Online Contracting Copyright © Jeffrey Pittman

Pittman - Cyberlaw & E-Commerce2 Historical View of Contract Law The Code of Hammurabi Hammurabi was a ruler of ancient Babylon, the world’s first metropolis The Code of Hammurabi is the earliest known example of a ruler publishing for the people an entire body of laws The code, carved in a stone monument, dates to approximately 1750 B.C.

Pittman - Cyberlaw & E-Commerce3 The Code of Hammurabi CODE OF LAWS 1. If any one ensnare another, putting a ban upon him, but he can not prove it, then he that ensnared him shall be put to death...

Pittman - Cyberlaw & E-Commerce4 The Code of Hammurabi Contract Examples 45. If a man rent his field for tillage for a fixed rental, and receive the rent of his field, but bad weather come and destroy the harvest, the injury falls upon the tiller of the soil.

Pittman - Cyberlaw & E-Commerce5 The Code of Hammurabi Contract Examples 228. If a builder build a house for some one and complete it, he shall give him a fee of two shekels in money for each sar of surface. 229 If a builder build a house for some one, and does not construct it properly, and the house which he built fall in and kill its owner, then that builder shall be put to death If it kill the son of the owner the son of that builder shall be put to death.

Pittman - Cyberlaw & E-Commerce6 The Code of Hammurabi Contract Examples 244. If any one hire an ox or an ass, and a lion kill it in the field, the loss is upon its owner If any one hire oxen, and kill them by bad treatment or blows, he shall compensate the owner, oxen for oxen.

Pittman - Cyberlaw & E-Commerce7 Contract Definition A contract is an agreement between two or more parties that can be enforced in a court of law Contract law protects promises that have been made, allowing commerce to function

Pittman - Cyberlaw & E-Commerce8 Electronic Contracts From Hammurabi’s time to today, the methods for contracting have changed as well as the substance of contracting The Internet and electronic contracts are currently important regarding the method and substance of contracting

Pittman - Cyberlaw & E-Commerce9 Sources of Contract Law within the United States - the Common Law The common law refers to each state’s judicial opinions in areas where statutory law is absent Many questions of contract law are controlled by state common law –For example, a state’s common law controls questions about contract fraud, unconscionability, capacity, consideration, offer and acceptance, and remedies

Pittman - Cyberlaw & E-Commerce10 State Common Law Though states will vary on common law rules, our common history has produced legal similarity among the states The textbook presents a summary of state common law as presented in the Restatement Second of the Law of Contracts

Pittman - Cyberlaw & E-Commerce11 The National Conference of Commissioners on Uniform State Laws The National Conference of Commissioners on Uniform State Laws (NCCUSL) organized in the late 1800s to provide uniformity of law among the states After adoption of a uniform law by the NCCUSL, the group presents the law to each state for consideration

Pittman - Cyberlaw & E-Commerce12 The National Conference of Commissioners on Uniform State Laws Until adopted (if ever) by a given state, the proposed uniform law has no legal effect in that jurisdiction One of the most successful NCCUSL projects has been the Uniform Commercial Code

Pittman - Cyberlaw & E-Commerce13 The Uniform Commercial Code Drafted and proposed in 1949, 49 states have adopted the UCC The UCC supplements and overrides portions of the state’s common law, particularly UCC Article 2 on the sale of goods (tangible, personal property) UCC Article 2 will apply where an e-commerce transaction involves the sales of goods

Pittman - Cyberlaw & E-Commerce14 The Uniform Electronic Transactions Act Another law prepared by the NCCUSL is the Uniform Electronic Transactions Act (UETA) Through 2005, 47 states and the District of Columbia have adopted UETA

Pittman - Cyberlaw & E-Commerce15 The Uniform Electronic Transactions Act Primarily, UETA does the following: –Provides for the enforceability of contracts based in whole or part on electronic records, messages, or media –Defines and validates electronic signatures –Provides that electronic records and messages satisfy the Statute of Frauds (Under the Statute of Frauds, state law sometimes requires that a contract be in writing, signed by the party refusing enforcement)

Pittman - Cyberlaw & E-Commerce16 The Uniform Electronic Transactions Act UETA functions (cont.) –Provides for party authentication in electronic transactions –Provides for the enforceability of contracts based on the use of electronic agents

Pittman - Cyberlaw & E-Commerce17 The Uniform Electronic Transactions Act A key point from UETA is that this law only applies to transactions in which each party has agreed to use some electronic communications The rules in UETA are “default” rules, meaning the parties may agree to vary, alter, or ignore most UETA rules

Pittman - Cyberlaw & E-Commerce18 The Electronic Signature Act Federal statutory law is generally silent regarding contract law; the issue is left for state regulation One relevant federal statute is the Electronic Signature Act (E-Sign Act) –E-Sign is similar to UETA

Pittman - Cyberlaw & E-Commerce19 The United Nations Convention on the International Sale of Goods Another key federal law is the United Nations Convention on the International Sale of Goods (CISG) The federal government has adopted CISG as a treaty obligation –CISG regulates the international sale of goods

Pittman - Cyberlaw & E-Commerce20 The United Nations Convention on the International Sale of Goods CISG is model legislation drafted under the direction of the United Nations Commission on International Trade Law (UNCITRAL) The United States is a party to the CISG CISG applies to international sales of goods involving participants from countries that have adopted CISG

Pittman - Cyberlaw & E-Commerce21 Sources of Contract Law State Law Summary State common law Court created rules regulating contracts involving: The sale of land (real property) – see the following slide for property definitions The sale of services, and The sale of intangible personal property State statutory law Example - the Uniform Commercial Code (UCC) regulating contracts involving the sale of tangible, personal property Example – The Uniform Electronic Transactions Act (UETA), regulating electronic records used in contracting

Pittman - Cyberlaw & E-Commerce22 Property Definitions Real property is land and buildings attached to the land Personal property is everything that is not land Tangible property has a physical existence (you can “touch” tangible property) Intangible property represents legal rights that cannot be “touched”, for example, copyrights, trademarks, patents, etc.

Pittman - Cyberlaw & E-Commerce23 Sources of Contract Law Federal Law Summary Federal Statutory Law E-Sign, regulating electronic records used in contracting International Law CISG, regulating the international sale of goods

Pittman - Cyberlaw & E-Commerce24 R equirements for Enforceable Contracts An agreement must satisfy the following requirements in order to be an enforceable contract Mutual Assent –The parties must have reached an agreement, an offer followed by an acceptance –The assent must be genuine, not procured through fraud or misrepresentation

Pittman - Cyberlaw & E-Commerce25 Requirements of an Offer Intent - offeror is serious, not joking, and intends to be bound by the offer –Note the rules regarding advertisements and auctions –E-Bay auctions are generally without reserve Definite – the offer has reasonably certain and definite terms Communication – the offer is communicated to the offeree, either actually or constructively –Constructive communication is a reasonable attempt at communicating the offer terms, e.g., a prominent notice, effectively placed, on a Web site

Pittman - Cyberlaw & E-Commerce26 Requirements of an Acceptance Acceptance is a voluntary agreement to be bound by the terms of the offer Silence generally is not viewed as acceptance Silence may be a valid acceptance when the parties have so agreed in advance, either explicitly or through custom or prior behavior

Pittman - Cyberlaw & E-Commerce27 R equirements for Enforceable Contracts Consideration - each party must exchange or promise to exchange with the other side something of legal value Using a simplified method, the requirement of consideration means that each party must suffer a “detriment” with his/her promise –A detriment occurs with a promise to do something the promisor had no duty to do, or a promise to give up a legal right

Pittman - Cyberlaw & E-Commerce28 Consideration Example Acme promises to pay $ for the trademark, a promise The company had no prior legal duty to perform Tom promises to sell a trademark to Acme Manufacturing, a promise that he had no prior legal duty to perform

Pittman - Cyberlaw & E-Commerce29 R equirements for Enforceable Contracts Capacity - each contractual party must have the ability to understand the import of their promises –Minors and intoxicated individuals have limited capacity –The Internet poses interesting questions in verifying capacity

Pittman - Cyberlaw & E-Commerce30 R equirements for Enforceable Contracts Legality - agreements must have a legal purpose –For example, agreements to fix prices between competitors, or agreements that are extremely unfair –unconscionable- are illegal and unenforceable –Exculpatory clauses are unenforceable unless agreed to in areas that involve goods and services that are optional, not necessary for the purchaser

Pittman - Cyberlaw & E-Commerce31 R equirements for Enforceable Contracts Written Form – under U.S. law, some agreements must be in writing and signed to be enforceable Most contracts are not required to be in written form –See CISG Article 11 for an example of international law regarding form

Pittman - Cyberlaw & E-Commerce32 What Contracts Must Be in Writing? The United States –Under the common law statute of frauds, the following contracts must be in writing Contracts that involve an interest in land (real property) Contracts that cannot be performed in less than one year Promises to pay the debt of another

Pittman - Cyberlaw & E-Commerce33 What Contracts Must Be in Writing? –Under the UCC, the following contracts must be in writing Contracts for the sale of tangible goods, $500 or greater Contracts for the lease of tangible goods, $1000 or greater

Pittman - Cyberlaw & E-Commerce34 Complying with the Statue of Frauds When the statute of frauds applies to a contract, there must be some written evidence that –Identifies the parties to the agreement, –Specifies the essential terms of the agreement, and –Is signed by the party against whom enforcement is sought

Pittman - Cyberlaw & E-Commerce35 What constitutes a signature? Name, initials, or other symbol, as long as the party intends for the used mark to authenticate the writing Note that UETA allows the use of electronic signatures to satisfy the statute of frauds

Pittman - Cyberlaw & E-Commerce36 Warranties In the United States, warranty law is governed by the UCC, Sections through 2-316, regarding the sale of goods