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Business Law Update
A periodic newsletter from National Legal Research Group, Inc.

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Issue 06

November  2007

Welcome to Business Law Update!

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Business Law Update is an electronic newsletter that provides timely updates on relevant case law developments and statutory and regulatory changes in Business Law

The newsletter is written by National Legal Research Group's Senior Attorney and Business  Law specialist, Charlene J. Hicks, J.D.

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CONTRACTS

VALIDITY OF ELECTRONIC SIGNATURES

Charlene J. Hicks, Esq.

 

Computers and the Internet play a predominant role in today's marketplace. Business transactions are increasingly conducted at least in part by electronic format, including e-mail. The Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001, facilitates such transactions by providing that for all transactions affecting interstate or foreign commerce, a contract or other record relating to the transaction shall not be denied legal effect merely because it is in electronic form.

As the Act makes clear, a sender's name on an e-mail equates to a handwritten signature, thereby negating any argument that the contract is unenforceable under the Statute of Frauds. See Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 295 (7th Cir. 2002) (ruling that e-mail messages regarding purchase orders that contained typed name of sender were sufficient to satisfy Statute of Frauds requirement that alleged modification of purchase order be in writing); Roger Edwards, LLC v. Fiddes & Son, Ltd., 245 F. Supp. 2d 251, 261 (D. Me. 2003) (holding that e-mails sent by agent of manufacturer to distributor, referencing an agreement to give distributor exclusive right to market and distribute manufacturer's products in certain territory, satisfied Statute of Frauds requirement that agreement be in a writing signed by the party to be charged or his agent, even though e-mails contained no signature), aff'd in part, dismissed in part, 387 F.3d 90 (1st Cir. 2004).

In accord with the spirit of the Electronic Signatures Act, case law has also established that standard-form electronic contracts, commonly known as "clickwrap," are valid and legally enforceable. See, e.g., Recursion Software, Inc. v. Interactive Intelligence, Inc., 425 F. Supp. 2d 756, 785 (N.D. Tex. 2006); Specht v. Netscape Commc'ns Corp., 150 F. Supp. 2d 585, 594 (S.D.N.Y. 2001), aff'd, 306 F.3d 17 (2d Cir. 2002). "A click-wrap license presents the user with a message on his or her computer screen, requiring that the user manifest his or her assent to the terms of the license agreement by clicking on an icon." Specht, 150 F. Supp. 2d at 593-94. No actual signature by either party is required.

Although computer users have alleged that they did not understand the legal effect of their action in "clicking" on an icon marked "I accept," courts have overwhelmingly rejected arguments that the resulting clickwrap contracts should be declared void. In the absence of fraud, "the user's failure to read, carefully consider, or otherwise recognize the binding effect of clicking 'I agree' will not preclude the court from finding assent to the terms." Note, Presumed Assent: The Judicial Acceptance of Clickwrap, 22 Berkeley Tech. L.J. 577, 579 (2007). A contracting party has a duty to read the agreement regardless of whether it is in standard or electronic format. Seibert v. Amateur Athletic Union of U.S., Inc., 422 F. Supp. 2d 1033, 1039 (D. Minn. 2006); DeJohn v. TV Corp. Int'l, 245 F. Supp. 2d 913, 919 (N.D. Ill. 2003).

In upholding clickwrap contracts, courts have found that the computer user was provided adequate notice of both the fact that he was entering into a binding contract and the resulting contract terms. See, e.g., Seibert, 422 F. Supp. 2d at 1039-40; DeJohn, 245 F. Supp. 2d at 919; Forrest v. Verizon Commc'ns, Inc. , 805 A.2d 1007, 1010-11 (D.C. 2002). This is true even if the contract displayed on the screen failed to highlight certain key provisions, such as a limitation-of-liability clause, or used a "scroll box" that displayed only part of the agreement at a time. Forrest, 805 A.2d at 1011.

Even so, standard contract defenses, such as fraud or unconscionability, may serve to vitiate a particular clickwrap contract. See, e.g., Comb v. PayPal, Inc., 218 F. Supp. 2d 1165, 1172-77 (N.D. Cal. 2002) (concluding that arbitration clause in clickwrap agreement was both procedurally and substantively unconscionable); Aral v. EarthLink, Inc., 134 Cal. App. 4th 544, 557, 36 Cal. Rptr. 3d 229, 238 (2005) (ruling that class action waiver and Georgia forum-selection clause contained in Internet service agreement were unconscionable). Similarly, under the particular circumstances of a case, a clickwrap contract provision, such as a forum selection clause, may be struck down as violative of public policy. See Am. Online, Inc. v. Superior Court, 90 Cal. App. 4th 1, 15, 108 Cal. Rptr. 2d 699, 710 (2001) (holding that enforcement of forum-selection clause in standard-form electronic contract would deprive consumers of statutory remedies under California Consumers Legal Remedies Act and would thus constitute a violation of California public policy).

In summary, although technology has changed much of the way in which business is transacted, the legal analysis concerning the validity of the resulting contracts has remained remarkably consistent. To facilitate the transaction of business and commerce, courts have been quick to enforce contracts generated or acknowledged by electronic communications, including e-mail. For the most part, courts will also honor standard-form electronic contracts. Computer users' rights may be protected through the use of standard contract defenses such as fraud and unconscionability.