The legal analysis of online transactions is basically the same as for traditional written agreements. Consideration, warranties, and other basic legal issues are analyzed in substantially the same way as with written agreements. The two biggest issues regarding e-contracts are: (1) Whether an electronic contract is a writing for purposes of the statute of frauds; and (2) Whether the agreement can be properly authenticated.
Under the Uniform Commercial Code (“UCC”), a contract for the sale of goods may be made in any manner sufficient to show agreement, which includes conduct by both parties that recognizes the existence of the contract. The statute of frauds requires certain types of agreements to be in writing and to be signed by the party sought to be bound by the agreement. The purpose behind the rule is to prevent a nonexistent agreement, allegedly made by one of the parties, to be proven by fraud or perjury.
The statute of frauds normally does not apply if it is possible under the terms of the agreement to perform the contract within one year. If a contract provides for the sale of goods with a price of $500.00 or more, this type of contract must ordinarily be in writing. Of the contracts statutorily required to be in writing, those most likely to be encountered online are agreements that cannot be performed within 1 year and agreements for the sale of goods costing more than $500. However, the majority of daily transactions on the Internet are one-time purchases for substantially less than $500 (for example, purchase of a music compact disc or a book). These transactions need not be in writing.
The statute of frauds requires a writing to evidence the contracts which it states must be in writing. This does not necessarily have to be a formal contract signed by both parties. It can be a letter signed by only one party setting forth the terms of the oral agreement. However, the writing, whether it be a letter or memorandum, must be signed by the person “to be charged.” This means it must be signed by the person against whom you are seeking to enforce the contract. The writing must contain all of the material terms of the contract. However, the UCC provides that transactions between merchants involving the sale of goods need not be signed by the party to be charged as long as a written confirmation of the contract is sent within a reasonable time. The written confirmation will satisfy the statute unless written notice of objection to its contents is given within 10 days after the confirmation is received.
It is uncertain how the applicable law will be applied in the context of online agreements since there is no clear guidance as to whether a purely electronic transaction will constitute a writing for purposes of the statute of frauds. Part of the uncertainty is attributable to the definition of writing contained in the UCC. Writing includes printing, typewriting, or any other intentional reduction to tangible form. The UCC’s definition did not contemplate a technology in which data is stored in a computer memory and not on paper. An argument can be made that data stored in computer memory is not considered sufficiently tangible to satisfy the statute of frauds. However, the data can be printed at any time. If storage in a computer’s memory is not sufficiently tangible, the electronic information can be produced in tangible form by simply printing it. In addition, electronic transactions are really no different than telegrams and telexes, both of which have been held to satisfy the writing requirement of the statute of frauds.
Once it has met the standards for a writing, the online agreement must meet the subscription requirement. The subscription (signature) requirement of the statute of frauds can be satisfied by a single writing or by a series of writings. For purposes of the statute, if one of a series of papers relating to the same matter is signed by the party to be charged, that is sufficient, as all the papers are to be considered together in evidencing one contract or memorandum. The UCC has no formal requirements for a signature, only that it appears for the purpose to authenticate the writing. Instead of a name, the signature arguably can be an initial or a symbol.
If an e-mail is sent, the sender identification in the header of an e-mail will be sufficient to show authentication. However, will use of the individual’s initials or name at the end of the message satisfy the signature requirement? E-mail software can create a signature that includes name, job title, and phone number. A digital signature provides a means of authenticating both the content and creator of an electronic document through use of public key encryption. With public key encryption, each user is assigned two keys or passwords: one private, the other public. The public key is distributed freely. The owner may post its public key on its World Wide Web site or may make the key available through one of the public key databases maintained by third parties on the Internet. As for the private key, only its owner knows the password. As long as a user’s private key remains secure, public key encryption allows for the delivery of confidential and verifiably authentic documents.