Contract Formation

in the Digital Age

Idene Saam

Introduction

I. Online Contract Formation A. Mutual Assent

B. Consideration

II. Digital Contract Execution A. Statute of Frauds

B. Electronic Execution Laws

1. Electronic Signatures in Global and Interstate Commerce Act of 2000 (“ESIGCA”), 15 U.S.C. § 7001 et seq.

2. Uniform Electronic Transactions Act (“UETA”)

III. Terms and Conditions A. Browse-wrap Agreements

B. Click-wrap Agreements

C. Key Cases

I-A. Mutual Assent

• Mutual assent occurs when both parties show, through words or conduct, of their intent to be bound to the agreement.

• The “Mailbox” Rule for technology: – Early 19th Century Rule in both UK1 and US2 that acceptance occurs

when offeree puts acceptance notice in the mail (or “dispatches” the acceptance).

– Courts continued to apply that rule to newer technologies: telegraph, telephone, fax.

– Since the offeror is “master of the offer,” courts place the burden on the offeror to set restrictions.

• Contrast with contracts governed by UN Conv on Contracts for the Int’l Sale of Goods, where acceptance is effective only upon receipt by the offeror.3

1. Adams v. Lindsell, 106 Eng. Rep. 250 (K.B.) (1818). 2. Mactier’s Adm’rs v. Frith, 6 Wend. 103 (N.Y. 1830). 3. UN CISG, Art. 18(2).

I-A. Mutual Assent

• Conduct indicating assent can include: – Agreeing to terms in order to visit a website or place an order

(browse-/click-wrap).1

– Sending an email indicating acceptance of terms.2

• Mutual assent evaluated under objective standard: would a reasonable person find the parties’ conduct indicating an intent to enter into the agreement?

• Assent must be to all material terms (price, quantity, payment) (“Mirror image” rule). – But see UCC 2-207: unless offer or acceptance expressly conditioned

on terms, additional or different terms may become part of the parties’ agreement.3

1. Mark A. Lemley, Terms of Use, 91 Minn. L. Rev. 459, 472 (2006). 2. Lim v. The. TV Corp. Int’l, 99 Cal. App. 4th 684 (2002). 3. Steiner v. Mobil Oil Corp., 20 Cal. 3d 90 (1977) (aff’d 218 Cal. App. 4th 272, 281 (2012)).

I-B. Consideration

• “Consideration” is any act, forbearance, promise, or change in legal relations.

• Both parties must exchange consideration for contract to be valid (otherwise gift).

• A promise to agree in the future (“agreement to agree”) generally not valid consideration when future promise is essential, unless accompanied by additional consideration (e.g. option contract).1

1. City of Los Angeles v. Superior Court, 51 Cal. 2d 423 (1959).

Advertisements vs. Offers

• Advertisements are generally considered to be invitations for buyers to enter into an agreement.

• Offers, on the other hand, indicate that the person making the offer has an intent to be bound by the offeree’s response.

Ads vs. Offers – A Comparison

One of these is probably an ad. The other is probably an offer.

Ads vs. Offers – Lefkowitz Case • Lefkowitz v. Greater Minneapolis Surplus Store, 86 N.W.2d 689

(Minn. 1957). – Store advertised in newspaper for a sale on fur products, including one

scarf for $1.00, and stated items would be sold on a first-come, first-served basis:

SATURDAY 9 A.M. 2 BRAND NEW PASTEL MINK 3-SKIN SCARFS

Selling for $89.50 Out they go

Saturday. Each ......... $1.00 1 BLACK LAPIN STOLE

Beautiful, worth $139.50 .......... $1.00

FIRST COME FIRST SERVED

– Mr. Lefkowitz was the first customer to enter the store. He presented his $1.00 and asked for the scarf. The store refused to sell the scarf, on the ground that the “house rules” indicate the offer was only for women.

Ads v. Offers – Lefkowitz II • Issue:

– Under what circumstances will an advertisement for the sale of goods constitute an offer?

• Rules: – The general rule is that an advertisement is an invitation for the public to

make an offer to buy a particular good.1

– The test of whether a binding obligation may originate in advertisements addressed to the general public is “whether the facts show that some performance was promised in positive terms in return for something requested.”2

– Where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.3

• Application: – Here, the ad clearly identified that there was one black lapin stole for sale

for $1, and that the first person to present $1 would complete the transaction.4 The ad left nothing open for negotiation and was therefore an offer.5

1. Lefkowitz v. Greater Minneapolis Surplus Store, 251 Minn. 188, 190-191 (1957). 2. Id. at 191. 3. Id. at 192. 4. Id. 5. Id.

Ads v. Offers – Comparison II

• Includes the product description and “no-haggle” price

• Also includes CarMax’s stock number, as well as car’s unique Vehicle Identification Number and availability

• More likely that seller intends to be bound

• Includes the product description and price

• Does not indicate quantity or other identifying terms

• More likely that seller is inviting offers

II. Contract Execution I. Online Contract Formation

A. Mutual Assent

B. Consideration

II. Digital Contract Execution

A. Statute of Frauds

B. Electronic Execution Laws

1. Electronic Signatures in Global and Interstate Commerce Act of 2000 (“ESIGCA”), 15 U.S.C. § 7001 et seq.

2. Uniform Electronic Transactions Act (“UETA”) III. Terms and Conditions

A. Browse-wrap

B. Click-wrap

C. Key Cases

II-A. Statute of Frauds

• Many contracts do not need to be in writing (or signed) in order to be enforceable.

• All states have some statutes that do require a writing for certain types of contracts, typically those: – for the sale of interests in land;

– for the sale of goods worth $500 or more;

– for answering the debt of another (suretyship/guarantees);

– that cannot actually be performed within one year from their making.1

• Promissory Estoppel: – A promise which the promisor should reasonably expect to induce

action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.2

1. Restatement (Second) Contracts, § 110. 2. Restatement (Second) Contracts, § 90; see also Barnes v. Yahoo! Inc., 570 F.3d 1096, 1106 (9th Cir. 2012).

II-B-1. Electronic Signatures in Global Commerce Act

• Federal law that applies only to transactions in or affecting interstate commerce.1

• Grants legal validity to electronic contracts and signatures.2

• Allows for electronic records to satisfy legal requirements that require contracts or records to be kept in writing.3

• Consumer Protections: – Electronic contracts formed with consumers must require consumer to

give consent to receiving contract electronically, and must give consumer the right to receive the contract in paper form.4

• Exceptions: wills/trusts; UCC-governed contracts other than sales or leases; state laws requiring writing (statutes of fraud).5

1. 15 U.S.C. § 7001(a). 2. Id. 3. Id. at § 7001(b). 4. Id. at § 7001(c)(1). 5. Id. at § 7003(a).

II-B-2. Uniform Electronic Transactions Act • A model law adopted in 47 of 50 states (not IL, NY, and WA)

– But non-adoptees have their own separate legislation recognizing electronic signatures.

• Covers transactions related to business, commerce, and government.

• Requires the parties’ express agreement to allow electronic records and signatures. (Section 5.)

– But agreement need not be in writing. Can be inferred through conduct.

• Prevents parties who have agreed to electronic records or signatures to later seek to invalidate the agreement for lack of a paper agreement or “wet-ink” signature. (Section 7.)

• Allows for electronic record of a contract to be kept in situations where a record must be maintained. (Section 12.)

• Exceptions: wills/trusts; UCC-governed contracts other than sales or leases; state laws requiring writing (statutes of fraud). (Section 3.)

III. Terms and Conditions I. Online Contract Formation

A. Mutual Assent

B. Consideration

II. Digital Contract Execution

A. Statute of Frauds

B. Electronic Execution Laws

1. Electronic Signatures in Global and Interstate Commerce Act of 2000 (“ESIGCA”), 15 U.S.C. § 7001 et seq.

2. Uniform Electronic Transactions Act (“UETA”)

III. Terms and Conditions A. Browse-wrap Agreements

B. Click-wrap Agreements

C. Key Cases

III-A. Browse-wrap Agreements

• Link on the webpage takes the user to the terms and conditions.

• Requires no affirmative action on the user’s part in order to show acceptance of the terms.

• Assent to the terms is assumed through user’s use of the webpage.

III-A. In re Zappos.com Facts

• Zappos.com, an online shoe retailer, was hacked and private customer data was stolen.

• Zappos was sued in multiple class actions for damages resulting from the breach.

• Zappos moved to compel arbitration, pursuant to its browse-wrap terms and conditions, which provide that disputes will be resolved solely through arbitration.

III-A. Zappos.com Webpage in 2011

III-A. In re Zappos.com II

• Issue: – Did the Zappos browse-wrap agreement constitute a binding contract?

• Rules: – An enforceable contract requires (1) offer and acceptance; (2) a

meeting of the minds; and (3) consideration.1

– Where there is no evidence that one party had actual knowledge of the agreement, “the validity of a browse-wrap contract hinges on whether the website provides reasonable notice of the terms of the contract.”2

1. In re Zappos.com, Inc., Customer Data Security Breach Litigation, 2012 WL 44666600 at *5 (D. Nev. Sept. 27, 2012). 2. Id. at *8.

III-A. Zappos.com Webpage

III-A. In re Zappos.com III

• Application: – Although the Terms of Use link on the Zappos.com website appears at

the bottom of every page, it is on page 3 of 4 when printing the home landing page.1

– The link is the same size, font, and color as most other non-significant links.2

– The website does not direct the user to the Terms of Use when creating an account, logging in, or making a purchase.3

– “No reasonable user would have reason to click on the Terms of Use[.]”4

– The user could not have accepted terms that they likely did not see. Therefore, no contract and no binding arbitration.5

1. In re Zappos.com, Inc., Customer Data Security Breach Litigation, 2012 WL 44666600 at *8. 2. Id. 3. Id. 4. Id. 5. Id. at *10.

III-B. Click-wrap Agreements

• A click-wrap agreement requires users to expressly manifest assent to terms and conditions by clicking on, for example, an “I accept” button in order to proceed.1

• Courts are more likely to find assent in click-wrap agreements as opposed to browse-wrap, since the user has to at least have notice that the terms exist before they click “I accept.”

1. Specht v. Netscape Commc’ns Corp., 306 F.3d 17, 22 n.4 (2d Cir. 2002) (Sotomayor, J.)

III-B. AirBnB iOS App

III-C. Key Cases

• Browse-wrap: – Cvent, Inc. v. Eventbrite, Inc., 739 F.Supp.2d 927 (E.D. Va. 2010)

– Hubbert v. Dell Corp., 835 N.E. 2d 113 (Ill. Ct. App. 2005)

– Register.com v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004)

• Click-wrap: – Doe I v. AOL, LLC, 552 F.3d 1077 (9th Cir. 2009)

– Treiber & Staub, Inc. v. UPS, Inc., 474 F.3d 379 (7th Cir. 2007)

– Fteja v. Facebook, Inc., 2012 U.S. Dist. LEXIS 12991 (S.D.N.Y 2012)

Thank you!

Idene Saam (idenesaam@gmail.com)