Electronic Signature in Contract Law - Essay Example

The Enforceability of the Electronic Signature (E-Signature) With Regard to Contract Law: A Proposal Chapter 1. Introduction and Methodology. Introduction. The electronic signature in the electronic contract is a supposedly a safe measure,1 but to ensure that it is, this method of transaction warrants further research into: a) its reliability (does it work); b) its enforceability; and c) its possibility of being used illegally. In order to examine the enforceability of electronic contracts and electronic signatures with regard to contract law, here it will be examined in nine chapters that will be included in the dissertation and the proposed methodology. Methodology Here is included a methodology of the dissertation's thesis, which is: "The electronic signature in the electronic contract is a supposedly a safe measure,2 but to ensure that it is, this method of transaction warrants further research into: a) its reliability (does it work); b) its enforceability; and c) its possibility of being used illegally." The methodology will consist of the main procedure, objective, limitations, data collection, ethical considerations, tools, and statistical analysis. The main procedure to be followed will be culling research based on the electronic signature's safety to be fit into one of the three categories in the thesis. The main objective of the project is to establish the relative safety of the electronic signature by looking at its reliability, enforceability, and the possibility of it being used illegally. The scope of the project is limited to the electronic signature. In data collection and tools, a variety of resources will be available for use, including scholarly journals, periodicals, books, newspapers, the news media, and the Internet. Ethical standards, of course, do apply, and this writer will be citing all sources where necessary and give credit where credit is due. Statistical analysis will only play a role if it is crucial to the research. Chapter 2. The Definition of the Contract and Contract Law. Here, definition and discussion of contracts and contract law will be delved into; the dissertation will be going in-depth into applicable case law. A contract, by definition, is "[a]n agreement between two or more persons which creates an obligation to do or not to do a particular thing. Its essentials are competent parties, subject matter, a legal consideration, mutuality of agreement, and mutuality of obligation."3 Additionally, a contract "is formed in any transaction in which one or both parties make a legally enforceable promise. A promise is a commitment or undertaking that a given event will or will not occur in the future and may be express or implied from conduct or language and conduct. A promise is legally enforceable where it: was made as part of a bargain for valid consideration; reasonably induced the promise to rely on the promise to his detriment; or is deemed enforceable by a statute despite the lack of consideration."4 Contracts may be one of three types: express (an agreement brought about by words); implied-in-fact (an agreement brought about by conduct); or implied-in-law, also known as a "quasi-contract" (which is "not a true contract but an obligation imposed by a court despite the absence of a promise in order to avoid an injustice."5 Chapter 3. The Electronic Contract and Electronic Contract Law. Here, a definition of the electronic contract and electronic contract law will be examined, while a further discussion of specific case law will be probed in the dissertation. An electronic contract is "a written agreement between parties that is presented through software being installed in your computer or transmitted by means of the Internet, whether it is: presented on a webpage; sent through e-mail; or downloaded along with a software program."6 The plausibility of electronic contracts are, for the most part, just as enforceable as other types of contracts. There are a few exceptions, however. Chapter 4. "Effective Notice" and the Electronic Signature. This chapter discusses "effective notice," whether the user was aware of the contract. Applicable case law will be discussed. In order to more fully understand the scope and extent of the enforceability of electronic contracts, we will now look case studies and analyze them-having to deal with the acceptance or rejection of the electronic signatures in the electronic contract. For one example of effective notice, in Mathias v. America Online, No. 79247, 2002 WL 377149 (Ohio App. Ct. Feb. 28, 2002), appeal denied, 775 N.E.2d 859 (Ohio 2002), the Ohio Court of Appeals ruled in favor of America Online, saying that AOL did not breach its agreement with plaintiffs.7 Chapter 5. Terms of Use as the Electronic Signature. In this chapter, applicable case law will be discussed regarding terms of use in electronic contracts and if they are considered part of the electronic signature. In Mathias v. America Online, users agreed that they had clicked on AOL's "Terms of Service" and "Rules of the Road," which were posted several times, which offered users unlimited Internet access for a flat monthly rate; the "terms had included a notice of possible access problems and instructions on how to unsubscribe from the unlimited-access rate. The plaintiffs subscribed to the new flat-rate service. The court found that by clicking on AOL's terms and subsequently not canceling their service, the plaintiffs were deemed to have acknowledged that the services would be provided on an as-available basis and that traffic congestion might occur."8 There are a number of things that could have gone wrong with this particular electronic contract. In the first place, the people could not have been aware that they were subscribing to a flat-rate service. Although AOL may have had plenty of warnings and so forth describing the "Rules of the Road" and "Terms of Service," it is questionable as to what extent the contract would be enforceable because of the fact that the users seemed unaware of their agreement with AOL. The fact that the plaintiffs did not cancel their service is something that should be considered seriously in the arena of electronic contracts. Since the contract is not canceled, that must mean that it is still in effect. Or does it Really, this is a novel concept. If no action is made on the part of the offended party to cancel the contract, then the contract is still in effect and the one who is in the position to make demands in a contract is in power. In this case, the customer had the power but the customer gave up the power to AOL. If the customers had not assigned their respective electronic signatures to the package deal, AOL would not have had a case. Chapter 6. Clickwrap Agreements as the Electronic Signature. Applicable case law will be discussed regarding clickwrap agreements in electronic contracts and if they are considered part of the electronic signature. Here, as an example, in Mudd-Lyman Sales & Service Corp. v. United Parcel Service, Inc., 236 F. Supp. 2d 907 (N.D. Ill. 2002), the U.S. District Court for the Northern District of Illinois ruled that a limitation of liability clause was enforceable which was contained in a clickwrap license which UPS shipped to its customers.9 To open the package in which the software was distributed, customers had to do two things: first, they had to break a seal on which read a statement "By breaking this seal, you indicate your agreement to the terms and conditions of the software license"; and second, the user had to click on "Yes" when the license agreement appeared onscreen to install the software.10 As such, the court "found that these two actionsconstituted agreement to the limitation of liability in the license agreement, and held that the customer was bound by its terms."11 A limitation of liability clause "is a provision in a contract that limits the amount of exposure a company faces in the event a lawsuit is filed or another claim is made. If found to be enforceable, a limitation of liability clause can "cap" the amount of potential damages to which a company is exposed. The limit may apply to all claims arising during the course of the contract, or it may apply only to certain types of causes of action. Limitation of liability clauses typically limit the liability to one of the following amounts: (i) the compensation and fees paid under the contract; (ii) an agreed upon amount of money; (iii) available insurance coverage; or (v) a combination of two or more of the above."12 Obviously the limitation of liability clause was upheld in court, being a doubly-enforced condition to which the UPS customers had to be held. If customers hadn't broken the seal and additionally agreed to the software licensing agreement with their electronic signature, basically UPS would have had no case. Chapter 7. The Electronic Signature. This chapter will delve in-depth into the nature of the electronic signature: what it is, if it is valid and legally enforceable, and applicable case law regarding it. "Electronic contracts and electronic signatures are just as legal and enforceable as traditional paper contracts signed in ink."13 This chapter will discuss ESGICA in detail, and what effect this federal 2000 e-signature law had on businesses. Electronic Signatures in Global and International Commerce Act (ESGICA) is federal law that was enacted in 2000 to remove the "uncertainty that previously plagued e-contracts."14 Companies which conducted their business entirely on the internet were helped by this 2000 e-signature law, which "made electronic contracts and signatures as legally valid as paper contracts, which was great news for companies that conduct business online, particularly companies that provide financial, insurance, and household services to consumers. The law also benefit[ed] B2Bs (business-to-business websites) who need[ed] enforceable agreements for ordering supplies and services." The end result is substantial savings for businesses, which can then be passed on to consumers.15 This chapter will discuss which contracts cannot be electronic, and why. The question then becomes, does an electronic contract have the same effect as a paper contract The answer is, for a majority of documents, an electronic contract and signature is just as legally binding as any paper contract that is signed with a pen.16 Those electronic documents come under the protection of the Electronic Signatures in Global and International Commerce Act (ESGICA).17 So what is an electronic signature An electronic signature is "any means of showing by use of computer that you have accepted the terms and conditions of the contract. One common method of electronic signature is when, at the end of contract, you click a button that says "I Accept." By clicking the "I Accept" button, you have just done the legal equivalent of signing your name at the bottom of a paper contract."18 Although "the federal e-signature law makes paper unnecessary in many situations, it also gives consumers and businesses the right to continue to use paper where desired."19 This gives consumers the option of using paper contracts who would rather not use an electronic contract; further, before gaining a customer's consent for making out an electronic contract, a business must give the customer some kind of notice which "indicat[es] whether paper contracts are available and inform [the] consumer that if [he/she] give[s] consen to use electronic documents, [he/she] can later change [his/her] mind and request a paper agreement instead. [Additionally, the] notice must also explain fees or penalties [that] might apply if the company must use paper agreements for the transaction."20 The notice must show if the consumer's consent applies only to the particular transaction at hand, or to a larger category of transactions between the organization and the consumer-to state in other terms, whether the business needs consent to use e-contracts/signatures for each transaction.21 There are, however, contracts which must be on paper. In order to "protect consumers from potential abuses,"22 there are several types of documents whose electronic versions would be invalid and legally unenforceable contracts under the ESGICA. These include, specifically: most types of documents dealing with family matters such as 0 wills, divorce, adoption documents,23 codicils, and testamentary trusts;24 most kind of notices dealing with the consequences of late or nonpayment or the termination of an agreement (e.g., repossession, termination of utilities, eviction, end of insurance coverage,25 foreclosure, notice of default,26 etc.); 0 court documents27 such as orders, notices, pleadings, and motions;28 product recall notices29affecting health or safety;30 and notices that have to be sent with hazardous material.31 "These documents must be provided in traditional paper and ink format."32 If a contract is a valid and legally enforceable document that is not a contract which must not be put on paper, that contract is subject to being an electronic contract. The enforceability of electronic contracts depends largely on a principle called effective notice, or whether the user was aware of the contract.33 The court will try to make the distinction as to whether or not the terms of the contract were brought to the user's attention before the contract was actually signed.34 Chapter 8. The Enforceability and Reliability of the Electronic Signature. How enforceable and reliable is the electronic signature Additionally, can the e-signature be used by criminals A discussion of the legality of the electronic signature will ensue, including stats from ESGICA and applicable case law as the one that follows. The E-sign law was designed so that criminal activity would be limited, but nothing is failsafe. However, the good news is that the E-signatures are protected by cryptography and other types of encryption software.35 This chapter will explain in-depth what is being done to secure the safety of the users of the electronic signature. In DeJohn v. TV Corp et al., 245 F. Supp. 2d 913 (C.D. Ill. 2003), is one in which the plaintiff, David DeJohn, tried registering several domain names in the .tv domain which was delegated by the .TV Corporation.36 Register.com, a domain name registrar, wrongly showed on its website that the registration fee for each domain name was $50; DeJohn submitted registration applications through the Register.com website, paying $50 per registration as listed on the site.37 But .TV Corporation summarily rejected all except one of the applications because the registration fees for the names sought by DeJohn were "actually considerably higher than the fees listed on the Register.com website."38 Register.com notified DeJohn of his unsuccessful applications, returning his application fees. DeJohn sued Register.com and .TV Corporation, claiming that "the confirming email he received from Register.com created an implied contract between him, as buyer, and Register.com, as seller, and that this implied contract imposed on Register.com a duty of good faith and fair dealing."39 Needless to say, the court refused this argument, concluding that DeJohn was bound by the terms of the clickwrap agreement to which he had agreed as part of the application process.40 The clickwrap agreement basically was worded saying that the contract could only be changed in a written document signed by both parties; the supposed implied contract could not override the specifics of the clickwrap agreement.41 Chapter 9. Conclusion. It is of prime significance to highlight the importance of the term "implied contract." In DeJohn v. .TV Corp, DeJohn thought that a confirming email sent by Register.com was enough to create an electronic contract between him, the buyer, and Register.com, the seller. What is unclear is why this email could not be established as an electronic contract between buyer and seller. If that had been the case, perhaps Mr. DeJohn would have had a case on this point in his case. Apparently the email did not constitute an electronic signature. But for now, all that can be judged is that the court ruled favorably on the side of Register.com and .TV Corporation in the sense that DeJohn consented to a clickwrap agreement, which precluded any sort of "implied contract" or otherwise "quasi contract" that would be afforded him through an email sent through Register.com. As defined in Black's Law Dictionary, a quasi contract is "an obligation which law creates in absence of agreement; it is invoked by courts where there is unjust enrichment [The] [f]unction of 'quasi contract' is to raise obligation in law where in fact the parties made no promise, and it is not based on apparent intention of the parties."42 It is evident that Mr. DeJohn may have had a plausible case for the email having been sent to him by Register.com as proof of having creation of a quasi contract. However, obviously for some reason, the fact that DeJohn had accepted the terms of the clickwrap agreement, trumped any possibility of an implied contract such as DeJohn's email having leverage over that pledged agreement. Further, "the court rejected DeJohn's argument that the clickwrap agreement was an unfair 'contract of adhesion (a contract that is presented to a party to sign on a take-it-or-leave-it basis, without an opportunity to negotiate the terms). Even though the terms of the contract were dictated solely by Register.com, 'DeJohn expressly indicated that he read, understood, and agreed to those terms when he clicked the box on Register.com's website.' 245 F. Supp. 2d at 919."43 Here, there is not much that the plaintiff can say to the court, except to continuously make the argument that somehow he was not aware of the terms expressed on Register.com's website. However, that would be difficult to prove in court, as Register.com has accurate records portraying the fact that Mr. DeJohn clicked on the terms, specifying that he had "read, understood, and agreed"44 to those terms. Thus DeJohn had given his electronic signature, which gave Register.com power over him. Finally, the court "also rejected DeJohn's breach of contract action against .TV Corporation," citing that "[language describing .TV's exclusive power to accept or reject an application] dooms DeJohn's breach of contract against .TV[and, further] [t]he express terms of the .TV Agreement plainly gave .TV the right to reject DeJohn's application."45 The electronic contract gave .TV the right to reject DeJohn's application, which is fair. In this paper, the thesis of the dissertation will be: "The electronic signature in the electronic contract is a supposedly a safe measure,46 but to ensure that it is, this method of transaction warrants further research into: a) its reliability (does it work); b) its enforceability; and c) its possibility of being used illegally." Here, nine chapters of the dissertation and a methodology have been discussed in-depth. REFERENCES Black, Henry C., Joseph R. Nolan, and M.J. Connolly. 1979. Black's law dictionary: definitions of the terms and phrases of american and english jurisprudence, ancient and modern. St. Paul, Minn.: West Publishing Co. Hart, Jonathan D. 2007. Internet law: a field guide, 5th ed. USA: BNA Books. LegalMatch. 2008. LegalMatch: the benchmark for attorney/client matching services. http://www.legalmatch.com/law-library/article/electric-contract-lawyers.html (accessed October 6, 2008). LexisNexis. 2008. LexisNexis contracts capsule summary web site: sources and definitions of contract law. http://www.lexisnexis.com/lawschool/study/outlines/html/contracts/index.asp (accessed October 6, 2008). Lorman Education Services. 2008. Lorman education services web site. http://www.lorman.com/newsletters/article.phparticle_id=712&newsletter_id=156&category_id =8 (accessed October 7, 2008). Nolo Law for All. 2008. Making contracts online: electronic signatures. http://www.immagic.com/eLibrary/ARCHIVES/GENERAL/NOLO_US/N050112W.pdf (accessed October 6, 2008). 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