I’d planned for my next post to be running related. I even have a draft. Then I began thinking over contract acceptance last week. Of course I immediately realized this was a far more exciting topic. It had better be because this is one long blog you are about to read.
So you have a contract and it is even written down. Now how do you ensure it is accepted?
Before we go any further, here are the rules of this game. We are pretending you are a U.S. company and only do business in the U.S. and live in an imaginary world where the patchwork quilt of state law and common law do not exist ¹. We only need to look at the Uniform Commercial Code (U.C.C.) , Electronic Records and Signatures in Commerce Act (ECSI), Uniform Electronic Transactions Act (UETA) (implemented state by state but as of the posting of this blog it has been implemented in 47 states and so I am including it here), Uniform Computer Information Transactions Act (UCITA) (only 2 states have enacted it as of the date of this blog so unless you are in Virginia or Maryland or interested in a kerfluffle between the Free Software Foundation and the founders of UCITA you can skip that section). We will also look at a bit of case law specific to shrink wrap, click wrap, and browse wrap agreements and finally I will give some additional tips on ensuring your contract is found to be accepted.
Just because a contract must be in writing does not mean it needs a hand signature, or any signature, to be deemed as having been accepted.
The U.C.C.
The U.C.C. is the bible of contract law for the United States. All contract attorneys consult the higher power that is the U.C.C. in times of despair and self-doubt. The UCC almost always trumps in times of regulatory and case law conflict.
U.C.C. 2-206 says
Unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
Nowhere in this does it say acceptance is dependent on a signature.
An example of a contract accepted in this manner is a purchase order (P.O.). Say a customer gives you a P.O. offering to buy 10 gateways at $4,000.00 and requesting shipment within 4 days from Alabama to Connecticut. If you ship the 10 gateways for $4,000.00 each the day after receiving the PO that PO becomes an accepted contract. No signature necessary. An email confirming acceptance of the P.O. can also turn this offer into an accepted contract. So could a phone call confirming acceptance. Or accepting payment for the gateways following receipt of the P.O. What matters about the acceptance is that it is a “medium reasonable in the circumstances”. Always look at the context of your transaction before making a decision on what is reasonable.
Let’s say in your situation the reasonable medium of acceptance is a signature and continue on.
ECSI
Important documents in our history have been signed by quill pens as the Constitution of the U.S. was, by fountain pens as the Declaration of Independence was, and by Presidential commemorative signing pens as nearly every document following the Declaration of Independence was.
In 2000 Bill Clinton put down the commemorative signing pen to electronically sign the ECSI using a smart card. ² ECSI says in part “a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form…”
Title III of the ECSI says in part the regulation was created to “remove paper-based obstacles to electronic transactions….” Ostensibly, the purpose of this was to facilitate online commerce, fewer people were walking into brick and mortar places of business to purchase and more and more customers purchasing from online stores.³ Although prior to the act a number of states had already implemented electronic signature laws there was a lack of uniformity amongst the laws and the hope was that the federal act would lend a sense of security that these online contracts were just as valid and enforceable as a paper contract while still leaving flexibility to the states in determining the method of electronic signature and authentication of the signature. Even notarizations (with the exception of notary stamps on wills and such, we are just talking about business contracts in this blog) are legally binding if done electronically instead of with a stamp on paper.
The act left the term electronic signature loosely defined as “an electronic sound, symbol, or other process attached to or logically associated with a contract or other record and executed or adopted by a person with intent to sign the record.”
Why is it so loosely defined? Because Mr. Clinton wanted to be sure to take a “nondiscriminatory approach to electronic signatures and authentication methods in other jurisdictions.” He left open the door for click to accept, typed names, grunts of affirmation, thumbs up symbols, etc. to possibly become electronic signatures.
As an example on how to logically associate the signature with the contract, you could provide the text of the agreement immediately below a form in which the customer must type their name and contact information. In the form state by typing that information and clicking the accept button they then agree to the contract. The record of what the customer typed in the form, including customer name and date, along with the version of the agreement they accepted is a logical way to tie their typed signature to that contract. Or go fancy and use something like EchoSign.
Additional points of note: If someone asks to sign in a method other than electronically you must allow them to do that. You can require that they pay your expenses in doing so if they want a paper copy instead of a scanned copy, we all know how much postage has gone up. But you must allow them the option to hand sign. If you do the electronic signature method you must ensure that electronic document remains accessible for any regulatory periods and can be accurately reproduced if necessary. Save all your previous versions of contracts before removing them from your website and version number them. You should make it easy for the customer to access the version the customer agreed to. That may be as simple as a pop up telling them to print the pages for their records or if you use something like EchoSign reminding them they can log in at any time to access the version they signed.
UETA
UETA was a precursor to ECSI, the federal regulation. It was a model regulation proposed in 1999 to the states by the Uniform Law Commission to make state laws on electronic signature uniform. Less than half of all proposals on uniform laws by the commission have been passed by any state but this particular act has been passed by 47 states as of the date of this blog. Illinois, New York, and Washington are the hold outs and have their own special twists on electronic signature laws. There is a lot of overlap between UETA and the ECSI so I will only mention key reasons to look at UETA here.
First, UETA covers attribution. Sometimes an issue isn’t whether a contract was signed, but instead the issue is authenticating whose signature it really was. Just as a hand signed signature must be authenticated through use of handwriting experts, so too must electronic signatures be authenticated. UETA says an electronic signature is attributed to a person if it was the act of that person. How do you prove it was the act of that person? Password protection, using the email of record only for the authorized person, a security token, asking non-biographical security questions ?, etc. Whether or not the authentication will hold up really depends on how secure your process is. If your signature authentication method is the equivalent of leaving a rubber stamp with an executive signature in the lobby of your building for anyone to use it won’t hold up.
Second, UETA covers from where the document was sent or received. It makes clear that, unless otherwise agreed, the document is sent or received from the parties’ principal place of business or residence. Why this important? Choice of law mainly. Let’s say you’re a US CEO that likes to vacation in Siberia. And so you sign a lot of contracts from there ?. Right before you’re about to leave to check out the Genghis Khan museum you electronically sign a channel agreement with a Siberian company. Months later a dispute happens because an employee of the Siberian company was driving down the road with a gateway purchased under the contract in his passenger seat when the gateway spontaneously caught fire, startled the employee into swerving, the employee hit a pedestrian, killed him and now the Siberian company is charged with vehicular manslaughter. All because of your gateway. It could be argued that since the contract was signed by your CEO in Siberia and it was with a Siberian company that the contract was entered into in Siberia. Plus the event which gave rise to the claim occurred there also. And so while Siberia may be a lovely place to vacation you are now in the unenviable position of now having to litigate in Siberian court. Be sure to state in your contracts that your choice of law is the U.S. to cover the “unless otherwise agreed” exception.
Third, UETA specifies that electronic records are not to be denied admissibility into evidence solely because the records are in electronic format. Knowing your electronically signed contract is valid doesn’t do you any good if you can’t use it in court. Note: There could be evidentiary law otherwise enabling them to be admitted, but that is outside the scope of this blog.
UCITA
UCITA to date has only been implemented in two states, Virginia and Maryland. The purpose of UCITA was to attempt to create uniformity amongst state laws pertaining to licensing of “computer information” and more specifically to prevent unauthorized copying of computer information by supplementing federal intellectual property law with state imposed contract law. Computer information encompasses everything from software to music files. There is opposition to UCITA with the strong objections coming from the Free Software Foundation, primary sponsor of the GNU Operating System. Because UCITA has only been adopted in two states since its creation in 1999 and we have enough regulations to worry about I will simply point you to these two links learn about the Free Software Foundation’s objection (Why We Must Fight UCITA) and the opposing point of view (Computer Information Transactions Act Summary).
Click wrap aka Click accept, Browse wrap, Shrink wrap
There is no clearly defined uniform law or federal standard with regard to click accept, browse wrap, shrink wrap agreements, so we must look to case law with the UCC serving as the voice of reason.
Click wrap or Click accept can be defined as a contract in which acceptance occurs by clicking on a screen icon (ex. when you’ve loaded up your online shopping cart and have to tick the box that says “I agree” before the purchase is complete). Shrink wrap is a contract which is accepted by opening a package and the license is typically read and accepted only after the product has been opened (ex. You rip open a CD or open a box and a license is inside that says by opening the package you have accepted the terms. Surprise!). Browse wrap is a contract covering access to or use of materials on a website and the terms typically appear in a link at the bottom of the website (ex. website terms of use).
Click Acceptance Contracts- Almost always upheld as enforceable
Fteja v. Facebook, Inc. 2012 U.S. Dist. (S.D.N.Y. 2012)
Facebook placed its terms in a link below the account creation button. Fteja sued after his account was banned (he believed his account was banned based on religious discrimination because he indicated his religious preference during the sign up process) and Facebook moved to enforce a forum selection clause contained in the terms of service. Fteja claimed he never saw the terms ?and that the link was not adequate notice to manifest acceptance.
The court held that the link below the account creation button was enough notice to constitute acceptance and result in a binding contract, there was no need for a page with the actual text of the agreement near the button to appear.
Browse wrap Contracts- Less frequently enforced by the courts, but they have been upheld.
Specht v. Netscape Commc’ns Corp., 306 F.3d 17 (2d Cir. 2002)
Netscape allowed users to download a Plug In by clicking on a box. Specht claimed the Plug In invaded his privacy. The Plug In was subject to a license agreement that contained an arbitration clause. Specht claimed he did not accept the license and so he was not bound to arbitrate. Specht was not required to agree to the terms and conditions of the license agreement prior to downloading the software and there was no notice of the license agreement unless Specht scrolled to the next page where another website page appeared that would allowed Specht to click on a link that would then take him to yet another website page to read the full terms and conditions.
The arbitration clause was invalid because the agreement was not visible prior to the Specht encountering the download button and so he could not have accepted it.
Hubbert v. Dell Corp. 835 N.E.2d 113 (Ill. App. Ct. 2005)
Hubbert bought computers from Dell’s website and sued for false advertising. He claimed Dell advertised that that the Pentium 4 microprocessors in the computers were the fastest, most powerful Intel Pentium processors available but they were the slowest Pentium microprocessors he had seen. Dell claimed that Hubbert was bound by an arbitration clause contained in the terms of sale available on Dell’s website. Hubbert said he was not bound by the terms of sale. The terms appeared on multiple screens during the purchase process and the final three screens gave a final warning of the terms in even larger font (Props to the Dell lawyers).
The repetitive reminders that sales were controlled by the terms and conditions, as well as the availability of the terms on multiple pages via hyperlink, resulted in the agreement being held as enforceable.
Cvent, Inc. v. Eventbrite, Inc. 739 F. Supp. 2d 927 (E.D. Va. 2010)
Cvent claimed Eventbrite breached the terms of service for its website by copying content from the website and filed suit. A link to the terms of service was only available on the first page of the website and the link to the terms were mixed with 28 other links of the same font size and color at the bottom of the page.
The placement of the link (buried amongst 28 other unrelated links) and the fact that it was only on the front page did not constitute sufficient notice of the terms to result in contract acceptance and result in a binding agreement.
Shrink wrap Contracts- Legality in the U.S. is debatable.
The legality of shrink wrap agreements in the U.S. is debatable, the case law seems split at the moment and there are no bright line rules arising from the cases, just general guidelines.
In M.A. Mortenson Company Inc. v Timberline Software Corporation 998 P.2d 305 (Wash. 2000) the software arrived on disks in “plastic pouches”. The contractor used the software to bid, the software malfunctioned and resulted in the contractor bidding 2 million less than he intended (note: the software repeatedly threw an error message warning him of an error, it warned him NINETEEN TIMES in fact, but he moved forward with the bid anyway). The contractor wanted to recover his millions, but the license limited liability to the purchase price of the software (probably to guard against the sort of people who ignore 19 error messages). There was also a PO that had no restrictions on limitation of liability. The license was printed in full on the outside of the pouch and also on the inside cover of the accompanying instruction manuals. The contractor contended the PO not the license agreement was the guiding contract as he claimed he never accepted the license agreement and so there was no limit on what he could recover. The court held the PO was not a valid contract because it missed certain key terms that a contract requires (another blog, another day) and by using the software after having had plenty notice of the terms beforehand as they were printed in full on the pouch and within the manual he consented to the license.
In ProCD v. Zeidenberg 86 F.3d 1447 (7th Cir. 1996) Zeidenberg bought a CD-ROM database with a license that limited the consumer to non-commercial use. The existence of the license was appeared on the packaging but the actual terms were inside the packaging. Defendant ignored the license and resold the information. When Zeidenberg loaded the CD-ROM the license splashed across his screen and he was forced to accept before proceeding. The license offered him the opportunity to return the CD if he disagreed with the terms and warned that by proceeding with use he would be accepting the terms. The court held that Zeidenberg had an opportunity to reject and return the goods after having read the terms and failed to do so and so he accepted the license. The court noted that “the opportunity to return goods can be important” under the Uniform Commercial Code.
The take away here is that until the legality of shrink wrap agreements is determined with certainty you should take additional steps to ensure acceptance besides “by opening this package you agreed to this license”.
A summary of steps to take for shrink wrap agreements and the other contracts we have discussed is below
Steps to ensure your acceptance method holds up.
Put your terms everywhere you can. If you have the space reference the URL where your terms appear on quotes/invoices/POs, if you elect to shrink wrap put a sticker on the outside of the package with the URL where the terms can be found, put your terms or a link to your terms in your product manuals, put all of your terms in a central location on your website, have the terms pop up on screen upon product installation and force acceptance before the customer can move forward.
Ensure your terms are easy to find on your website. Have the link to them appear in the footer on every page of your website, make sure they are linked next to any check out or account creation sign up process. Make sure the link is clear that it contains the terms of use and if you have a lot of links in your footer consider increasing font size or putting it in bold font to make it stand out. Make it easy to find the terms, if you link to a single part of your website where all of your terms appear that’s fine. But if to find your terms you must click amongst three different parts of your website that’s a problem.
Make sure the terms can be seen in full before purchase or use of the software or other product. Don’t hide your terms so the only way a customer can see them is to make a purchase and then rip open the box. Contracts, unlike life, is not a box of chocolates and the customer should know what they are going to get.
There are certain rules that require language such as disclaimers of warranties and limitation of liability be “conspicuous” or else it won’t be deemed as having been accepted. This means for those terms to hold up they should be put in bold, capped, and/or underlined. If something is important (meaning, if this language were not in there you could go out of business if things go wrong) then make it noticeable!
Don’t use itty bitty teeny tiny font in your contracts. Ever. Even on unimportant stuff like “this section intentionally omitted and left blank”. If a person with 20/20 vision has to squint to read is unlikely those terms will be deemed to have been accepted.
Make it easy for your user to print or otherwise save a copy your terms.
If feasible within the bounds of your warranty and return policy consider clarifying in the terms that the customer may return the product if they disagree with the contract terms. By this I mean if you already have a policy that product can be returned in a certain number of days with no liability such as with a risk free guarantee or trial program, then state the customer may return the product because they disagree with the terms of the agreement so long as it would otherwise be returnable without cause pursuant to the other terms of your warranty/return policy. Remember, it is the customer’s responsibility to read and understand the terms so just because months down the road they decide they don’t like the terms doesn’t mean they can return product free of charge.
FOOTNOTES
¹ But in reality you are not in an imaginary world and so of course you should consult your state law and your lawyer. You are not the sort to step out of a mediation about a contract dispute regarding contract acceptance, consult a blog about acceptance, and tell your lawyer you’re taking it all the way to court because you think your case is solid based on this blog. That just isn’t you. So don’t do it.
² I found a stock photo of a quill pen, a photo of THE ACTUAL PEN used by Thomas Jefferson to sign the Declaration of Independence, and even photos of Presidential commemorative pens, but no photo of the smart card used by Bill Clinton because I guess a smart card just isn’t interesting. I wanted to share the photos I found to spice up my blog with some pictures of pens but they were not royalty free and you aren’t here for photos anyway.
³ But really the entire purpose of this act is to allow night before Christmas last minute shopping on Amazon through the magic of overnight shipping.
? Please, please, please do not use any security questions for which answers can be determined by looking at your Facebook account. We’ve all been asked “Name your high school” and “Mother’s maiden name”. High school appears on nearly any Facebook account profile and it does not seem a far leap to guess that the person listed as “Mother” on your Facebook page is divorced and so her name is her maiden name. Just don’t do it. Pick some other types of questions. It kills me when I see these sorts of questions and I am forced to answer them. I’ve contemplated answering “mymomisbetterthanyourmominfinity” as my mother’s maiden name to avoid issues but no one should have to do that.
? You’re a CEO and so you are never truly on vacation. Not even when you are in Siberia.
? Not seeing the terms is VERY different from not reading the terms. Not reading the terms will not get you out of an electronic contract or any contract for that matter. I know reading a contract can be painful for some people. I get it. I think of that in the way some people just can’t stand to look at injuries and so they squinch (it seems like squinch should be a word) up their eyes and turn away and dab in futility at the injury with peroxide hoping the pain will go away and things won’t get worse. I remember when I went to see a podiatrist about my black toenail. I didn’t want to look at what was going on and so I kept my head turned away until he told me in a steely voice that I needed to look because I was going to have to live with this for a while. And so I am telling you, in my steely voice, I know it is ugly but you need to look that contract in its wordy size 5 font little eyes and deal with it because you are the one who is going to have to limp along with that contract for a while.