The Law of Contracting Electronically
Grow Your Business, Not Your Inbox
You find the perfect copier for your business posted on an internet bulletin board at exactly the right price, so you e-mail the seller for more information. The seller responds and you decide to e-mail the seller an offer. The seller e-mails you indicating that your offer is accepted and over several more e-mails you arrange to meet to pay for the copier and pick it up. When you arrive at the pickup point, the seller demands more money. You refuse, stating that the e-mails the two of you exchanged are a contract that requires the seller to accept the agreed-upon price. The seller responds that e-mail is unenforceable. Is that true?
In most states the answer is no. The e-mails document that you offered to buy the copier at a certain price and that the seller agreed to sell you the copier at that price. That agreement created a contract. The documentation of this agreement in electronic form is just as good as having the entire agreement in writing.
All states--with the exception of New York, Illinois, Georgia and Washington--have enacted versions of the Uniform Electronic Transactions Act ("Uniform Act"), a model law drafted by the National Conference of Commissioners on Uniform State Laws ("NCCUSL") in July 1999. NCCUSL, the organization that also drafted the Uniform Commercial Code, brought together experts in contracts, the internet and other legal and business issues to create a model law governing electronic contracts. After creating the model law, states then chose to adopt it as the law of their state.
Once adopted by a state, the Uniform Act governs electronic transactions that occur between parties in that state. A similar federal law, the E-Sign Act, governs transactions subject to federal law. All these laws establish legal recognition of electronic contracts and any electronic records that support those contracts.
The Uniform Act applies to transactions involving business, commercial and government affairs. Each transaction must culminate in an electronic record and an electronic signature.
I Meant To Do That!
The Uniform law states that to create an electronic contract both parties must provide some form of intent to conduct transactions electronically. Without this intent, the Uniform Act has no applicability. However, there doesn't have to be a formal agreement to conduct a transaction electronically--only circumstances indicating the parties' intention to conduct the transaction electronically. In the scenario above, the fact that both you and the seller conducted all your negotiations by e-mail is evidence of intent to conduct the transaction electronically. Other evidence of intent to conduct transactions electronically includes:
. An automaker and a supplier enter into a formal written agreement setting forth the terms, conditions and methods for the conduct of business electronically.
. Joe gives out his business card with his business e-mail address. In this case, it is legally supportable for the recipient of the card to infer that Joe has agreed to communicate electronically for business purposes but not reasonable to assume that Joe has agreed to communicate electronically for matters outside the scope of the business indicated on his business card.
. Sally has three e-mail addresses--one at work, one at home and another related to a nonprofit board upon which she sits. It is legally supportable to infer that Sally is willing to communicate electronically regarding business related to the purpose associated with each e-mail account but not reasonable to communicate with Sally electronically for purposes other than that for which the particular e-mail account is maintained.
An example of a situation where there would be no intent to conduct a transaction electronically would be where an automaker issues a recall of automobiles on its website. Even if a paper contract states that the buyer agrees to receive such notices electronically, the Uniform Act would not apply if the buyer never logged onto the website, had never communicated with the automaker electronically, and provided no further information in the contract to suggest a willingness to deal electronically.
After a party has agreed to conduct a transaction electronically, the Uniform Act states that the party can refuse to conduct any future transactions electronically. The Uniform Act also states that the right to refuse to conduct a second transaction, or future transactions, by electronic means cannot be waived.
Once there is a transaction within the scope of the Uniform Act and a clear agreement to conduct business electronically, what is electronic? The term is defined as "relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities." Clearly the Uniform Act encompasses computers and faxes. It also includes optical fiber technology as well as biological and chemical processes for communication and storage of data such as electromagnetic impulses.
The Uniform Act states that an electronic record cannot be denied legal effect. This means that a contract created by e-mails cannot be said not to be a contract just because the records of that contract are electronic. So what is a record? It is any record created, used or stored in a medium other than paper, including information stored on a computer hard drive, CD, voice-mail messages, fax, messages on a telephone answering system or voice mail, and audio and videotape recordings. A contract can even be created solely by voice mail as long as the voice mail contains the necessary evidence of a meeting of the minds to form a contract.
Sign on the Dotted Line?
Sign on the Dotted Line?
What happened to the ritual of signing a contract? The "signing pen" may have gone the way of buggy whips. The Uniform Act defines an electronic signature as an electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. Whether a particular document is "signed" is a question of fact. Proof of the signature must be made under other applicable law. Examples of signatures are your voice on an answering machine, your name as part of an e-mail and the business name on a fax. Actual digital signatures are certainly signatures within the Uniform Act but are not required. The critical element within the Uniform Act that determines a signature is "the intent to do a legally significant act." In our opening scenario, the e-mails indicating that the seller agreed to sell at the offered price and then arranged to meet with you to exchange the copier for payment would be evidence of such intent.
If the parties form an electronic contract, will there need to be a paper record created to serve as evidence? The Uniform Act provides that if a law requires a person to provide, send or deliver information in writing to another person, the requirement is satisfied if the information is provided, sent or delivered in an electronic record capable of retention by the recipient at the time of receipt. If the sender or the sender's information-processing system inhibits the ability of the recipient to print or store the electronic record, this provision of the Uniform Act isn't met. The recipient must be able to get to the electronic record, read it and return to the information in some way at a later date.
Where other laws require certain information to be posted in a specific manner, as is typically the case for warranty disclaimers, the Uniform Act requires that the electronic record post or display the information in the same manner, and that this provision can't be waived.
Who Are You?
Given that entire transactions may now be accomplished without the parties ever being in the same room, state or country, how do you ensure identity? The Uniform Act states that an electronic record or signature is attributable to a person if it was the act of a person as determined from the context and surrounding circumstances at the time of creation, execution or adoption. Examples of records or signatures being attributed to a person include typing your name in an e-mail or your employee typing his or her name in an e-mail order you authorized. It could also constitute a person's computer program, if it's programmed to order goods upon receipt of inventory information and then issues a purchase order that includes the person's name as part of the order.
The Uniform Act also provides for electronic notarization of documents. The notary will need to be in the room with the signer, must fulfill all the requirements of the notary such as satisfying himself or herself as to the signer's identity, and swear to the identification. The notary must electronically sign the document. So long as the substantive requirements of other applicable law has been fulfilled and are reflected in the electronic record, the notarization will be as effective as if was transcribed on paper.
Records may be maintained by electronic means under the Uniform Act. As long as there is a reasonable certainty that the electronic record accurately reproduces the information, they hold the same weight as paper.
Online contracting is as enforceable and valid as paper contracts, so be as careful in committing to purchases or sales as you would if the buyer or seller was in front of you. Hitting the send button for an e-mail is far easier than signing your name to a contract but may have the same effect. In the case of the copier sale, the seller was just as bound to the transaction as he would have been if you and he had signed a paper contract.
Laura Plimpton has 26 years of experience as a corporate lawyer, business owner and management consultant. She has reviewed and drafted more than 12,000 contracts. She is the author of Business Contracts: Turn Any Business Contract to Your Advantage from Entrepreneur Press.