An “e-contract” is essentially any type of written agreement or contract between two or more parties that exists only in an electronic format. Most issues involving the enforceability of agreements entered into with businesses online generally involve click-wrap agreements, or browse-wrap agreements and email communications.
Under traditional contract law, certain types of contracts must be in writing and must be signed in order to be valid. This is known as the statute of frauds. Real estate contracts, wills, certain other documents and contracts which cannot be performed within one year from the date of making the agreement must be in writing under the statute of frauds in most states. An agreement based on an exchange of e-mails relating to subject matter which does not require a signed writing has been determined to be a valid and binding agreement. CompuServe, Inc. v. Richard S. Patterson (1996).
Since this case, there has been considerable case law and the enactment of the ESIGN Act and the Uniform Electronic Transactions Act (“UETA”). These laws have helped clarify that an email or series of emails can satisfy the signed writing requirements. Specifically, under the UETA, both click-wrap agreements and e-mail exchanges may cover transactions where signed writings are required under the applicable statute of frauds.
Sale of Goods
Most Internet businesses will be concerned with enforcing contracts for the sale of goods. Under the statute of frauds in many states, any agreement for the sale of goods exceeding $500.00 must be in writing. However, under the UETA, the electronic transaction satisfies the statute of frauds since the electronic order form is considered to be a “writing” under the Act. Also, the customer’s “signature” can be achieved legally by clicking on the “I Agree” button or by making any other electronic signature permitted under the Act, as I will also discuss below.
Regarding the sale of goods, the Uniform Commercial Code (UCC) is the primary body of law. The UCC is a model statute that nearly all the states of the United States have adopted in one form or another. It governs the sale of goods through the provisions of Article 2. The UCC provides for legal recognition of electronic contracts, records, and signatures (§2-211).
Electronic Signatures
Similar to a written agreement, all valid and enforceable e-contracts must also somehow signify that the terms and conditions have been accepted by the parties. In terms of the law, the basic common law (judge made law) principles of contracts still apply to electronic contracts and the customer must show his/her intent to accept the agreement. There are several methods of signifying acceptance of an electronic contract that satisfy the basic legal requirements of contract offer and acceptance.
For instance, your business can require that customers actually type their name into a signature area on the bottom of a terms and conditions page. Some of my clients have asked that their customers paste in a scanned version of their signatures. But, the easiest approach is to simply have your customers click on an “I Accept” or “I Agree” button. In all these instances, your business is requiring its customers to do some affirmative action in order to show their acceptance of the agreement. That is really the key-getting them to leave no doubt of acceptance by requiring an affirmative action by the customer to accept the terms.
There isn’t really a right or wrong way to go about collecting an e-signature, so long as the basic elements comprising a valid contract and an acceptance of that contract are met. Under the ESIGN Act, the term electronic signature “means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”
The bottom line is that you should always require that your customers perform some affirmative action to create a valid electronic signature on any product purchase agreement (and/or website terms of use).
The ESIGN Act
Every state has laws pertaining to electronic signatures, but federal law controls all interstate commerce. Since many businesses transact interstate commerce, it is important that these businesses become familiar with The Electronic Signatures in Global and National Commerce Act (“ESIGN” or “the Act”), adopted in 2000. The Act ensures that almost all contracts that are entered into electronically are valid and legal. Other than a few exceptions, the ESIGN Act gives electronic versions of contracts the same validity as a written contract would receive. But, the Act does not require a party to use or accept electronic signatures, electronic contracts, or electronic records.
State Law & the Uniform Electronic Transactions Act
State law can govern an electronic transaction entered into with online customers or website users. Many States have adopted the UETA. Only Illinois, New York, and Washington State have not enacted UETA, but each of those states has adopted its own electronic signatures statute. The UETA provides rules and regulations for conducting electronic transactions over the internet. The law is designed to support and facilitate the use of electronic media so parties may freely conduct transactions electronically. Most types of transactions conducted over the internet will fall under the scope of the Act since it defines “commerce” broadly.
In an effort to summarize the UETA, it basically provides for the following:
- An electronic record or signature is not prohibited only because it is in electronic form;
- A contract that was formed electronically (such as by email) is not unenforceable for only that reason;
- An electronic writing satisfies the statute of frauds (or any other law requiring a written document for legal validity).
An electronic signature (as defined under the Act) satisfies any law requiring a written signature. The UETA defines “electronic signature” as an “electronic sound, symbol, or process associated with a record and executed or adopted by a person with the intent to sign the record.” The definition of electronic signature includes the “standard webpage click-through process.” This means that when a customer goes through the entire process of ordering goods through the internet and then clicks on an ‘I agree’ button, or similar button, the customer has legally adopted the “process” and has then signified their intent of receiving goods and becoming liable to pay for them. Once the customer has completed the entire process by clicking on an ‘I agree’ or similar button, the customer is legally bound to pay for those goods (or services). The customer has provided an electronic signature, which assents to the transaction under the UETA.