BLTS 11e-IM-Ch11 - NACMnacm.org/.../BLTC_11e_IM-Ch11-F.docx · Web viewThis chapter explains the...

Chapter 11

AgreementINTRODUCTION

This chapter explains the nature of the agreement, which forms the basis of a contract. Through a dis cussion of offer and acceptance, the chapter helps students to begin to understand how promises become legally binding. The text also contrasts non-offer situations. Responses to the offer and which acts terminate it are de fined and discussed.

This chapter also reviews some of the problems that concern e-contracts. E-contracts include any contract entered into in e-commerce, whether business to business (B2B) or business to consumer (B2C), including licenses, as well as sales and leases of goods and services. The chapter covers shrink-wrap agreements, click-on agreements, and developments that relate to e-signatures. This chapter also reviews provisions of the Uniform Electronic Transactions Act.

CHAPTER OUTLINE

I. AgreementEssential to any contract is an agreement: an offer must be made and it must be accepted. The parties must manifest their assent to the same bargain. In interpreting the parties’ words and conduct, the law adheres to the objective theory of contracts (Chapter 11).

A. REQUIREMENTS OF THE OFFERAn offer is a promise to do or refrain from doing some specified thing in the future. The elements nec-essary for an effective offer are—

• A serious intent by the offeror.• Reasonably certain, or definite, terms (so they can be ascertained by the parties and a court).• Communication of the offer to the offeree.

1. IntentionSerious intent is determined by what a reasonable person in the offeree’s position would conclude the offeror’s words and actions meant. Offers made in obvious anger, jest, or undue excitement do not meet the test.

a. Expressions of OpinionAn expression of opinion is not an offer. For example, a doctor’s opinion that a hand will heal within a few days of an operation is not an offer.

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2 UNIT TWO: CONTRACTS AND E-CONTRACTS

b. Statements of Future IntentNo offer is made when a party says that he or she plans to do something.

CASE SYNOPSIS—

Case 11.1: Lucy v. Zehmer

For eight years, W. O. Lucy had been anxious to buy the Ferguson Farm from J. C. Zehmer, whom he’d known for at least fifteen years. One night, Lucy said, “I bet you wouldn’t take $50,000 for that place.” Zehmer replied, “Yes, I would too; you wouldn’t give fifty.” Throughout the evening, the parties drank whiskey and talked. Eventually, Zehmer wrote out an agreement to the effect that he and Mrs. Zehmer agreed to sell the farm to Lucy for $50,000. Lucy sued Zehmer to go through with the sale. Zehmer argued that he had been drunk and that the offer had been made in jest and hence was unenforceable. The trial court agreed. Lucy appealed.

The Supreme Court of Virginia reversed. The Zehmers were ordered to carry through with the sale. Noting that Lucy attempted to testify in detail as to what was said and done the night of the transaction, the court concluded that “Zehmer was not intoxicated to the extent of being unable to comprehend the nature and consequences of the instrument he executed, and hence that instrument is not to be invalidated on that ground.” That execution of the agreement was a serious business transaction the court found evidenced by a number of circumstances, including discussion of the contract for forty minutes or more before it was signed, its rewriting to reflect Mrs. Zehmer’s interest, discussion of what was to be included in the sale, provision for examination of title, completeness of the instrument, and Lucy’s taking possession without Zehmer’s request that he give it back.

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Notes and Questions

You might want to review this case when discussing intoxication and contractual capacity. The heart of the decision in this case appears to be whether Zehmer understood the nature of what was happening. The court believed that the record showed he did. What made the court believe that Zehmer was not drunk? He testified as to many details; at the time, they rewrote the agreement, talked about title, discussed what the sale included, and so on. Does it matter that Lucy supplied the liquor? Should Zehmer have attempted to place emphasis on that point at trial? Should voluntary intoxication be an excuse for voiding a contract?

Imagine that after winning the case, Lucy celebrates in Zehmer’s restaurant. Suppose that Zehmer remains sober while Lucy becomes extremely intoxicated and obviously unaware of what he is doing. Late in the evening, Lucy sells the farm back to Zehmer for $10,000. The next day, Lucy cannot remember the transaction. Can Lucy recover the farm? Yes. Under these circumstances, the contract would be voidable on the ground of intoxication. If Lucy acts promptly to disaffirm the contract and offers to return the $10,000, he would be allowed to recover the farm.

In part because intoxication is usually self-induced, there is sometimes a different emphasis in the cases that concern lack of capacity on the ground of intoxication than in the cases that concern lack of capacity on other grounds. Particularly in older cases, there is often a discussion of the parties’ morals. It has been suggested that the motivation for enforcing a contract made by an intoxicated person is not that the person


CHAPTER 11: AGREEMENT 3

was sober enough to understand what he or she was doing. Instead, the issue is whether the law will allow the person to get intoxicated and avoid the consequences of his or her behavior. Sometimes, it may appear that what is being judged is not the extent of a person’s in toxication but his or her attitude. At least one court at the turn of the century held that intoxication is never a defense.

ADDITIONAL CASES ADDRESSING THIS ISSUE —

Intention

Cases in which the intent of the parties to contract was at issue include the following.

• Dickemann v. Millwood Golf & Racquet Club, Inc., 67 S.W.3d 724 (Mo.App. S.D. 2002) (in a golf club member’s action to rescind a contract with a golf club, one of the questions was whether the member intended to enter into the contract with the club).

• Tabler v. Industrial Commission of Arizona, 202 Ariz. 518, 47 P.3d 1156 (Div. 1 2002) (the existence or nonexistence of an oral agreement to settle a workers’ compensation claim requires first a determination of the parties’ intent).

c. Preliminary Negotiations

• A request or invitation to negotiate is not an offer. (This includes statements such as “Will you sell your estate?” and “I wouldn’t sell my car for less than $1,000.”)

• An invitation to submit bids is not an offer. Thus, when contractors are invited to bid on a job, the party to whom the bid is submitted is not bound. (The bid is an offer, however, and the contractor is bound by its acceptance.)

d. Advertisements, Catalogues, and Circulars

• In general, ads, catalogues, price lists, and circular letters are treated as invitations to negotiate. If an ad to sell a single item was interpreted as an offer, and fifty people accepted, the offeror would breach forty-nine contracts. A price list is not an offer to sell at that price—it invites the buyer to offer to buy at that price.

• If an ad makes a promise so definite in character that it is apparent that the offeror is binding himself or herself to the conditions stated, the ad is treated as an offer. Thus, an ad may be an offer if it solicits performance—for example, by offering a reward.

ENHANCING YOUR LECTURE—

CAN AN ONLINE BID CONSTITUTE ACCEPTANCE? Under the Uniform Commercial Code, or UCC, a bid at an auction constitutes an offer. The offer (the

highest bid) is accepted when the auctioneer’s hammer falls. The UCC also states that auctions are “with reserve” unless the seller specifies otherwise. As noted elsewhere, in an auction with reserve, the seller



reserves the right not to sell the goods to the highest bidder. Hence, even after the hammer falls, the contract for sale remains conditioned on the seller’s approval. The question of how these rules should be applied to an online auction of a domain name, in which no hammer falls, came before a California court.

THE BID (OR OFFER?)

The case involved an online auction conducted by The.TV Corporation International (DotTV) on its Web site. DotTV posted an announcement on its Web site asking for bids for rights to the “Golf.tv” domain name and stating that the name would go to the highest bidder. Je Ho Lim submitted a bid for $1,010 and authorized DotTV to charge that amount to his credit card if his bid was the highest. Later, DotTV sent Lim an e-mail message stating that he had “won the auction” and charged the bid price of $1,010 to Lim’s credit card. When DotTV subsequently refused to transfer the name, Lim sued DotTV for, among other things, breach of contract. Lim argued that his bid constituted an acceptance of DotTV’s offer to sell the name. DotTV contended that Lim’s bid was an offer, which it had not accepted. Furthermore, even if it had accepted Lim’s offer, because the auction was “with reserve,” DotTV could withdraw the domain name from the auction even after acceptance. The trial court held for DotTV, and Lim appealed.

THE COURT’S ANALYSIS

The appellate court first looked at the UCC’s provisions concerning auctions, but noted that the UCC did not apply in this case because the UCC applies only to “goods,” and domain names are not goods. The court then looked at common law principles as codified in the Restatement (Second) of Contracts. The rules under the Restatement are similar to those of the UCC: a bid in an auction is an offer that is accepted when the “hammer falls,” and an auction is with reserve unless otherwise specified by the seller.

The court also pointed out, however, that DotTV’s charging of the bid price to Lim’s credit card was inconsistent with DotTV’s claim that it could withdraw the domain name from the bidding because the auction was with reserve. Furthermore, stated the court, even if it concluded that Lim’s bid was an offer and not an acceptance, DotTV had accepted the offer by its e-mail to Lim stating that he had won the auction. In all, held the court, there was no evidence that a contract between DotTV and Lim had not been formed, and Lim had stated a valid claim against DotTV for breach of contract. The court thus reversed the lower court’s decision and remanded the case for further deliberation consistent with the appellate court’s opinion.a

FOR CRITICAL ANALYSIS

Should the UCC rules governing auctions apply to items sold on online auction sites, such as e-Bay? Why or why not? How can you know whether e-Bay’s auctions are “with reserve” or “without reserve”?

a. Lim v. The.TV Corp. International, 99 Cal.App.4th 684, 121 Cal.Rptr.2d 333 (2d Dist. 2002).

e. Agreements to AgreeAgreements to agree serve valid commercial purposes and can be enforced if the parties clearly intended to be bound by the agreements. In other words, the emphasis is on the par-ties’ intent rather than on form.

f. Preliminary Agreements



If all of the essential terms have been agreed to and no disputed issues remain, it is more likely that a court will hold a preliminary agreement constitutes a contract.

CASE SYNOPSIS—

Case 11.2: Basis Technology Corp. v. Amazon.com, Inc.

Basis Technology Corp. created software and provided technical services for Amazon.com, Inc.’s Japanese-language Web site. Their agreement allowed for separately negotiated contracts for additional services. Later, Basis filed a suit in a Massachusetts state court against Amazon in part for nonpayment of services that the initial agreement did not cover. During the trial, the two parties exchanged e-mail messages that outlined settlement terms. Amazon reneged on the terms. Basis filed a motion to enforce the settlement. The court granted the motion. Amazon appealed.

The Appeals Court of Massachusetts affirmed. The parties’ e-mail notes constituted a complete and unambiguous statement of their desire to be bound by the settlement terms. “Provisions are not ambiguous simply because the parties have developed different interpretations of them.”

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Notes and Questions

The word “correct” has at least two meanings. In one sense, “correct” can express approval and indicate assent. In another context, the word can be a synonym for “fix,” or “make right,” or “align with a certain standard.” Could Amazon have successfully argued that its use of the word “correct” in its e-mail followed the sense of this second meaning? Probably not, because with Basis, Amazon reported to the trial judge that the parties had reached an agreement for the settlement of their dispute. It would have strained Amazon’s credibility to later claim that that was not what it meant.

Under what circumstances could Amazon justify its “about face” after having agreed in an e-mail to the settlement terms? There might have been some part of the case that Amazon felt would result in a judgment against it, and its acquiescence to settlement terms may have been a delaying ploy. Or from Amazon’s perspective there may have been some aspect of the settlement that was disadvantageous on a closer look.

What does the result in this case suggest that a businessperson should do before agreeing to a settlement of a legal dispute? The result in this case suggests that a businessperson should determine and negotiate the specific terms of a settlement before indicating to a court that a settlement has been reached.


IS IT A CONTRACT? Over the past decade, the letter of the law has become clearer on the issue of whether a preliminary

agreement, such as an agreement to agree, constitutes a contract. Increasingly, the courts are holding that a



preliminary agreement constitutes a binding contract if all essential terms have been agreed on and no disputed issues remain to be resolved. In contrast, if the parties agree on certain major terms but leave other terms open for further negotiation, a preliminary agreement is binding only in the sense that the parties have committed themselves to negotiate the undecided terms in good faith in an effort to reach a final agreement.

Fluorogas, Ltd., learned about this distinction, to its dismay, when a federal district court in Texas held that a preliminary agreement that it had formed with Fluorine On Call, Ltd., was a bind ing contract. After executives of the two companies had enjoyed a weekend of yachting in the Florida keys, the executives drew up a brief handwritten document stating that Fluorogas would sell to Fluorine the exclusive rights to a technology to build and sell sophisticated semiconductor equipment. When Fluorogas refused to transfer the patents and intellectual property at issue to Fluorine, Fluorine sued for breach of contract. Was there a contract? Yes, according to the court. Because the handwritten document included the essential terms of the agreement, the document constituted a contract, not an agreement to agree to form a contract at some point in the future.a

THE BOTTOM LINE

Businesspersons should exercise care when forming preliminary agreements, for they may be bound in contract without realizing it. Fluorogas learned this lesson the hard way: the jury awarded Fluorine $12 million in punitive damages, in addition to compensatory damages.

a. Fluorine On Call, Ltd. v. Fluorogas Limited, No. 01-CV-186 (W.D.Tex. 2002). This decision is not published in the Federal Supplement.

2. Definiteness of TermsA contract must have reasonably definite terms so that a court can determine if a breach has occurred and can give an appropriate remedy. An offer may invite an acceptance to be worded in specific terms so that the contract is made definite. Generally, expressed or inferable contract terms include—

• Identification of the parties.• Identification of the object or subject matter of the contract—the specific goods, services, or

land—with the quantity when appropriate and the work to be performed.• Consideration to be paid.• Time of payment, delivery, or performance.

ADDITIONAL BACKGROUND—

Definiteness The Restatement (Second) of Contracts is an authoritative source for many of the principles discussed in

this chapter. Specific sections of the Restatement are noted throughout the text. After selected parts of the text in which a section is noted, the full text of that section is set out. The following is the section that relates to and is cited in this part of the text—Restatement (Second) of Contracts, Section 33.

§ 33. Certainty



(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

3. CommunicationAn offer must be communicated to the offeree, so that the offeree knows it. Ordinarily, one cannot agree to a bargain without knowing that it exists.


RewardsRewards are discussed briefly in the text. Rewards are also discussed in The Guide to American Law:

Everyone’s Legal Encyclopedia, a multivolume reference work published by West Publishing Company. In the words of its editors, The Guide “presents in one reference set a panorama of the American legal system, which while comprehensive in scope is specific in its explanations of a cornucopia of legal topics.” The following is the text of the discussion in The Guide of rewards.

REWARD A sum of money or other compensation offered to the public in general, or to a class of per -sons, for the performance of a special service.

When an offer of a reward is accepted by performance, a binding contract, based on and governed by the law of contracts, exists.

Offer There must be an actual, valid offer to create a contract of reward. An offer or promise to pay a reward, however, is merely a proposal or a conditional promise by the offeror; it is not a consummated contract.

The person offering the reward can do so on any terms he or she wishes, and the terms must be met before the reward can be recovered. The subject matter of the offer can entail the discovery of informa-tion and evidence leading to the arrest and conviction of a certain person or persons. Similarly the offer can require the recovery of stolen property and the apprehension of the thief, the return of lost property, or the recovery or rescue of a person.

A prize or premium can be a valid offer of a reward for exhibits, architects’ plans, paintings, the best performance in a tournament, the suggestion of a name, or the achievement of the best time in a race.

The offer must be made with the intent to form a contract. It is not necessary for the offeror to have any personal interest in the subject, and the motive in making the offer is immaterial.

Any person capable of making a contract can bind himself or herself by an offer of a reward. A private corporation can offer a reward for the arrest and conviction of persons who have acted un lawfully against



it.



Legislatures have the power to offer rewards for acts that will be of public benefit. It can also em power designated officers, such as the Governor, the U.S. attorney general, or a Federal marshal, to offer rewards for certain purposes, such as the apprehension of criminals. Ordinarily municipal corporations cannot offer rewards for criminal offenders against state law.

Unless a statute requires the offer to be in writing, the offer of a reward can be made orally. An offer can be made by a private contract with a particular person or by an advertisement or public statement in a newspaper, handbill, circular, postcard, or telegram.

Consideration A contract of reward must be supported by consideration, something of value. The con-sideration that supports the promise of a reward is the trouble or inconvenience resulting to the person who has acted on the faith of the promise.

Revocation Since an unaccepted offer of a reward grants no contractual rights, the offer can be revoked or canceled at any time prior to its acceptance by performance. Personal notice of revocation is not necessary. An offer, however, is only revocable either in the manner in which it was made, or in a manner that gives the revocation the same publicity as the offer. A later offer, in different terms from the first, and made in another place. does not revoke the first offer.

A few courts treat the discontinuance of an advertisement offering a reward as a revocation of the of fer, but this is not the usual case.

An offer of a reward cannot be revoked so as to deprive a person of any compensation he or she has earned by the performance, or partial performance, of its conditions.

Lapse Generally an offer of a reward that is not limited in duration by its own terms is considered to have been withdrawn after a reasonable time. What constitutes a reasonable period of time depends largely on the circumstances under which the offer was made. In some jurisdictions, a reward for the discovery of past offenders is not barred by a lapse of time but continues until the statute of limitations has expired against the crime.

Performance A reward can be claimed only by a person who has complied with the conditions of the of-fer before it expires or is revoked. Performance can be completed by a third person, such as an agent or a servant, who is acting on behalf of the claimant’s interest.

When the reward is offered for information leading to an arrest and conviction, the return of property, the location of a missing person, or for other purposes, the person who furnishes the in formation is enti-tled to the reward. This rule applies even if the person does nothing more than disclose the information, and the physical, capture, in the case of arrest, is made by others. The informant need not become in-volved in the prosecution or appear as a witness at the offender’s trial in order to collect the reward.

The information must be adequate and timely. It is untimely when it is given or acted upon after the criminal has surrendered, or if the information was already known when the informant provided it. It is inadequate if it does not lead to the desired end, such as an arrest and convic tion or the recovery of prop-erty.

When the reward is for the detection or discovery of an offender, a conviction is not necessary, as long as a discovery or an arrest occurs.



When a reward is offered for the apprehension or arrest of a criminal, a personal arrest by the claimant is usually not necessary. A few jurisdictions, however, hold that merely giving information that leads to an arrest made by others is not a performance of an offer of a reward, and that the reward belongs to those who assume the personal danger and responsibility of making the arrest.

The person who is arrested must be the one described in the offer. The arrest must be lawful. Those making an unlawful arrest cannot recover the reward, because an agreement for an unlawful arrest is against public policy and unenforceable.

If the offender voluntarily surrenders or is enroute to surrender, the captors have not earned the reward. Persons who have taken the accused into custody are, however, entitled to the reward if they were instrumental in the offender’s decision to surrender.

Generally when a reward is offered for the arrest and conviction of an offender, the claimant must have caused both the arrest and subsequent conviction, since both are conditions precedent to the recovery. The reward in such a case cannot be apportioned between what is due for the arrest and what is due for the conviction.

Return of lost property Some statutes provide for a reward for the finder of lost property or for compensa-tion for the expense of recovering and preserving it. Apart from statute, a finder has no right to a reward for the return of property to its owner if none has been offered. If only a proportionate part of the lost property is returned, the finder is entitled to a proportionate part of the reward.

If the offered reward is definite and certain, the finder has a lien, a charge against property to secure the payment of a debt or the performance of an obligation, on the property in the amount of the reward until it is paid. If the offer is indefinite, such as one that states “liberal reward,” there is no lien on the property.

Performance without knowledge Except in the case of statutory rewards, the general rule is that the claimant must have performed the services knowing of the offer and for the purpose of collect ing the re-ward. This rule is based on the theory that without such knowledge, there can be no meeting of the minds and, consequently, no contract. Knowledge of a statutory reward is not necessary to entitle the claimant to recover it.

Persons entitled When a reward is offered to the public, anyone who performs the required services can claim and accept the reward, except for persons who are under a duty to perform such services, such as law enforcement officers.

A promise by a private individual to reward a public officer for doing something that is his or her duty is void—of no legal force or binding effect. If the service is within the line and scope of the officer’s duty, it is immaterial that it is rendered at a time when the officer is not on duty or is outside his or her territorial jurisdiction. When, however, an officer acts beyond the scope and line of duty in performing the service, he or she is not prohibited from claiming the reward.

The maxim that “no man shall profit by his own wrong” applies to those claiming rewards. A person who aids and abets the commission of a crime has no right to a reward for the arrest of the perpetrator. Similarly a person who purchases stolen property with reasonable grounds for believing it has been stolen cannot receive the reward offered for its return.

B. TERMINATION OF THE OFFER



An offeree can transform an offer into a contract by acceptance. This power of acceptance can be termi-nated, however, by action of the parties or operation of law.

1. Termination by Action of the Offeror

• An offer may be revoked before acceptance, even if the offeror agreed to hold it open. Revocation can be by express repudiation or implied by conduct inconsistent with the offer.

• Revocation is effective only on receipt.

2. Termination by Action of the Offeree

• An offeree may reject an offer. A subsequent attempt to accept constitutes a new offer.• Rejection is effective only on receipt. Asking about an offer is not rejection.

a. Inquiries about an OfferMerely inquiring about an offer does not constitute rejection.

b. CounteroffersA counteroffer is a rejection and a simultaneous making of a new offer. The mirror image rule requires that the offeree’s acceptance match the offeror’s offer—any material change in the terms automatically terminates the offer and substitutes a counteroffer.

3. Termination by Operation of Law

a. Lapse of Time

• An offer terminates automatically when the time specified in the offer has passed. The specified time begins to run when the offeree receives the offer, not when it is sent. If the offer is delayed, the period begins to run from the date the offeree would have received it, but only if the offeree knows or should know of the delay.

• If no time is specified, the offer terminates at the end of a reasonable period, as determined by the subject matter of the contract, business and market conditions, and other relevant circumstances.

b. Destruction, Death, or Illegality

• An offer terminates if the subject matter is destroyed before the offer is accepted.• An offer terminates if the offeror or offeree dies or becomes incompetent. This rule

applies whether or not the other party had notice of the death or incompetence.• A statute or court decision that makes an offer illegal automatically terminates the offer.

4. Irrevocable Offers

• Detrimental reliance on an offer by the offeree can make the offer irrevocable. A merchant’s firm offer may be irrevocable.

• One form of irrevocable offer is an option contract, which is created when an offeror promises to hold an offer open for a specified period of time in exchange for a payment by the offeree.



C. ACCEPTANCEAcceptance is a voluntary act (either words or conduct) by the offeree that shows assent to the terms of an offer. Except in special circumstances, only the person to whom the offer is made can accept.

1. Unequivocal Acceptance

• Unequivocal acceptance is required by the mirror image rule. An acceptance subject to new conditions or with terms that materially change the offer may be considered a counteroffer.

• An acceptance may be unequivocal even though the offeree expresses dissatisfaction. Conditions that add no new terms do not turn an acceptance into a rejection unless the ac-ceptance is made conditional.

CASE SYNOPSIS—

Case 11.3: Brown v. Lagrange Development Corp.

Lagrange Development Corp. is a nonprofit that acquires and rehabilitates real property in Toledo, Ohio. Sonja Brown presented Lagrange with a written offer to buy a house at 52 Rockingham Avenue for $79,900. Lagrange’s executive director Terry Glazer penciled in modifications to the offer—an increased purchase price of $84,200 and a later date for acceptance. Glazer initialed the changes and signed the document. Brown initialed the date change but not the price increase, and did not sign the revised document. Brown then applied for and obtained a mortgage, agreed to the closing, and received a deed. Later, Brown filed a suit in an Ohio state court against Lagrange, claiming that she had not agreed to the proposed changes. The court considered the modified terms to be a counteroffer, which Brown accepted by performance. Brown appealed.

A state intermediate appellate court agreed. “Conduct sufficient to show agreement, including performance, constitutes acceptance of an offer.”

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Notes and Questions

Why would the purchaser of a house attempt to avoid the sale after taking possession? There are many reasons that the purchaser of a house might want to rescind the contract. In Brown’s case, after moving in, she experienced basement flooding, defective wiring, and roof and chimney leakage. The contract contained an “as is” clause (which the trial and appellate courts upheld), meaning that the seller was absolved of liability for not disclosing the defects, whether they were patent or latent. The courts found no fraud—the house had been advertised as “under rehab.” The discovery of the defects and the expense for their repair were the likely motivations for Brown’s suit.

2. Silence as AcceptanceOrdinarily, silence cannot be acceptance. Silence can operate as acceptance when—

• An offeree takes the benefit of offered goods or services even though he or she had an oppor-tunity to reject and knew that they were offered with the expectation of compensation.

• The parties have had prior dealings in which the offeree has led the offeror reasonably to un-derstand that the offeree will accept all offers unless the offeree sends notice to the contrary.



3. Communication of Acceptance• Bilateral contract—communication of acceptance is necessary because acceptance is in the

form of a promise, and the contract is formed when the promise is made. Communication is not necessary if the offer dispenses with it or the offer can be accepted by silence.

• Unilateral contract—no communication of acceptance is generally necessary, because acceptance is evident. Notice is necessary if the offeror requests it or has no adequate means of determining whether there has been performance.

4. Mode and Timeliness of AcceptanceAn acceptance is timely if it is made before the offer is terminated.

a. The Mailbox RuleAcceptance is effective when it is sent by whatever means is authorized by the of feror. This is the mailbox rule.

b. Authorized Means of Communication

• Specific means can be stated in the offer or authorized by facts or by law. If an offeror specifies an exclusive means, the contract is not formed unless the offeree uses it.

• If the offeror does not specify a certain means, the offeree can accept by any medium reasonable under the circumstances. A medium is reasonable if it is the same means as the offeror used to communicate the offer or a faster means.

c. Substitute Method of AcceptanceAn acceptance sent by unauthorized means is effective on receipt.


CONTROLLING THE TERMS OF THE OFFER The courts normally attempt to “save” contracts whenever possible, but sometimes it is impossible to do

so. Two common reasons that contracts fail are that (1) the terms of the offer were too unclear or indefinite to constitute a binding contract on the offer’s acceptance and (2) the acceptance was not timely. If you are an offeror, you can control both of these factors: you can determine what the terms of the future contract will be, as well as the time and mode of acceptance.

INCLUDE CLEAR AND DEFINITE TERMS

If a contract’s terms are too unclear or indefinite, the contract will fail. Unless a court can ascertain exactly what the rights and duties of the parties are under a particular contract, the court cannot enforce those rights and duties. Therefore, as an offeror, make sure that the terms of your offer are sufficiently definite to constitute a binding contract if the offer is accepted. A statement such as “Quantity to be determined later” may allow the offeree, after acceptance, to claim that a contract was never formed because the quantity term was not specified.

Another reason an offeror should make sure that the offer’s terms are clear and definite is that if a contract results, any ambiguous provision may be interpreted against the party that drafted the contract.



SPECIFY THE TIME AND MODE OF ACCEPTANCE

Problems concerning contract formation also arise when it is unclear whether an acceptance is ef fective. To avoid such problems, you should take some precautions when phrasing the offer. Whether your offer is made via the Internet, fax, express delivery, or mail, you can specify that the offer must be accepted (or even that you must receive the acceptance) by a certain time, and if it is not, the offer will terminate. Similarly, you can specify the mode of acceptance. In online offers, you can indicate that to accept the offer, the user must click on a certain box on the screen If you make an offer and want the acceptance to be faxed to you, make sure that you clearly indicate that the acceptance must be faxed to you at a given fax number by a specific time, or it will not be effective.

CHECKLIST FOR THE OFFEROR

1. Make sure that the terms of the offer are sufficiently clear and definite to allow both the parties and a court to determine the specific rights and obligations of the parties. Otherwise, the contract may fail for indefiniteness.

2. Specify in the offer the date on which the offer will terminate and the authorized mode of accep tance. For example, you can indicate that an acceptance, to be effective, must be faxed to you at a specific fax number by a specific time or date.

II. E-ContractsDisputes arising from contracts entered into online concern the terms and assent to those terms.

A. ONLINE OFFERS

1. Displaying the OfferTerms should be conspicuous and clearly spelled out. On a Web site, this can be done with a link to a separate page that contains the details.

2. Provisions to IncludeSubjects that should be covered include—

• Acceptance of terms—a mechanism by which an offeree can affirmatively indicate consent (such as an “I agree” box to click on).

• Payment, including taxes.• Refund and return policies.• Disclaimers. • Limitation of remedies.• Privacy policies.• Dispute resolution.

3. Dispute-Settlement ProvisionsThese include an arbitration, or other form of alternative dispute resolution, clause.

a. Forum-Selection ClauseA forum-selection clause indicates a court or jurisdiction for the resolution of a dispute.



b. Choice-of-Law ClauseA choice-of-law clause designates the law of a certain jurisdiction to resolve a dispute.

B. ONLINE ACCEPTANCES

1. Click-On AgreementsA click-on agreement occurs when a buyer, completing a transaction on a computer, is required to indicate his or her assent to be bound by the terms of an offer by clicking on a button that says, for example, “I agree.” The buyer does not have to actually read the terms to be bound.

2. Shrink-Wrap AgreementsA shrink-wrap agreement is an agreement whose terms are expressed inside a box in which computer hardware or software is packaged. In most cases, the agreement is not between a seller and a buyer, but between a manufacturer and the user of the product. The terms generally concern warranties, remedies, and other issues associated with the use of the product.

a. Shrink-Wrap Agreements and Enforceable Contract TermsCourts often enforce shrink-wrap agreements, reasoning that the seller proposed an offer that the buyer accepted after an opportunity to read the terms.

b. Shrink-Wrap Terms That May Not Be EnforcedIf a court finds that the buyer learned of the shrink-wrap terms after the parties entered into a contract, the court might conclude that those terms were proposals for additional terms, which were not part of the contract unless the buyer expressly agreed to them.


AVOIDING DECEPTION IN SOFTWARE SALES Sometimes, businesspersons who include shrink-wrap licenses with their products may have some terms

elsewhere, such as on a disk or on a download page of the Internet. Not including all of the terms in the shrink-wrap agreement, however, can lead to problems—as one software producer learned when the state of New York brought an action against its company for fraud.

THE LAWSUIT AGAINST NETWORK ASSOCIATES, INC.

Network Associates, Inc. (NA), develops and sells software, including Gauntlet, a software firewall product, via the Internet. NA included on its disks and on its Internet download page—but not in its license agreement that accompanied its products—a restrictive clause.

The restrictive clause provided that anyone installing the Gauntlet software accepted the terms and conditions of the license agreement in the box and urged users to read the license before installing the software. The clause also stated, among other things, that the customer “will not publish reviews of this product without prior consent from Network Associates.” The problem was that the license agreement in the box stated that the agreement contained all of the rights and duties of the parties. How, then, did the



restrictive clause apply to the sale?

When Network World Fusion, an online magazine, published a comparative review of firewall software products, including NA’s Gauntlet, without NA’s permission, NA protested. Ultimately, the state attorney general of New York brought an action against NA for fraud.

THE FRAUD ISSUE

According to the New York court hearing the case, NA’s restrictive clause misled customers and was thus deceptive. First, the license agreement stated that it contained all of the terms of the agreement. Therefore, the rules and regulations listed in the restrictive clause appeared to be independent of the license contract. This could mislead purchasers of the software because they might believe that the restriction was created by some other entity, such as the federal government.

For these reasons, the court concluded that the restrictive clause was deceptive and constituted fraud. The court ordered NA to stop including the clause in its software. The court also ordered NA to reveal “the number of instances in which software was sold on disks or through the Internet containing the above-mentioned language in order for the court to determine what, if any, penalties and costs should be ordered.”a

FOR CRITICAL ANALYSIS

What is the difference, if any, between reading a disputed clause as part of a shrink-wrap agreement and accessing it through a link as part of a click-on agreement?

a. People v. Network Associates, Inc., 195 Misc.2d 384, 758 N.Y.S.2d 466 (2003).

3. Browse-Wrap TermsBrowse-wrap terms, which can also occur in an online transaction, do not require a user to assent to the terms before going ahead with the deal. Offerors of these terms generally assert that they are binding without the user’s active consent. Critics argue that a user should at least be required to navigate past the terms before they should be considered binding.

C. FEDERAL LAW ON E-SIGNATURES AND E-DOCUMENTSAn e-signature is “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.” These include—

• Encrypted digital signatures.• Names intended as signatures at the end of e-mail.• Clicks on a Web page if they include the identification of the person.

1. The E-SIGN ActIn 2000, Congress enacted the Electronic Signatures in Global and National Commerce Act to provide that no contract, record, or signature may be “denied legal effect” solely because it is in an electronic form. Some documents are excluded: most notably documents governed by Articles 3, 4, and 9 of the UCC.



2. The FACT ActIn 2003, Congress enacted the Fair and Accurate Transactions Act to combat identity theft. This includes a provision that covers credit-card receipts, which can take the form of e-documents.

D. PARTNERING AGREEMENTSThrough a partnering agreement, a seller and a buyer agree in advance on the terms to apply in all transactions subsequently conducted electronically. These terms may include access and identification codes. A partnering agreement, like any contract, can prevent later disputes.

SPECIAL EXHIBIT—

Online Acceptances

The following illustration summarizes some of the principles of online acceptances involving shrink-wrap agreements, click-on agreements, and browse-wrap terms discussed in the text.


CLICK-ON AGREEMENT

Contract terms that appear on a computer screen, accompanied by an on-screen button on which the buyer is asked to click

SHRINK-WRAP AGREEMENT

Contract terms expressed in a document inside a product package

BROWSE-WRAP TERMS

Contract terms on a Web site that need not be actively agreed to before using a product available from the site

ARE THESE TERMS PART OF A CONTRACT BETWEEN THE PARTIES?

Yes, if before entering into the contract, the buyer—

• Is made aware of the terms• And expressly agrees to the terms by opening the package, clicking on the

button, or using the product


III. The Uniform Electronic Transactions Act• Most states have laws governing e-signatures, but the laws are not uniform. The Uniform Electronic

Transactions Act (UETA), issued in 1999, was an attempt by the National Conference of Commissioners on Uniform State Laws and the American Law Institute to create more uniformity. Most states have adopted the UETA.

• The UETA removes barriers to e-commerce by giving the same legal effect to electronic records and signatures as to paper documents and signatures.


“Electronic Signature”

The Uniform Electronic Transactions Act (UETA) —a draft of legislation proposed to the states by the National Conference of Commissioners of Uniform State Laws and the American Law Institute—provides a definition of “electronic signature” (or e-signature) that can be used by the states that enact the UETA. The following comments accompanying the draft of UETA 102(8) presented for the states’ adoption explain the definition.

7. “Electronic signature.”

The idea of a signature is broad and not specifically defined. Whether any particular record is “signed” is a question of fact. Proof of that fact must be made under other applicable law. This act simply assures that the signature may be accomplished through an electronic means. No specific technology need be used in order to create a valid signature. One’s voice on an answering machine may suffice if the requisite intention is present. Similarly, including one’s name as part of an electronic mail communication also may suffice, as may the firm name on a facsimile. It also may be shown that the requisite intent was not present and accordingly the symbol, sound or process did not amount to a signature. One may use a digital signature with the requisite intention, or one may use the private key solely as an access device with no intention to sign, or otherwise accomplish a legally binding act. In any case the critical element is the intention to execute or adopt the sound or symbol or process for the purpose of signing the related record.

The definition requires that the signer execute or adopt the sound, symbol, or process with the intent to sign the record. The act of applying a sound, symbol or process to an electronic record could have differing meanings and effects. The consequence of the act and the effect of the act as a signature are determined under other applicable law. However, the essential attribute of a signature involves applying a sound, symbol or process with an intent to do a legally significant act. It is that intention that is understood in the law as a part of the word “sign”, without the need for a definition.

This Act establishes, to the greatest extent possible, the equivalency of electronic signatures and manual signatures. The purpose is to overcome unwarranted biases against electronic methods of signing and authenticating records. Therefore the term “signature” has been used to connote and convey that equivalency. The term “authentication,” used in other laws, often has a narrower meaning and purpose than an electronic signature as used in this Act. However, an authentication under any of those other laws constitutes an electronic signature under this Act.



The precise effect of an electronic signature will be determined based on the surrounding circumstances under [UETA 109(b)].

This definition includes as an electronic signature the standard webpage click through process. For example, when a person orders goods or services through a vendor’s website, the person will be required to provide information as part of a process which will result in receipt of the goods or services. When the customer ultimately gets to the last step and clicks “I agree,” the person has adopted the process and has done so with the intent to associate the person with the record of that process. The actual effect of the electronic signature will be determined from all the surrounding circumstances, however, the person adopted a process which the circumstances indicate s/he intended to have the effect of getting the goods/services and being bound to pay for them. The adoption of the process carried the intent to do a legally significant act, the hallmark of a signature.

Another important aspect of this definition lies in the necessity that the electronic signature be linked or logically associated with the record. In the paper world, it is assumed that the symbol adopted by a party is attached to or located somewhere in the same paper that is intended to be authenticated, e.g., an allonge firmly attached to a promissory note, or the classic signature at the end of a long contract. These tangible manifestations do not exist in the electronic environment, and accordingly, this definition expressly provides that the symbol must in some way be linked to, or connected with, the electronic record being signed. This linkage is consistent with the regulations promulgated by the Food and Drug Administration. 21 CFR Part 11 (March 20, 1997).

A digital signature using public key encryption technology would qualify as an electronic signature, as would the mere inclusion of one’s name as a part of an e-mail message - so long as in each case the signer executed or adopted the symbol with the intent to sign.

A. THE SCOPE AND APPLICABILITY OF THE UETA

• The UETA applies only to e-records and e-signatures relating to a transaction (an interaction be-tween two or more people relating to business, commercial or governmental activities).

• The UETA does not apply to wills or testamentary trusts, transactions covered by the UCC (except Articles 2 and 2A), and applications of other laws excluded by the states.

B. THE FEDERAL E-SIGN ACT AND THE UETA

• If a state enacts the UETA without modification, the E-SIGN Act does not preempt it.

• The E-SIGN Act preempts modified versions of the UETA to the extent that they are inconsistent with the E-SIGN Act.

• Under the E-SIGN Act, states may enact alternative procedures or requirements for the use or acceptance of e-records or e-signatures if—

Those procedures or requirements are consistent with the E-SIGN Act.The state’s procedures do not give greater legal effect to any specific type of technology.The state adopts the alternative after the enactment of the E-SIGN Act, the state law must refer to the E-SIGN Act.



C. HIGHLIGHTS OF THE UETAThe parties must agree to conduct transaction electronically. This agreement may be implied by the circumstances and the parties’ conduct (for example, giving out a business card with an e-mail address on it). Consent may also be withdrawn.

1. AttributionThe effect of an e-record is determined from its context and circumstances. A person’s name is not necessary to give effect to an e-record, but if, for example, a person types her or his name at the bottom of an e-mail purchase order, that qualifies as a “signature” and is attributed to the person.

2. Authorized SignaturesIf issues arise relating to agency, authority, forgery, or contract formation, state laws other than the UETA apply.

3. The Effect of ErrorsIf the parties agree to a security procedure and one party does not detect an error because it did not follow the procedure, the conforming party can avoid the effect of the error. If the parties do not agree on a security procedure, other state laws determine the effect of the mistake. To avoid the effect of an error, a party must—

• Promptly notify the other of the error and of his or her intent not to be bound by it.• Take reasonable steps to return any benefit or consideration received. If restitution cannot be

made, the transaction may be unavoidable.

4. Timing

• An e-record is sent when it is properly directed from the sender’s place of business to the in-tended recipient in a form readable by the recipient’s computer. Once an e-record leaves the sender’s control or comes under the recipient’s control, it is sent.

• An e-record is received when it enters the recipient’s processing system in a readable form—even if no person is aware of its receipt.


International Treaties Affecting E-Contracts

International organizations have created their own regulations for global Internet transactions.

The United Nations Convention on the Use of Electronic Communications in International Contracts of 2005 provides standards to determine an Internet user’s location and to give the same legal effect to electronic records and signatures as to paper documents and signatures.

The Hague Convention of the Choice of Court Agreements provides more certainty in business-to-business transactions by providing standards for the recognition of judgments by different nations’ courts.




HOW CAN YOU FIND AND

USE ONLINE CONTRACT FORMS? Before the printing press, every contract form had to be handwritten. Since the advent of printing,

however, most standard contract forms have been readily available at low cost. Now the Internet has made available an even larger variety of contract forms, as well as other legal and business forms.

WHERE TO OBTAIN ONLINE CONTRACT FORMS

The ‘Lectric Law Library has a collection of forms at www.lectlaw.com/form.html. The site includes forms for the assignment of a contract, a contract for the sale of a motor vehicle, and many others. In addition to actual forms, there are comments on how the forms should be used and filled out. Another excellent online resource for various types of forms is FindForms, at www.findforms.com.

Other online forms collections can be found at LegalWiz.com (go to www.legalwiz.com/forms.htm), a Web site that provides free legal forms, including a form that can be used to sell personal property. At www.legaldocs.com, you will find an electronic forms book that offers hundreds of standardized legal forms, some of which are free. Washburn University School of Law has a Web page containing links to an extensive number of forms archives at www.washlaw.edu/legalforms/legalforms.html.

A special Web site for small-business owners is www.lawvantage.com/index.shtml. Some documents are free; others require a fee or an annual subscription. Many law firms post legal forms, including contract forms, on their Web sites. For example, see the Web site of Bornstein & Naylor (at lbnlaw.com/Freedownload2.htm).

Finally, a number of forms are available from FindLaw, which is now a part of West Group. Go to forms.lp.findlaw.com and scroll down the screen to “Other Form Resources.”

CHECKLIST FOR THE ONLINE SELLER

1. When looking for a contract form appropriate to your business, “shop around” for a form that most closely meets your needs.

2. Consider customizing any standardized contract form that you use to ensure that it will cover all of the contingencies that you deem important.

3. When using a standardized contract form, make sure that you provide for a means of acceptance—for example, by including a box stating “I accept” or “I agree.”

4. Consider posting your own customized contract forms on your Web site for prospective customers or others to use.



TEACHING SUGGESTIONS

1. Concepts in the area of the law covered in this chapter that students have difficulty with include:

a. Advertisements are usually not valid offers. Emphasize that it is the indefiniteness of their terms (and the unfairness that might result from enforcing every advertisement as an offer) that pre-vents most advertisements from being effective offers.

b. Revocation and rejection are not interchangeable terms. Underscore that only offerors can re-voke and only offerees can reject.

c. In the absence of an option contract or promissory estoppel, an offeror can legally revoke an offer even if he or she has said that the offer will be kept open.

2. Discussing firm offers provides an opportunity to have students study a statute—UCC 2–205—carefully. Point out that if any element of UCC 2–205 is lacking in a situation, there is no firm offer and that it will lapse within a reasonable time by itself unless consideration is given to keep it open.

3. Students may find it helpful, when confronted with difficult points of law, to combine or reduce the points into short statements. For example, the mailbox rule may be phrased as:

The mailbox rule applies only to express, bilateral, properly communicated acceptances, which are effective when sent—unless (1) the offer says that the mail cannot be used, (2) the offer is an option contract, for which acceptance must be received before the option expires, and (3) the offeree changes his or her mind. If the offeree changes his or her mind, and accepts first and then re jects, the acceptance is effective on dispatch—unless the offeror received the rejection first and acted on it. If the offeree rejects first and then accepts, whichever gets there first is effective.

4. Review the terms of sample shrink-wrap agreements and click-on agreements with the class, and discuss how fair or objectionable the students find the terms. Have they readily agreed to such terms in the past? How likely are they to agree to such terms in the future, at least without reading them?

5. You might point out that the UETA supports all e-transactions, but it does not create rules for them. Also, the UETA does not apply to a contract unless the contracting parties agree to use e-commerce in their transactions.

6. In reading and studying cases, including the cases in this chapter and particularly including those that involve complex circumstances, your students may find it helpful to keep in mind that generally a case can have only one of three results:

• The plaintiff proves his or her side of the case and wins.• The plaintiff fails to prove his or her side of the case and loses.• The defendant proves his or her side of the case, and the plaintiff loses.



Cyberlaw Link

How might the mailbox rule apply in the context of contracts entered into over the Internet? Why are uniform laws like the UETA necessary? Does it make any difference if these uniform laws are not enacted in every state? How should the law be applied to a dispute arising from a deal that involves parties in different countries?

DISCUSSION QUESTIONS

1. In the context of an offer, how are intent and its seriousness determined? Serious intent is determined by what a reasonable person in the offeree’s position would conclude the offeror’s words and actions meant, not by the subjective intentions, beliefs, and assumptions of the offeror. Offers made in obvious anger, jest, or undue ex-citement do not qualify.

2. Why must a contract have “reasonably definite terms” and how “definite” must the terms be? A contract must have reasonably definite terms so that a court can determine if a breach has occurred and can give an appropriate remedy. Courts may supply a missing term when the parties have clearly manifested an intent to form a contract, but they will not do so if the parties’ expression of intent is too vague or uncertain (an employer’s promise that an employee will “share in the profits of the business”). An offer may invite an acceptance to be worded in specific terms so that the contract is made definite. If the acceptance is not so specifically worded, there may be no enforceable contract. The UCC requires less specificity in a contract for the sale of goods. Specificity is more important in an international sales contract.

3. How do the parties terminate an offer? The parties can terminate an offer by: (1) revocation, (2) rejection, or (3) a counteroffer. Revocation is withdrawal of the offer by the offeror. Generally, an offer may be revoked any time before acceptance, even if the offeror agreed to hold it open, but revocation is effective only on receipt (thus a letter of revocation is not effective until the offeree receives it). Revocation can be express (“I withdraw my offer”) or implied by conduct inconsistent with the offer (property that would be the subject of the contract is sold to a third party). Revocation of an offer made to the general public must be communicated in the same manner in which the offer was communicated. An offeree may reject an offer, expressly (“I don’t need what you’re selling”) or impliedly (by conduct showing an intent not to accept). Rejection is effective only on receipt. Asking about an offer (“Is that your best offer?”) is not rejection, but an ambiguous response may be construed as a rejection (“The price seems low. I’ll bet you can do better than that.”). A subsequent attempt to accept will be construed as a new offer. A counteroffer is a rejection and a simultaneous making of a new offer. The mirror image rule requires that the acceptance match the offer—any material change in the terms automatically terminates the offer and substitutes a counteroffer. An offeree may make an offer without rejecting the original offer, in which case two offers exist, each capable of acceptance (“I don’t have the price that you ask but will try to raise it. I will offer to buy your goods for the amount that I do have.”).

4. Who may accept an offer? Only the person to whom the offer is made can accept it unless: (1) the offer is an option contract (in which case the right to exercise the option is generally considered a contract right and is assignable or transferable, with exceptions) or (2) the offeree is an agent (in which case the principal may accept, and a contract will be formed between the principal and the offeror). If an offer is made to two or more persons, it must be accepted by all of them. (If individual offers are made to two or more persons individually, contracts are formed only with those persons who accept the offer.)



5. What is unequivocal acceptance? Unequivocal acceptance is acceptance that adds no new terms or terms that materially change the offer (“I accept the offer, but only if I can pay on ninety days’ credit”). Under the mirror image rule, an acceptance subject to new conditions or with terms that materially change the offer may be considered a counteroffer. An acceptance may be unequivocal even though the offeree expresses dissatisfaction (“I accept the offer, but I wish I’d gotten a better deal”). An acceptance that is made conditional is a rejection (“I accept if you send a written contract”). Under the UCC, acceptance is valid even if terms are added.

6. Why is a court likely to enforce a shrink-wrap agreement? A court is likely to enforce a shrink-wrap agreement partly because it is more practical, from a business’s perspective, to enclose the full terms of a sale in a box. The court may reason that the seller proposed an offer the buyer accepted after an opportunity to read the terms.

7. On what reasoning might a court refuse to enforce a shrink-wrap agreement? A court may reason that a buyer learned of the shrink-wrap terms after the parties entered into their contract. On this basis, the court might conclude that the terms were proposals for an addition to the contract, which means that they were not part of the contract unless the buyer expressly agreed to them.

8. Is a court likely to enforce a click-on agreement? Yes, unless the agreement is objectionable on grounds that apply to contracts generally. This is if the party who agrees to the terms has an opportunity to read them before the contract is made.

9. When does the UETA apply, and what is its effect? The UETA supports all electronic transactions, but it does not create rules for them. The UETA does not apply unless the contracting parties agree to use e-commerce in their transactions.

10. Can parties to a contract that would otherwise be covered by the UETA choose to waive its pro -visions? Yes, contracting parties can waive or change for their contract any or all of the UETA provisions (except for the rules that concern good faith, diligence, public policy, and unconscionability, which cover all con tracts). Parties whose contracts would not otherwise be subject to the UETA can also bring their contracts within its provisions. The UETA applies in the absence of an agreement to the contrary.

ACTIVITY AND RESEARCH ASSIGNMENTS

1. Have students bring current catalogs, advertisements, classified advertisements, and direct mail adver-tisements to class. Tell them to be prepared to discuss which are offers and which represent preliminary negotiations.

2. Students like to ask about mail-order book and music club contracts. Ask students to bring some ad-vertisements for current offerings to class and discuss them.

3. Have students bring to class examples of shrink-wrap and click-on agreements and review them in class. What terms are they likely to object to, once they have examined the agreements more closely?

EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT

Footnote 3: The American Association of the Advancement of Science (AAAS) maintains Science NOW, a daily Internet news service, and publishes Science, a scholarly journal. An ad on Science NOW asks for “news tips.”



Erik Trell, a professor and medical doctor, submitted a manuscript in which he claimed to have solved a famous mathematical problem, popularly known as Beal's Conjecture. AAAS decided that Trell’s manuscript was neither news nor a solution to Beal’s Conjecture, and declined to publish it. Trell filed a suit in a federal district court against AAAS, alleging breach of contract. Trell asserted that the Science NOW ad was an offer, which he had accepted. The defendants filed a motion to dismiss. In Trell v. American Association of Advancement of Science, the court dismissed the complaint. Science NOW’s ad for “news tips” was not an offer, but an invitation for offers. “Advertisements are not offers—they invite offers. Likewise, responses to advertisements are not acceptances—they are offers. At best, it was Trell's submission of the manuscript that was the offer, which Trell clearly admits defendants declined to accept. This is the controlling law. The Court finds no distinction requiring a different analysis or result merely because the advertisement was soliciting ideas (i.e., ‘news tips’) rather than goods, or because it was communicated over the internet as opposed to through television, radio or newspaper advertisement.”

Could the Science NOW ad be construed as an “offer of reward”? Trell made this argument. The court stated simply, however, that this was “unpersuasive and inapplicable to the solicitation for news tips. There is simply nothing in the Amended Complaint which could reasonably be construed to support a holding that this advertisement was an offer of prize or reward.” What would have been the purported prize? There is an offer of a cash prize of between $5,000 and $70,000 for a solution to Beal’s Conjecture, but this is offered by an individual with no affiliation to AAAS or the other defendants

Besides breach of contract, Trell charged the defendants with fraud, misappropriation of property, breach of fiduciary duty, unfair competition, conversion, and conspiracy with intent to defraud. What might have been Trell’s motivation for all of these charges? Is this a reasonable basis for a lawsuit? Discuss. Trell might have been motivated by feelings of hurt over the rejection of his manuscript and its proposed solution to Beal’s Conjecture. As painful as this might seem to a person enamored of his or her ideas, it does not seem a reasonable basis for a lawsuit. Arguably, it could be unethical to pursue legal redress on this ground, according to any of the ap -proaches to ethical reasoning suggested in the text..

Should the court have made an exception to the rule applied in this case for an ad posted on the Internet? Why or why not? No, because, as the court stated, there is “no distinction requiring a different analysis or result merely because the advertisement was . . . communicated over the internet as opposed to through television, radio or newspaper advertisement.” Yes, because the Internet is a more “personal” medium than the other sources that the court cites and its postings are more readily taken to heart, or more reasonably construable as “offers,” and “accepted.”

Footnote 12: When an Internet user searches on Google using key words that an advertiser has identified, an ad appears. If the user clicks on it, Google, Inc., charges the advertiser. The terms for this arrangement be tween Google and the advertiser are displayed online in a window with a scroll bar. A link to a printer-friendly version of the terms is at the top of the window. At the bottom of the page, viewable without scrolling, are the words, “Yes, I agree to the above terms and conditions,” and a box on which a party must click to proceed. Among the terms, a forum-selection clause provides that any dispute is to be “adjudicated in Santa Clara County, California.” Lawrence Feldman participated in the program. In a subsequent suit between Feldman and Google in a federal district court in Pennsylvania, Feldman, alleging fraud, filed a motion for summary judgment. Google asked the court to transfer the case to a court in Santa Clara County, California. In Feldman v. Google, Inc., the court denied Feldman’s motion for summary judgment and granted Google’s motion to transfer the case. The “requirements of an express contract for reasonable notice of terms and mutual assent are satisfied.” Feldman and Google were bound to the terms. “Absent a showing of fraud, failure to read an enforceable clickwrap agreement, as with any binding contract, will not excuse compliance with its terms.”

What other click-on, or click wrap, agreements have courts held to provide reasonable notice? Adequate notice was held to be provided when users had to click “Accept” to agree to certain terms to subscribe and



an admonition in capital letters was presented at the top of the agreement to read the agreement carefully, even though a thirteen-page agreement appeared in a scroll box with only portions visible at a time and a forum selection clause was located in the final section and presented in lower case font. Forrest v. Verizon Communications, Inc., 805 A.2d 1007 (D.C.Cir. 2002). Reasonable notice was held to exist when a user had to agree to specific terms to install software, the agreement appeared in a small pop-up window in the same font-size as words in the computer's own display, and with the arbitration clause located at the end of the agreement. In Re RealNetworks, Inc., Privacy Litigation, __ F.Supp.2d __, 2000 WL 631341 (N.D.Ill. 2000). Reasonable notice of terms was held to occur when a user had to click “I agree” before proceeding with a registration process and the agreement was presented in a scrollable window, even though a forum selection clause was presented in lower case letters in the last paragraph of the agreement. Caspi v. Microsoft Network, L.L.C., 323 N.J.Super. 118, 732 A.2d 528 (App.Div. 1999).

With respect to click fraud, which was the heart of Feldman’s claim in this case, what circumstances might suggest unethical behavior by Google? A lack of ethical behavior might be found if Google actually knew that there were fraudulent clicks or at least had the capacity to determine which clicks on an ad were fraudulent, did nothing to prevent click fraud, charged an advertiser for fraudulent clicks, and failed to investigate an advertiser’s complaint regarding click fraud. These circumstances would likely support imposing legal liability as well. In this case, with regard to Google’s knowledge and capacity, Feldman did “not contend that Google actually knew that there were fraudulent clicks, but allege[d] that click fraud can be tracked and prevented by computer programs, which can count the number of clicks originating from a single source and whether a sale results, and can be tracked by mechanisms on websites.” Feldman also charged that Google “did not adequately warn him about click fraud.” Further he claimed, “Google informed him that it did not keep records on an advertiser's account and click history for more than the most recent three months, and that Google disclaimed liability for clicks older than sixty days.” These allegations, if proved, might also indicate ethical or legal misconduct.

Under what different facts might the court have held that the plaintiff did not have reasonable notice of the terms of the agreement and thus did not assent to them? Factual differences that might have supported a decision in the plaintiff’s favor in this case relate to the online presentation of the terms and the requirement of a click to proceed. For example, the court might have ruled against the defendant if, on the Web page displaying the terms, there had been no visible indication that clicking on a button meant a user agreed to the terms of the proposed contract. There might have been a similar result if the terms were visible only by scrolling to a different, hidden or submerged, screen, or if they were displayed in small gray print against a gray background. Also, if the terms were available only through a hyperlink, the court might have held to the contrary.


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