Lecture 10: Commercial Transactions

46-840 ECOMMERCE LAW AND REGULATION SPRING 2002

COPYRIGHT © 2002 MICHAEL I. SHAMOS

Lecture 10:Commercial Transactions



What’s a Commercial Transaction?

• Sales contracts– Goods (physical delivery, inspection, etc.)– Intangibles (electronic media: music, software,

images)– Auctions

• Banking transactions– Negotiable instruments (checks, promissory notes,

letters of credit, warehouse receipts, bills of lading)



Electronic Contracting

• Consent• Formation

– Acceptance– Conspicuousness

• Digital Signatures• Jurisdiction• Notices, “receipt,” confirmation• Evidence

– Data retention: changed or disappearing web pages

• Authority



Requirements for a Contract

• Offer (ALWAYS REQUIRED)

• Acceptance (ALWAYS REQUIRED)

• Consideration (USUALLY REQUIRED)

– Exchange of value or promises of value– But: Pennsylvania magic words: “intending to be

legally bound hereby”• Writing (SOMETIMES REQUIRED)

– Value as evidence, memory aid

• Signature (SOMETIMES REQUIRED)

– Solemnity (seriousness)



Uniform Commercial Code

• Contract law is complicated; most terms are implied, not stated expressly

• All states except Louisiana have enacted versions of the Uniform Commercial Code (UCC) covering sales of goods

• UCC specifies– procedure for forming sales contracts– terms implied in all contracts, e.g. warranties– defaults for unspecified terms

• Warranty– A promise that a statement is true, e.g. “I own this

watch and have the right to sell it to you.”



Statute of Frauds

• “a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought ...” 13 Pa.C.S. § 2201

• Purpose:– evidence; reminder to parties; seriousness of signing

• Is email a writing? (What’s the purpose of the law?)• Is a digital signature a signature?• Is a mouse click a writing? A signature?



Uniform Codes

• Uniform codes are model laws proposed by the National Conference of Commissioners on Uniform State Laws

• No legal effect unless enacted by a legislature• Each legislature can modify the code• Therefore: uniform codes are not uniform!• Uniform Electronic Transactions Act (UETA) adopted

by 39 states, e.g. PA• Uniform Computer Information Transactions Act

(UCITA) adopted by 2 states (Virginia & Maryland)• UETA AND UCITA adopted by 1 state (Maryland)



Offer and Acceptance

• How is the offer communicated?• Revocation of offer

– An offer can be revoked anytime before it is accepted– TIME is important

• A counteroffer is a refusal of the original offer• How is acceptance communicated

– Offer revoked after acceptance is sent but before it is received



Clickwrap Agreements

• UCC §2-204: “A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.”

• Shrinkwrap agreement: triggered by unwrapping and using the software. “Notice on the outside, terms on the inside.” Enforceable if the user can return the goods without penalty if he chooses not to accept

• Clickwrap: triggered by clicking “I Accept” after the agreement is displayed. Enforceable, since the click shows agreement. Hotmail Corporation v. Van Money Pie Inc., et al., C98-20064 (N.D. Ca., April 20, 1998)

• Question: evidence of clicking?



“Browsewrap” Agreements

• “Terms of use” buried in a page behind the frontpage

• Is a user bound by them in the absence of express acceptance?

• Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y 2001)

– Court refused to enforce a Netscape browsewrap license

– Netscape did no more than place notice of the license on the same webpage where it had made the download available

– Netscape's license "allows a user to download and use the software without taking any action that plainly manifests assent to the terms of the associated license or indicates an understanding that a contract is being formed."



Auctions (UCC §2-328 13 Pa. C.S. §2328)

• A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner.

• A sale is with reserve unless the goods are in explicit terms put up without reserve.– In an auction with reserve the auctioneer may withdraw the

goods at any time until he announces completion of the sale.

– In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time.

– In either case a bidder may retract his bid until the announcement by the auctioneer of completion of the sale, but the retraction by a bidder does not revive any previous bid.



Auctions (UCC 13 Pa. C.S. §2328)

• Bidding by or for seller.-- If the auctioneer knowingly receives a bid on the behalf of the seller or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale.



Electronic Transactions

• Pennsylvania Electronic Transactions Act (signed 12/16/99). A version of the Uniform Electronic Transactions Act

• All parties must consent to the electronic transaction.• “Electronic signature. -- An electronic sound, symbol or process

attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. “

• “If a law requires a record to be in writing, an electronic record satisfies the law.”

• “If a law requires a signature, an electronic signature satisfies the law.”



Digital Signature Legislation

• Electronic Signatures in Global and National Commerce Act (effective October 1, 2000)

• “electronic signature” means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.

• Electronic signatures valid, not required• Must be accepted by government agencies• Consumer disclosure and consent• Retention satisfied by electronic records• Federal pre-emption• Electronic notarization, transferable records• List of exceptions (wills, various cancellation notices)



Consumer Agreements (UETA)

• Consumer: “an individual involved in an electronic transaction primarily for personal, family or household purposes”

• In a nonelectronic consumer contract, consumer must agree to any electronic provision by a separate acknowledgment.

• An agreement to conduct a consumer transaction or a part electronically may not be inferred solely from the fact that the consumer used electronic means to pay an account or register a purchase or warranty.

• These provisions of may not be varied by agreement of the parties to a consumer contract or transaction.



Sending Electronic Records (UETA)

• “an electronic record is sent when it: (1) is addressed properly ... to an information processing system that the recipient has designated or uses for the purpose of receiving electronic records … ;(2) is in a form capable of being processed by that system; and(3) enters an information processing system outside the control of the sender or ... enters a region of the information processing system designated or used by the recipient which is under the control of the recipient.”

• “An electronic record is received ... even if no individual is aware of its receipt.”



Transferable Records (UETA)

• The law of negotiable instruments (checks, drafts, promissory notes, etc.) pays great attention to transferability and the “holder in due course” (rightful possessor without knowledge of fraud or defect)

• A negotiable instrument is token money (rightful possession is equivalent to ownership)

• Negotiable instruments are made electronic through “transferable records”

• A “transferable record” is an electronic record that would be a negotiable instrument if it were written and which the issuer has expressly agreed is a transferable record.




• A person ‘controls’ a transferable record if(1) a single authoritative copy of the transferable record exists which is unique, identifiable and, ... unalterable;(2) the authoritative copy identifies the controller as either the issuer or as most recent authorized transferee;(3) copies that change the identity of the controller can be made only with the consent of the controller;(4) the status of a copy (authoritative or not authoritative) is readily identifiable.

• Transferable records have the status of negotiable instruments



Uniform Computer Information Transactions Act (UCITA)

• Deals with contracts for digital goods. Generally favors producers

• Approved by the National Commissioners. Adopted only in Virginia (home state of AOL) and Maryland

• VERY controversial• Replaces “sales” by “licenses.”

– Sale is a completed act. License is a continuing permission• Allows hidden terms to govern even if not disclosed prior to

licensing. Can deny buyer advance access to terms.• Reduces scope of implied warranties• Electronic “self-help.” Licensor can repossess products under

certain conditions




• Overrules prior court decisions in favor of consumers • Allows vendors to prohibit reverse engineering• Shrinkwrap licenses override purchase order terms

ANY modification of a computer program void ALL warranties

• Vendor protected from consequences of known software bugs even if not disclosed to buyer




• UCITA allows software publishers to change the terms of the contract after purchase.

• UCITA allows restrictions that prohibit users from criticizing or publicly commenting on software they purchased.

• UCITA allows software and information products to contain "back door" entrances, potentially making users' systems vulnerable to infiltration by unauthorized hackers.

• UCITA allows software publishers to sell their products "as is" and to disclaim liability for product shortcomings.



Electronic Contracting Statutes

• Australia Electronic Transactions Act 1999• Uniform Commercial Code Sction 2B• Model Act on Electronic Communications in

Contractual Transactions • Model Trading Partner Agreement (MTPA)• Uniform Electronic Transactions Act (UETA)• Uniform Computer Information Transactions Act

(UCITA)• American Bar Association

– Working Group on Electronic Contracting Practices– Subcommittee on Electronic Commerce of the Cyberspace

Law Committee



Automated Transactions (UETA)

• “Automated transaction. -- A transaction conducted or performed, in whole or in part, by electronic means or electronic records, in which the acts or records of one or both parties are not reviewed by an individual in the ordinary course [of business].”

• “A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements.”

• Difference: automated transaction may be revoked for unilateral mistake if the other side has not changed its position in reliance



Automated Transactions (E-Sign)

• “The term ‘electronic agent’ means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part without review or action by an individual at the time of the action or response.”

• “A contract or other record relating to a transaction in or affecting interstate or foreign commerce may not be denied legal effect, validity, or enforceability solely because its formation, creation, or delivery involved the action of one or more electronic agents so long as the action of any such electronic agent is legally attributable to the person to be bound.”




• The law of negotiable instruments (checks, drafts, promissory notes, etc.) pays great attention to transferability and the “holder in due course” (rightful possessor without knowledge of fraud or defect)

• A negotiable instrument is token money (rightful possession is equivalent to ownership)

• Negotiable instruments are made electronic through “transferable records”

• A “transferable record” is an electronic record that would be a negotiable instrument if it were written and which the issuer has expressly agreed is a transferable record.



UN Commission on InternationalTrade Law (UNCITRAL)

Model Law on Electronic Commerce

• “Basic rules on the validity, attribution and effect of computer-based and other forms of electronic messaging in commerce”

• Electronic data messages have same legal effect as messages written in traditional format

• Similar to Uniform Commercial Code proposed 2B• Signature: “method used to identify [a] person”• Criteria for determining whether an electronic

message is attributable to a particular party



QA&

Lecture 10: Commercial Transactions

Documents

commercial transactions

uniform commercial code

uniform codesuniform

sale of goods

writing sufficient

shrinkwrap agreement

sales contractsterms

expresslyall states