Agreement in Traditional and E-Contracts

Agreement in Traditional and E-Contracts

Section 1: Agreement

Agreement:

  • Parties must agree on the terms of the contract
    • Manifest to each other their mutual assent (agreement) to the same bargain
  • Agreement has
    • An offer
      • One parties offers a certain bargain to another party
    • An acceptance
      • The other party accepts the that bargain
    • Does not necessarily have to be in written
    • Both parties must manifest their assent, or voluntary consent, to the same bargain
    • Once these two and the other elements of a contract is evident
      • A valid is formed, creating enforceable rights and duties between the parties        
    • Objective theory of contracts
      • A party’s words and conducts are held to mean whatever a reasonable person in the offeree’s position would think they meant

Requirements of the Offer:

  • An offer - is a promise or commitment to do or refrain from doing some specified action in the future
  • Under the common law, three elements are necessary for an offer to be effective
  1. The offeror must have a serious intention to become bound by the offer
  2. The terms of the offer must be reasonably certain, or definite, so that the parties and the courts can ascertain the terms of the contract
  3. The offer must be communicated to the offeree
    • Once these an effective offer have been made, the acceptance creates a legally binding contract
  • Intention
    • The first requirement is a serious intent on the part of the offeror
    • Intent is determined by what a reasonable person in the offeree’s position would conclude the offeror’s words and actions meant
      • Offers made in obvious anger, jest, or undue excitement do not meet the serious-and objective-intent test
        • A reasonable person would realize that a serious offer was not being made
      • Expression of Opinion
        • Is not an offer
        • Does not indicate the intention to enter a binding agreement
      • Statement of Future Intent
        • Is to say that a future action will be performed
        • Does not qualify as an offer
      • Preliminary Negotiations
        • A request or invitation to negotiate is not an offer
          • Only expresses a willingness to discuss the possibility of entering into a contract
        • Advertisements
          • (including representation made in mail order catalogues, price lists and circulars)
          • Are not treated as offers to contract
          • Only as an invitation to negotiate
        • Auctions
          • Is an invitation asking bidders to submit offers
          • Bidder- offeror, auctioneer is offeree
            • Offer is accepted when the auctioneer strikes the hammer
            • Before the fall of the hammer, the offeror may revoke their bid or auctioneer to reject the bid
            • When an auctioneer accepts a higher bid, all previous bids are rejected
          • Auctions with and without Reserve
            • With reserve
              • The seller (through the auctioneer) may withdraw the goods at anytime before the auctioneer closes the sale
              • All auctions are assumed to be with reserved unless stated otherwise
              • The seller may reserve the right to confirm or reject the sale even after the hammer have fallen
            • Without reserve
              • Goods cannot be withdrawn by the seller and must be sold to the highest bidder
            • Agreements to Agree
              • To the material terms of a contract at some future date
                • Were not considered to be a binding contract
              • Modern views- is that agreements to agree may be enforceable contracts if it is clear that the parties intended to be bound by the agreements
            • Definiteness of Terms
              • The second requirement for an effective offer
              • An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give appropriate remedy
              • Generally a contract must include
  1. The identification of parties
  2. The Identification of the object or subject matter of the contract (also the quantity, when appropriate)
    1. Including the work to be performed, with specific identification of such items as goods, services and land
  3. The consideration to be paid
  4. The time of payment, delivery, or performance
  • Communication
    • The third requirement for an effective offer
    • Offer must be communicated to the offeree

Termination of the Offer:

  • Communication of effective offer give an offeree power to transform the offer into a binding legal obligation by acceptance
  • Offer can be terminated through the action of the parties or by operation of law
  • Termination by Action of the Parties
    • Revocations
    • Rejection
    • Counteroffer
    • Revocations of the offer by the offeror
      • The offeror’s act of withdrawing an offer
      • Unless the offer is irrevocable, the offeror can revoke
      • Can usually revoke (even if they promised to keep it open)
        • As long as it is communicated to the offeree before acceptance
      • May be accomplished by express repudiation of the offer
        • Or by performance of acts that are inconsistent with the existence of the offer and are made known to the offeree
      • General rule is that revocation is effective if the offeree or their agent receive it
      • Offers made to the general public must be revoked in the exact that which the offer was communicated
    • Irrevocable offers
      • Courts have been refusing to allow offeror to revoke an offer when the offeree has changed positions because of justifiable reliance on the offer
        • This is under the doctrine of detrimental reliance or promissory estoppel
      • Option contract
        • Another form of irrevocable offer
        • It is created when an offeror promises to hold an offer open for a specified period of time in return for payment (consideration) given by the offeree.
        • It takes about the power of the offeror to revoke the offer within the specified time period
        • Typically use in the sale of lease of real estate
      • Rejection of the offer by the offeree
        • The offeree rejects the offer by words or conduct
          • But if they want to accept again.
            • It counts as a new offer and the offeror becomes the new offeree, so they have power of acceptance
          • Counteroffer by the Offeree
            • Counteroffer
              • A rejection of the original offer and the simultaneous making of a new offer            
            • In common law the Mirror image rule
              • Requires the offeree’s acceptance to match the offeror’s offer exactly
              • Any change in, or addition to, the terms of the original offer automatically terminates the offer and substitutes the counteroffer
            • Termination by Operation of Law
  1. Lapse of time
  2. Destruction of the specific subject matter of the offer
  3. Death or incompetence of the offeror or offeree
  4. Supervening illegality of the proposed contract
    • Lapse of Time
      • If an offer states that it will be left open until a particular date then it is open until midnight of that day
      • If it states a certain number of days then the clock begins when the offeree receive the offer
      • If it does not mandate a time then it is terminated after a reasonable period of time
    • Destruction of the Subject Matter
      • An offer is automatically terminated if the specified subject matter is destroyed before the offer is accepted
    • Death or Incompetence of the Offeror or Offeree
      • An offeree’s power of acceptance is terminated when the offeror or offeree dies or is deprived of legal capacity to enter into the proposed contract
        • Unless the offer is irrevocable
        • A revocable offer is personal to both parties and cannot pass to heirs, guardians or estate of either
          • This applies whether or not the other party has a notice of death or incompetence
        • Supervening Illegality of the Proposed Contract
          • A statute or court decision that makes an offer illegal automatically terminates the offer

Acceptance:

  • Is a voluntary act by the offeree that show assent to the terms of an offer
    • Act may consist of words or conduct
    • Acceptance must be unequivocal and must be communicated to the offeror
  • Unequivocal Acceptance
    • To exercise the power of acceptance effectively
      • Offeree must accept unequivocally
      • Mirror image rule
    • If the acceptance is subject to new conditions or if the terms of acceptance change, the original offer
      • The acceptance may be deemed a counter offer that implicitly rejects the original offer
    • An acceptance may be unequivocal even though the offeree expresses dissatisfaction with the contract
  • Silence as Acceptance
    • Usually silence cannot constitute acceptance even if the offeror states it
    • The general rule is because an offeree should not be obligated to act affirmatively to reject an offer when no consideration has passed to the offeree to impose such a duty
    • Silence may be taken as acceptance
      • When an offeree takes the benefit of offered services even though they had an opportunity to reject it and knew they were offered with the expectation of compensation
      • When offeree has prior dealings with offeror
    • Communication of Acceptance
      • In a bilateral contract, communication is necessary
        • Acceptance is in the form of a promise, and the contract is formed when the promise is made
      • Unilateral contract calls for full performance of some act
        • Acceptance usually evident and notification is therefore unnecessary
        • Except when offeror request notice of acceptance or has no way to determining whether the act have been performed
      • Mode and Timeliness of Acceptance
        • In a bilateral contracts, acceptance must be made timely
          • The general rule for that is if it is made before the offer is terminated
        • Mailbox Rule
          • Acceptance takes effects, thus the formation of the contract is complete
          • The offeree sends or delivers the communication via the mode expressly or impliedly authorized by the offeror
            • If the mode is by mail then the acceptance become valid when it is dispatched not when it is received by the offeror
          • Rules does not apply to instantaneous communication
            • Such as when the parties are dealing face-to-face, telephone or by fax
            • Email fall under the UNiform Electronic Transaction Act (UETA) regulations
              • Email is considered sent when it either leaves the control of the sender or is received by the recipient
            • Authorized Means of Acceptance
              • Means of communicating acceptance can be expressly authorized by the offeror or impliedly authorized by the facts and circumstances surrounding the situation or the law
                • Acceptance sent by non-authorized mode is not effective until received by offeror
              • When an offeror specifies how acceptance should be made
                • Express authorization exists
                • Contract is not form unless offeree uses that specified mode of acceptance
                • Both parties are bound into contract once the means of acceptance is employed
              • If the offeror does not expressly authorize a certain mode of acceptance,
                • Then acceptance can be made by any reasonable means
                • Courts look at the prevailing business usages and the surrounding circumstances to determine whether mode of acceptance used was reasonable
              • Substitute Method of Acceptance
                • When the offeror authorize one mode and the offeree uses another
                  • Acceptance may still be effective if the substituted method serves the same purpose as the authorized one

Section 2: Agreement in E-Contracts

           

  • E-contracts
    • Must meet the same requirements (agreement, consideration, contractual capacity and legality) as paper contracts
    • Are formed for the sale of goods and services but for licensing or a right to use a software
      • Licensor
      • Licensee

Online Offers:

  • Sellers can save themselves from contract disputes and legal liability
    • By creating offers that clearly spell out the terms that will govern their transaction
    • All important terms should be conspicuous and easy to view
    • Displaying the Offer
      • Should include a hypertext link to a page containing the full contract
        • buyers are made aware of the terms to which they are assenting
        • Should be displayed in a readable format
        • All provisions should be reasonably clear
      • Provisions to Include
        • The offeror controls the offer and the resulting contract
  1. Acceptance of Terms
    1. A clause that clearly indicates what constitutes the buyer’s agreement to the terms of the offer
  2. Payment
    1. A provision specifying how payment for the goods (including taxes) must be made
  3. Return policy
    1. A statement of the seller’s refund and return policies
  4. Disclaimer
    1. Disclaimers of liability for certain uses of the goods
  5. Limitation on remedies
    1. A provision specifying the remedies available to the buyer if the goods are found to be defective or if the contract is otherwise breached
  6. Privacy Policy
    1. A statement indicating how the seller will use the information gathered about the buyer
  7. Dispute Resolution
    1. Provisions relating to dispute settlement such as an arbitration clause or a forum-selection clause
  • Dispute-Settlement Provisions
    • Forum selection clause - indicating the forum or location (such as a court or jurisdiction) in which contract disputes will be resolved
    • Choice-of-law clause
      • Parties specify that any disputer arising out of the contract will be settled in accordance with the law of a particular jurisdiction

Online Acceptances:

  • The restatement (second) of contracts
    • Compilation of common law contract principles
    • States that parties may agree to a contract by written or spoken word or by other action or by failure to act
    • UCC has a similar provision
      • Any contract for the sales 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
      • Click on Agreements
        • Used the restatement and UCC provisions to conclude that a binding contract can be created by conduct, including the act of clicking on the box indicating
        • Click-on agreement
          • (click-on licence pr click-wrap agreement)
          • Clicking on a box indicating “I accept” or “I agree” to accept online offer
          • Law does not require the parties to read all the terms in a contract for it to be effective
        • Shrink-Wrap Agreements
          • Shrink-wrap license
          • The terms are expressed inside the box in which the goods are packaged
          • Usually are not between retailer and a buyer
            • Between the manufacturer of hardware or software and the ultimate buyer-user of the product
            • Generally concern warranties, remedies, and other issues
            • Shrink-Wrap Agreements and Enforceable Contract Terms            
              • Courts have enforced shrink-wrap agreements like other contracts
              • Reasoned that by including the terms with the product, the seller proposed a contract
                • The buyer accept this contract by using the product after having an opportunity to read the terms
                • Buyer’s failure to object the term of service in the package is acceptance of the terms by conduct
              • Shrink-Wrap terms that may not be Enforced
                • Courts have chosen to not enforce because the buyer did not expressly consent to them
                  • One factor they consider is that whether or not the seller communicated the terms before or after to the buyer
                • If the buyer ordered a product over the TV
                  • May not be informed of an arbitration clause or a forum-selection clause at that time
                  • If the buyer clearly has not expressly agreed to these terms
                  • If the buyer discovers the clauses after the parties entered into their contract, a court may conclude that those terms were proposals for additional terms  
                • Browse-Wrap Terms
                  • Can occur in transaction conducted over the internet
                    • Do not require internet users to assent to the terms before downloading or using a certain software
                  • User may agree to use the software and and agree to the terms after downloading

E-Signature Technologies:

  • Define 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”
    • Encrypted digital signatures, names (intended as signature) at the end of emails and clicks on a web page.
  • Technologies for creating e-signatures fall into two categories
    • Digitized handwritten signatures
      • Is a graphical image of a handwritten signature
      • Strokes of a person’s signatures can be measured by software to authenticate the identity of the person
        • Signature dynamics
      • Public key infrastructure-based digital signatures
        • Such as an asymmetric cryptosystem
        • Two mathematically linked but different keys are generated- private signing key and a public validation key
        • cybernotary - or legally recognized certification authority, issues the key pair, identifies the owner of the keys and certifies validity of the public key
          • Serve as a repository for the public keys

State Laws Governing E-Signatures:

  • States laws are not uniform
    • California prohibits many types of documents from being signed with e-signatures
    • Some states only recognize only digital signature as valid
    • Others permit additional types of signatures
  • To make some uniformity, National conference of Commissioners on Uniform State Laws and the American Law Institute
    • Created the Uniform Electronic Transaction Act
      • Adopted by 48 states
      • Declares that a signature may not be denied legal effect or enforceability solely because it is in electronic form

Federal Law on E-Signatures and E-Documents:

  • 2000, Congress enacted the Electronic Signatures in Global and National Commerce Act (E-SIGN Act)
    • No contract, record, or signature may be “denied legal effect” solely because it is in electronic form
    • E-signature is as valid and enforceable as a paper one
    • Does not apply to all documents
      • Court papers, divorce papers, evictions, foreclosures, health-insurance terminations, prenuptial agreements, and wills
    • Fact and Accurate Credit Transaction (FACT) passed to combat identity theft
      • One provision talks about how credit card receipts should be handled

Partnering Agreements:

  • A seller and a buyer who frequently do business with each other agree in advance on the terms and conditions that will apply to all transactions subsequently conducted electronically
    • Reduces the likelihood that disputes will arise under the contract
      • Buyer and seller have agreed in advance
      • Court will refer to the partnering agreement when determining parties’ intent

Section 3: The Uniform Electronic Transactions Act

  • Primary purpose is to remove barriers to e-commerce by giving the same legal effect to electronic records and signatures as paper ones
  • Record - information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form

The Scope and Applicability of the UETA:

  • Does not create new rules for electronic contracts but rather establishes that records, signatures, and contracts may not be denied enforceability because they are electronic
  • It covers only electronic records and e-signatures
    • Relating to a transaction
    • Transaction
      • Is an interaction between two or more people relating to business, commercial, or governmental activities
    • Does not apply to a transaction unless each of the parties has previously agreed to conduct transactions
      • Agreement does not need to be explicit
      • It can be implied by the conduct of the parties and circumstances

The Federal E-Sign and the UETA:

  • Refers explicitly to the UETA and provides that if a state has enacted the uniform version of the UETA
    • If the state adopted UETA without mod then the state law governs
    • Allows states to enact alternative requirements for use of electronic records or electronic signatures
      • State must give greater legal status or effect to one specific type of technology

Attributing Electronic Signatures:

  • E-sign and record and signature may be attributed to that person
    • Signature at the end of the email may be taken back to the person who sent it

The Effect of Errors:

  • UETA encourages the use of security procedures
    • Such as encryption to verify changes to electronic documents
    • To correct errors
    • If two parties agree to to security measures and one does not follow, the other one can legally avoid effect of change or error
    • Some state laws state that the law governing mistakes will determine the effect
  • parties must promptly notify the other party of the error and their intent to be bound by the error

Timing:

  • Section 15 of UETA
    • Electronic record is considered “sent” when it is properly directed to the intended recipient
      • In a readable format for the recipient’s computer system
      • It leaves the control of the send and is under the care of the receiver, it is sent
    • The record is considered received
      • It enters the recipient's processing system in a readable form
        • Even if no individual is aware of its receipt
      • Unless agreed, the e-record is to be sent from or received at the party’s principal place of business
        • If they have none, it can be send to their residence
          • If they have multiple, then it should be sent to the one that has the closest relationship to the underlying transaction

Section 4: International Treaties Affecting E-Contracts

International Treaties:

  • National Convention on the Use of Electronic Communications in International Contracts
    • 2005
    • Goal to improve commercial certainty by determining an internet user’s location for legal purposes
    • Established standards for creating functional equivalence between electronic communications and paper documents
    • Esignatures = paper signatures
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