Quiz 14: E-Contracts and E-Signatures

Alberto Corelli offers to purchase for $2,500 a painting titled Moonrise from Tara Shelley, an artist whose works have been causing a stir in the art world. Shelley accepts Corelli's offer. Assuming that the contract has met all of the requirements for a valid contract, answer the following questions. CoreIli was a minor when he purchased the painting. Is the contract void? Is it voidable? What is the difference between these two concepts? A month after his eighteenth birthday, CoreIli decides that he would rather have the $2,500 than the painting. He informs Shelley that he is disaffirming the contract and requests that Shelley return the $2,500 to him. When Shelley refuses to do so, Corelli brings a court action to recover the $2,500. What will the court likely decide in this situation? Why?

What are some important clauses to include when making offers to form electronic contracts, or e-contracts?

Click-On Agreements. Paul is a financial analyst for King Investments, Inc., a brokerage firm. He uses the Internet to investigate the background and activities of companies that might be good investments for King's customers. While visiting the Web site of Business Research, Inc., Paul sees on his screen a message that reads, "Welcome to businessresearch.com. By visiting our site, you have been entered as a subscriber to our e-publication, Companies Unlimited. This publication will be sent to you daily at a cost of $7.50 per week. An invoice will be included with Companies Unlimited every four weeks. You may cancel your subscription at any time. Has Paul entered into an enforceable contract to pay for Companies Unlimited? Why or why not?

What was the majority's conclusion on the issue before the court in this case? What was the reasoning to support this conclusion?

E-Contracts and E-Signatures Ted and Betty Hyatt live in California, a state that has extensive statutory protection for consumers. The Hyatts decided to buy a computer so that they could use e-mail to stay in touch with their grandchildren, who live in another state. Over the phone, they ordered a computer from CompuEdge, inc. When the box arrived, it was sealed with a brightly colored sticker warning that the terms enclosed within the box would govern the sale unless the customer returned the computer within thirty days. Among those terms was a clause that required any disputes to be resolved in Tennessee state courts. The Hyatts then signed up for Internet service through CyberTool, an Internet service provider. They downloaded CyberTool's software and clicked on the "quick install" box that allowed them to bypass CyberTool's "Terms of Service" page. It was possible to read this page by scrolling to the next screen, but the Hyatts did not realize this. The terms included a clause that stated all disputes were to be submitted to a Virginia state court. As soon as the Hyatts attempted to e-mail their grandchildren, they experienced problems using CyberTool's e-mail service, which continually stated that the network was busy. They also were unable to receive the photos sent by their grandchildren. Using the information presented in the chapter, answer the following questions. 1. Did the Hyatts accept the list of contract terms included in the computer box? Why or why not? What is the name used for this type of e-contract? 2. What type of agreement did the Hyatts form with CyberTool? 3. Suppose that the Hyatts experienced trouble with the computer's components after they had used the computer for two months. What factors will a court consider in deciding whether to enforce the forum-selection clause? Would a court be likely to enforce the clause in this contract? Why or why not? 4. Are the Hyatts bound by the contract terms specified on CyberTool's "Terms of Service" page that they did not read? Which of the required elements for contract formation might the Hyatts' claim lack? How might a court rule on this issue?

The following multiple-choice question is representative of the types of questions available in one of the four sections of ThomsonNOW for Business Law Today. ThomsonNOW also provides feedback for each response option, whether correct or incorrect, and refers to the location within the chapter where the correct answer can be found. The federal Electronic Signatures in Global and National. Commerce Act (E-SIGN Act) of 2000 A) applies to all documents requiring signatures. B) applies only to agreements governed by the Uniform Commercial Code (UCC). C) is a uniform law that must be adopted by the, states before it becomes effective. D) provides that no contract, record, or signature can be denied legal effect solely because it is in electronic form.

Alberto Corelli offers to purchase for $2,500 a painting titled Moonrise from Tara Shelley, an artist whose works have been causing a stir in the art world. Shelley accepts Corelli's offer. Assuming that the contract has met all of the requirements for a valid contract, answer the following questions. Both parties are adults, the contract is oral, and the painting is still in progress. CoreIli pays Shelley the $2,500 in return for her promise to deliver the painting to his home when it is finished. A week or so later, after Shelley finishes the painting, a visitor to her gallery offers her $3,500 for it. Shelley sells the painting to the visitor and sends CoreIli a signed letter explaining that she is "canceling" their contract for the Moonrise painting. Corelli sues Shelley to enforce the contract. Is the contract enforceable? Explain.

How do shrink-wrap and click-on agreements differ from other contracts? How have traditional laws been applied to these agreements?

Online Acceptance. Anne is a reporter for Daily Business Journal, a print publication consulted by investors and other businesspersons. She often uses the Internet to perform research for the articles that she writes for the publication. While visiting the Web site of Cyberspace Investments Corp., Anne reads a pop-up window that states, "Our business newsletter, E-Commerce Weekly, is available at a one-year subscription rate of $5 per issue. To subscribe, enter your e-mail address below and click 'SUBSCRIBE.' By subscribing, you agree to the terms of the subscriber's agreement. To read this agreement, click 'AGREEMENT.' " Anne enters her e-mail address, but does not click on "AGREEMENT" to read the terms. Has Anne entered into an enforceable contract to pay for E-Commerce Weekly? Explain. (See page 252.)

On what points did the dissent disagree with the majority? Why?

Alberto Corelli offers to purchase for $2,500 a painting titled Moonrise from Tara Shelley, an artist whose works have been causing a stir in the art world. Shelley accepts Corelli's offer. Assuming that the contract has met all of the requirements for a valid contract, answer the following questions. Both parties are adults, and the contract, which is in writing, states that CoreIli will pay Shelley the $2,500 the following day. In the meantime, Shelley allows CoreIli to take the painting home with him. The next day, Corelli's son returns the painting to Shelley, stating that he is canceling the contract. He explains that his father has been behaving strangely lately, that he seems to be mentally incompetent at times, and that he clearly was not acting rationally when he bought the painting, which he could not afford. Is the contract enforceable? Discuss fully.

What is an electronic signature? Are electronic signatures valid?

Online Acceptance. Bob, a sales representative for Central Computer Co., occasionally uses the Internet to obtain information about his customers and to look for new sales leads. While visiting the Web site of Marketing World, Inc, Bob is presented with an on-screen message that offers, "To improve your ability to make deals, read our monthly online magazine, Sales Genius, available at a subscription rate of $15 a month. To subscribe, fill in your name, company name, and e-mail address below, and click YES!' By clicking 'YES!' you agree to the terms of the subscription contract. To read this contract, click TERMS.'" Among those terms is a clause that allows Marketing World to charge interest for subscription hills not paid within a certain time. The terms also prohibit subscribers from copying or distributing part or all of Sales Genius in any form. Bob subscribes without reading the terms. Marketing World later files a suit against Bob, based on his failure to pay for his subscription. Should the court hold that Bob is obligated to pay interest on the amount? Explain.

ETHICS. At David's suggestion, before signing the prenuptial agreement, Victoria consulted an attorney who was an associate of the same law firm as David's sister-in-law. David paid his attorney more than $5,000 for working on the agreement. Victoria sent her attorney, again at David's suggestion, two bottles of wine as compensation. I low do you interpret these circumstances?

Alberto Corelli offers to purchase for $2,500 a painting titled Moonrise from Tara Shelley, an artist whose works have been causing a stir in the art world. Shelley accepts Corelli's offer. Assuming that the contract has met all of the requirements for a valid contract, answer the following questions. Both parties are adults, and the contract is in writing. The contract calls for Shelley to deliver the painting to Corelli's gallery in two weeks. CoreIli has already arranged to sell the painting to a third party for $4,000, for a $1,500 profit, but it must be available for the third party in two weeks or the sale will not go through. Shelley knows this but does not deliver the painting at the time promised. Corelli sues Shelley for $1,500 in damages. Shelley claims that performance was impossible because her mother fell seriously ill and required Shelley's care. Who will win this lawsuit, and why?

What is a partnering agreement? What purpose does it serve?

Browse-Wrap Terms. Ticketrnaster Corp. operates a Web site that allows customers to buy tickets to concerts, ball games, and other events. On the site's home page are instructions and an index to internal pages (one page per.event). Each event page provides basic information (a short description of the event, with the date, time, place, and price) and a description of how to order tickets over'ver the Internet, by tele-phone, by mail, or in person. The home page contains-if a customer scrolls to the bottom-"terms and conditions" that proscribe, among other things, linking to Ticketmaster's internal pages. A customer need not view- these terms to go to an event page. Tickets.Com; Inc., operates a Web site that also publicizes special events. Tickets.Com's site includes links to the internal events pages of Ticketmaster. These links bypass Tickehnaster's borne page. Ticketinaster filed a suit in a federal district court against Tickets.Com, alleging, in part, breach of contract on the ground that Tickets.Com's linking violated Ticketmaster's "terms and conditions." Tickets.Com filed a motion to dismiss. Was Tickets.Com bound by the "terms and conditions" posted on Ticketmaster's home page? Why or why not? How should the court rule on the motion? [Ticketrnaster Corp. v. Tickets.Com, Inc., F.Supp.2d ' (C.D.CaI. 2000)]

CULTURAL DIMENSIONS. What does this case indicate about the status of women?

Alberto Corelli offers to purchase for $2,500 a painting titled Moonrise from Tara Shelley, an artist whose works have been causing a stir in the art world. Shelley accepts Corelli's offer. Assuming that the contract has met all of the requirements for a valid contract, answer the following questions. Both parties are adults, and Shelley, on her Web site, offers to sell the painting for $2,500. CoreIli accepts the offer by clicking an "I accept" box on the computer screen displaying the offer. Among other terms, the online offer includes a forum-selection clause stating that any disputes under the contract are to be resolved by a court in California, the state in which Shelley lives. After Corelli receives the painting, he notices a smear of paint across the lower corner of the painting that was not visible in the digitized image that appeared on Shelley's Web site. CoreIli calls Shelley, tells her about the smear, and says that he wants to cancel the contract and return the painting. When Shelley refuses to cooperate, CoreIli sues her in a Texas state court, seeking to rescind the contract. Shelley claims that any suit against her must be filed in a California court in accordance with the forum-selection clause. Corelli maintains that the forum-selection clause is unconscionable and should not be enforced. What factors will the court consider in deciding this case? What will the court likely decide? Would it matter whether Corelli read the terms of the online offer before clicking "I accept"?

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text. What is the Uniform Electronic Transactions Act? What are some of the major provisions of this act?

Click-On Agreements. America Online, Inc. (AOL), provided e-mail service to Walter Hughes and other members under a click-on agreement titled "Terms of Service." This agreement consisted of three parts: a "Member Agreement," "Community Guidelines," arid a "Privacy Policy." The "Member Agreement" included a forum-selection clause that read, "You expressly agree that exclusive jurisdiction for any claim or dispute with AOL or relating in any way to your membership or your use of AOL resides in the courts of Virginia." When Officer Thomas McMenamon of the Methuen, Massachusetts, Police Department received threatening e-mail sent from an AOI, account, he requested and obtained from AOL Hughes's name and other personal information. Hughes filed a suit in a federal district court against AOL, which filed a motion to dismiss on the basis of the forum-selection clause. Considering that the clause was a click-on provision, is it enforceable? Explain. [Hughes v. McMenamon, 204 F.Supp.2d 178 (D.Mass. 2002)]

IMPLICATIONS FOR THE INVESTOR. Litigating a dispute through a trial and an appeal is expensive. How might a party in David's position avoid the cost?

Shrink-Wrap Agreements/Browse-Wrap Terms. Mary DeFontes bought a computer and a service contract from Dell Computers Corp. DeFontes was charged 5950.51, of which $13.51 was identified on the invoke as "tax." This amount was paid to the state of Rhode Island. DeFontes and other Dell customers filed a suit in a Rhode Island state court against Dell, claiming that Dell was overcharging its customers by collecting a tax on service contracts and transportation costs. Dell asked the court to order DeFontes to submit the dispute to arbitration. Dell cited its "Terms and Conditions Agreement," which provides in part that by accepting delivery of Dell's products or services, a customer agrees to submit any dispute to arbitration. Customers can view this agreement through an inconspicuous link at the bot-torn of Dell's Web site, and Dell encloses a copy with an order when it is shipped. Dell argued that DeFontes accepted these terms by failing to return her purchase within thirty days, although the agreement did not state this. Is DeFontes bound to the "Terms and Conditions Agreement"? Should the court grant Dell's request? Why or why not? [DeFontes v. Dell Computers Corp., ___ (R.I. 2004)]

Case Problem with Sample Answer. Stewart Lamle invented "Farook," a board game similar to Tic Tac The. In May 1996, Lamle began negotiating with Mattel, Inc., to license Farook for distribution outside the United States. On June 11, 1997, the parties met and agreed on many terms, including a three-year duration, the geographic scope, a schedule for payment, and a royalty percentage. On June 26, Mike Bucher, a Mattel employee, sent Lamle an c-mail titled "Farook Deal" that repeated these terms and added that they "Wye] been agreed [to]... by... Mattel subject to contract.... Best regards Mike Bucher!' Lank faxed Mattel a more formal draft of the terms, but Mattel did not sign it. Mattel displayed Farook at its "Pre-Toy Fah" in August. After the fair, Mattel sent Lamle a fax saying that it no longer wished to license his game. Lamle filed a suit in a federal district court against Mattel, asserting, in part, breach of contract. One of the issues was whether the parties had entered into a contract. Could Bucher's name on the June 26 e-mail be considered a valid signature under the Uniform Electronic Transactions Act (UETA)? Could it be considered a valid signature outside the UETA? Why or why not? [Lamle v. Mattel, Inc., 394 F.3d 1355 (Fed.Cir. 2005)]

Online Acceptances. Internet Archive (IA) is devoted to pre-serving a record of resources on the Internet for future generations. lA uses the "Wayback Machine" to automatically browse Web sites and reproduce their contents in an archive. IA does not ask the owners' permission before copying their material but will remove it on request. Suzanne Shell, a resident of Colorado, owns www.profane-justice.org, which is dedicated to providing information to individuals accused of child abuse or neglect. The site warns, "IF YOU COPY OR DISTRIBUTE ANYTHING ON THIS SITE, YOU ARE ENTERING INTO. A CONTRACT." The terms, which can be accessed only by clicking on a link, include, among other charges, a fee of $5,000 for each page copied "in advance of printing." Neither the warning nor the terms require a user to indicate assent. When Shell discovered that the Wayback Machine had copied the contents of her site-approximately eighty-seven tunes between May 1999 and October 2004-she asked IA to remove the copies from its archive and pay her $100,000. IA removed the copies and filed a suit in a federal district court against Sliell, who responded in part with a counterclaim for breach of contract. IA filed a motion to dismiss this claim. Did IA contract with Shell? Explain. [Internet Archive. v. Shell, F.Supp.2d (D.Colo. 2007)]

A Question of Ethics. In 2000 and 2001, Dewayne Hubbert, Elden Craft, Chris Grout, and Rhonda Byington bought computers from Dell Corp. through its Web site. Before buying, Hubbert and the others configured their own computers. To make a purchase, each buyer completed forms 072 five Web pages. On each page, Dell's "Terms and Conditions of Sale" were accessible by clicking on a blue hyperlink. A statement on three of the pages read, "All sales are subject to Dell's Tern-ifs} and Conditions of Sale," but a buyer was not required to click an assent to the terms to complete a purchase. The terms were also printed on the backs of the invoices and on separate documents contained in the shipping boxes with the computers. Among those terms was a "Binding Arbitration" clause. The computers contained Pentium 4 micro-processors, which Dell. Advertised as the fastest, most powerful Pentium processor available. In 2002, Hubbert and the others filed a suit in an Illinois state court against Dell, alleging that this marketing was false, misleading, deceptive. The plaintiffs claimed that the Pentium 4 micro-processor was slower and less powerful, and provided less performance, than either a Pentium HI or an AMD Athlon, and at a greater cost. Dell asked the court to compel arbitration [Hubbert v. Dell Corp., 359 111.App.3d 976, 835 Ar.E.2d 113, 296Wnec. 258 (5 Dist. 2005) 1. Should the court enforce the arbitration clause in this case? If you were the judge, how would you rule on this issue? 2. In your opinion, do shrink-wrap, click-on, and browse-wrap terms impose too great a burden on purchasers? Why or why not? 3. An ongoing complaint about shrink-wrap, click-on, and browse-wrap terms is that sellers (often large corporations) draft them and buyers (typically individual consumers) do not read them. Should purchasers be bound in contract by terms that they have not even read? Why or why not?

Critical Thinking and Writing Assignment for Business. Delta Co. buys accounting software from Omega Corp. On the out-side of the software box, on the inside cover of the instruction manual, and on the first screen that appears each time the pro-gram is accessed is a license that claims to cover the use of the product. The license also includes a limitation on Omega's liability arising from the use of the software. One year later, Delta discovers that the software contains a hug that has caused Delta to incur a financial loss. Delta files a lawsuit against Omega. Is the limitation-of-liability clause enforceable?

Video Question. Co to this text's Web site at www.thomsonedu.com/westbuslawfbtand select "Chapter 14." Click on "Video Questions" and view the video titled E-Contracts: Agreeing Online. Then answer the following questions. 1. According to the instructor in the video, what is the key factor in determining whether a particular term in an online agreement is enforceable? 2. Suppose that you click on "I accept" in order to download software from the Internet. You do not read the terms of the agreement before accepting it, even though you know that such agreements often contain forum-selection and arbitration clauses. The software later causes irreparable harm to your computer system, and you want to sue. When you go to the Web site and view the agreement, however, you discover that a choice-of-law clause in the: contract specified that the law of Nigeria controls. Is this term enforceable? Is it a term that should reasonably be expected in an online contract? 3. Does it matter what the term actually says if it is a type of term that one could reasonably expect to be in the con-tract? What arguments can be made for and against enforcing a choice-of-law clause in an online contract?