agreement were properly presented, and a buyer was assumed to have had the opportunity to review the terms, the agreement was upheld. The consumer’s ability to save and print the agreement was helpful to ensure its enforcement but key was the clear communication to and acceptance of the terms by the consumer.

Some online acceptance schemes do not provide the full terms but provide a link where those terms can be found. Thus, the buyer must look to another place for the full terms of the agreement. While a New York court has invalidated this agreement, finding that inadequate notice was provided, other courts outside the State have enforced it.

Included in the e-contracts arena are contracts and agreements entered into by email. Assuming that the minimum information is set forth in the email, the goods, quantity, timing and price, does the lack of a written signature defeat the agreement? Although discussed in a setting beyond just enforceability of an e-contract, courts have found a typed signature in an email to be sufficient to show acceptance of the agreement. Because of this, an email can become an unintended agreement where the terms are properly expressed and the party has an automatic signature block, which can be deemed a formal signature and proper acceptance.

In 1999, the Electronic Signatures and Records Act (“ESRA”) was passed in New York. ESRA establishes that electronic signatures are valid and as enforceable as if signed to a traditional paper agreement. The statute does not dispose of the required standard contract elements to be agreed upon by the parties. Although almost 10 years have passed, this statute is not often a topic of discussion in court decisions. The focus is on the completeness of the terms and notice to the consumer.

Obviously, contracts of any kind require careful thought as to enforceability and potential pitfalls. Feel free to contact us to discuss the issues that concern your contract. Keep in mind that a contract in any form is difficult to modify once it is signed and any concerns need to be addressed prior to it being signed.

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