AALS Annual Meeting, New Orleans, Louisiana     January 2-6, 2002
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Saturday, January 5, 2002
1:30-3:00 p.m.
Joint Program of Sections on Commercial and Related Consumer Law and Contracts


Logic and Experience of Electronic Contracts: Implications for Teaching Commercial Law and Contracts

Mark E. Budnitz
Georgia State University

Note: The following are excerpts from materials I have prepared for students in my Sales class.

I. OFFER AND ACCEPTANCE OVER THE INTERNET IN CONSUMER TRANSACTIONS

A. Introduction

There is currently a major controversy among those involved in drafting uniform state laws over what conduct by consumers should constitute their acceptance of the terms and conditions of agreements relating to sales over the Internet. Some object to a rule which would bind the consumer when the only conduct of the consumer is “point and click.”

It is important for sellers and consumer buyers to know if and when a contract is formed, because prior to that time neither party is bound and either can refuse to complete the transaction. This is a significant consumer right. The online consumer may want to get out of the transaction even though she has selected some items for purchase and clicked on various buttons with vague labels. For example, at a late stage in the checkout cycle she may for the first time learn of exorbitant shipping charges or of a no return policy. She may be told that if she decides to return the goods she must ship them to Oregon in their original containers rather than returning them to the seller’s brick and mortar store located close to where the consumer lives or works. Perhaps she gets worried about the absence on the site of the seller’s address or a customer service phone number. While online waiting for pages to download she may check her daily newspaper and find a better deal advertised by another seller. For all of these reasons and more, the consumer needs to know at what point she is bound and can no longer back out of the transaction.1

Even if the consumer agrees to be bound to the contract, many sites put the contract’s terms and conditions in places where they are difficult to find. Is a consumer bound by a term which can be located only if the consumer clicks on several successive links, the first one or more of which do not clearly indicate they will eventually lead to the term or condition in question?

At the present time, most Web purchases by consumers are not for substantial sums. However, as more consumers purchase expensive goods such as computers online, both consumers and sellers have significant stakes in the issues surrounding contract formation.

B. Formation of contracts: Applicable Law

Restatement: “Manifestation of mutual assent” is required to form a contract. It is present when each party either makes a promise or begins performance; a contract may be in writing or formed by oral statements, acts, or failure to act. “The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.”2 If a party’s conduct manifests assent but he did not in fact assent, the contract is avoidable because of his mistake.3

Uniform Commercial Code (UCC): Sale of goods. “A contract...may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.”4 A court may find that a contract was formed even though it cannot determine the moment when it was formed.5 A contract is formed even though it is indefinite because some terms are left out, as long as the court has enough information to order an appropriate remedy.6 Unless language or circumstances unambiguously indicate otherwise, an offer to make a contract invites “acceptance in any manner and by any medium reasonable in the circumstances.”7

Uniform Computer Information Transactions Act (UCITA): “A person manifests assent to a record or term if the person, acting with knowledge of, or after having an opportunity to review the record or term or a copy of it...intentionally engages in conduct or makes statements with reason to know that the other party or its electronic agent may infer from the conduct or statement that the person assents to the record or term.”8

C. Offer & Acceptance: Scenarios From Web Sites9

Consider the following descriptions of popular Web sites and visit the sites yourself. The descriptions are based on a survey conducted the week of December 13, 1999. Some pages may have been changed since then.

1. Walmart I

Consumer shops; at checkout reviews selected items, clicks on “Complete” button, has an opportunity to verify or change delivery address and select payment method, clicks on “Proceed” button which transmits order. Walmart sends e-mail “confirming transmission and receipt of your order.”

When a consumer shops at a physical store, cases hold that the seller makes an offer when he places goods on the shelf. The consumer accepts when he takes the goods off the shelf with the intention of paying for them. Fender v. Colonial Stores, 138 Ga. App. 31, 225 S.E.2d 691 (1976)(contract to sell goods at a future time; follows analysis of Giant Food); Giant Food v. Washington Coca Cola Bottling Co., 332 A.2d 1 (Ct. App. Md. 1975)(fact that consumer has option of changing her mind before paying indicates only that the agreement of the parties permits the consumer to end the contract irrespective of the seller’s breach; it does not indicate that a contract has not been formed). Accord, Barker v. Allied Supermarket, 596 P.2d 870 (Okla. 1979); Seigel v. Giant Food, 20 Md. App. 611, 318 A.2d 874 (1974). See Porter v. Pfizer Hosp. Products Group, 783 F. Supp. 1466 (D. Me. 1992)(formation of contract even though buyer was never billed for the goods).

When a consumer shops at a Web site, does the seller make an offer by displaying goods for sale on the site? Is that display the equivalent of placing goods on the shelf? If that is a correct analysis, then does the Walmart shopper accept the offer when she clicks on the “Complete” button? Does clicking on “Complete” mean the consumer has finished with her part of forming the contract and consequently has accepted? Alternatively, perhaps the consumer has not accepted until she clicks on the “Proceed” button because until then the order is not transmitted.

2. Walmart II
www.walmart.com

In January, 2000, Walmart redesigned its Web site. Now, instead of clicking on “Proceed,” the consumer clicks on a button labeled “Send Order to Wal-Mart.” Under “Frequently Asked Questions,” the consumer is told: “Due to the timeliness of transmitting orders, once an order has been placed, it cannot be canceled. However, orders can be returned to any of our stores.” (With certain exceptions, goods can be returned within certain time limits, if the consumer is “dissatisfied.”) Although the consumer cannot cancel her order after clicking on the “Send Order” button, the seller can cancel if the consumer chose to pay by check or money order and payment is not received within 14 days of placing the order. (UCC § 2-703(f) provides the seller with the remedy of cancellation when the buyer fails to pay when due or before delivery.)

Labeling the button “Send Order to Wal-Mart” certainly is more descriptive, and therefore more informative, than “Complete” or “Proceed.” But does this mean that sites using non-descriptive terms such as “Proceed” and “Complete” are vulnerable to the consumer’s claim that clicking on that button should not constitute acceptance by the consumer because it is too vague to manifest an intention to be bound?

Does use of the term “order” in Walmart II instead of the term “complete” it used in Walmart I change the analysis? Is it reasonable for a consumer to believe that “order” means an offer? Under this analysis, the seller displaying goods on the site is merely inviting the consumer to make an offer. Clicking on “Send Order to Wal-Mart” is the consumer’s offer. The seller accepts by sending an e-mail confirmation or by performance (delivery of the goods).

Apparently Walmart intends that clicking on the “Send Order” button constitutes consumer acceptance and not the consumer’s offer, because the consumer has no right to cancel after that click. If clicking on that button constituted the consumer’s offer, the consumer would be able to cancel at any time until the seller accepted.

The consumer, however, has the right to return the goods even though the seller has not committed any breach. Is this analogous to the “change of mind” example in the Giant Food case noted in the discussion of Walmart I? That is, the right to return irrespective of fault does not negate the formation of a contract which occurred when the consumer accepted by clicking on the button.

3. Lands’ End
www.landsend.com

Consumer shops; at checkout clicks on “Send it in” button. A page on the site explains: “When you’re all through, click on the ‘Send it in’ button and the order will be submitted to us...[Y]ou can reconsider your selections-right up to the point when you’ve made a final decision and clicked on the ‘Send it in’ button.”

By using the term “final decision” the seller seems to be informing the consumer that when she clicks on the “Send it in” button, the consumer is accepting the seller’s offer. “Final decision” seems to imply that clicking on the button results in the consumer being bound.

4. Macys
www.macys.com

Consumer shops; at checkout clicks on “Complete Order On-Line” button which causes a screen to display her order. Shopper is instructed to click on “Charge It” button to “complete your transaction.”

If we follow the Giant Food analysis, it appears the consumer accepts the seller’s offer by clicking on “Complete Order On-Line.” According to that decision and others, a contract is formed as long as the buyer has selected the goods and intended to pay, even if no payment was made. Before the consumer clicks on “Charge It,” the consumer is already bound and is merely indicating a payment method.

Alternatively, the consumer accepts only when she clicks on “Charge It.” While the first button must be clicked to complete the consumer’s “order,” the second button must be clicked to complete the “transaction.” That difference in language could be interpreted to mean the second click is what completes the transaction in the sense of completing the formation of a contract and binding the consumer.

5. Amazon
www.amazon.com

At checkout, shopper is told: “Your order is not complete until you click here.” Shopper is directed by an arrow to click on the “Place Your Order” button. After that button is clicked, Amazon sends an e-mail confirmation.

Does the consumer accept by clicking on the “Place Your Order” button? Or is the seller the one accepting when it sends the confirmation? If the latter is true, the consumer can cancel at any time before she receives the confirmation.

6. eToys
www.etoys.com (now merged with www.kbkids.com)

At checkout, consumer clicks on “Submit Order” button. Site displays a page “confirming your order and giving you an order number...We will also confirm your order via e-mail within 24 hours.” eToys’ terms and conditions include the following:

The receipt of an e-mail order confirmation does not constitute the acceptance of an order or a confirmation of an offer to sell. Etoys reserves the right, without prior notification, to limit the order quantity on any item and/or refuse service to any customer. Verification of information may be required prior to the acceptance of any order.

By stating that the consumer’s receipt of a confirmation does not constitute the acceptance of an order, the seller seems to be saying that its sending of the confirmation does not constitute the seller’s acceptance of the consumer’s order. By talking in terms of the seller’s acceptance of an order, it appears the consumer’s order is regarded as the consumer’s offer. The terms and conditions also state that the e-mail is not “a confirmation of an offer to sell.” Does this mean it is not a confirmation by the seller of the consumer’s offer to sell, or does it mean it is not a confirmation of the seller’s offer to sell? Finally, the seller reserves the right to refuse service to any consumer. Perhaps the effect of all of this is that the consumer’s order is the consumer’s offer, and the seller does not accept until the seller actually ships the goods. If that is the correct analysis, the consumer has the right to withdraw her offer at any time up until shipment.

7. MagazineCity
www.magazinecity.net

At checkout, shopper has choice of clicking on either “Yes: Place Order,” or “No. Do Not Order.” If the consumer clicks on the Yes button, the seller sends e-mail which states: “We will prepay your order to the publishers within 24 hours, after which time the order will not be subject to cancellation.”

The seller provides the consumer with 24 hours in which to cancel. This might mean that the seller makes the offer and the consumer accepts if she does not cancel before expiration of the 24 hour cancellation period. (Under the Restatement, failure to act can result in formation of a contract.) Alternatively, under a Giant Food analysis, perhaps the seller made the offer and the consumer accepted by placing her order. Under Giant Food, the consumer’s opportunity to cancel for up to 24 hours for any reason does not negate the prior formation of a contract. A third alternative: The e-mail sent to the consumer states, “This e-mail is to confirm and thank you for your recent order.” Arguably, the consumer’s order was the offer and the seller accepted by sending the e-mail confirmation.

II. WHAT TERMS BIND THE CONSUMER?

A. The Problem

Where the consumer and the seller have formed a contract, both parties are bound to that contract. However, there may be a question as to what the terms of the contract are. This problem arises in the context of Web sales because of the manner in which sellers disclose the terms and conditions which apply to the transaction. Sellers disclose terms and conditions on Web sites by providing links from the home page and other pages to additional pages that contain the disclosures, or to pages that in turn contain links to pages that contain the disclosures. For example, the former eToys home page did not contain any link to terms and conditions. If the consumer clicks on the “help” link, however, she will find links to 36 pages. Under the category “additional topics” is a link called “Terms of Use.”

The UCC requires that written disclaimers of implied warranties be conspicuous.10 Is a disclaimer conspicuous if the consumer must click on three links to get to the disclaimer? Is a disclaimer conspicuous if it is displayed in large upper case letters on the screen, but is barely visible when printed onto paper?

UCITA provides that there is manifestation of assent to terms only if there is an opportunity for review.11 UCITA contains a Comment which provides a standard for whether terms and conditions on a Web site are available for review. “If access to [the terms] is so time-consuming or cumbersome as to effectively preclude review,” there is no manifestation of assent to those terms.12

The author’s survey of Web sites revealed that some required extensive searching to discover the terms and conditions. Moreover, sometimes there were inconsistencies in the stated terms from one page to another. In addition, some pages were designed so that it was not possible to print legible paper copies of the terms.

III. STATUTE OF FRAUDS AND E-SIGN ACT HYPOS

HYPO 1

Sarah goes to the Dresses4U Web site and selects a dress costing $700 and puts it into her virtual shopping cart. She clicks on a button which says: “Proceed to payment options” where she is given the choice of paying by Visa or Mastercard credit cards. At that point Sarah changes her mind and decides she does not want to buy the dresses because she carries only American Express.

The seller delivers the dress anyway and demands payment, claiming Sarah obligated herself by signing when she clicked on the “Proceed” button.

Can Sarah use UCC 2-201 and/or the E-Sign Act in her defense?

HYPO 2

Sarah goes to the Dresses4U Web site. She buys a $700 dress. The site contains a document titled “Agreement” which includes a disclaimer of implied warranties including the implied warranty of merchantability. UCC 2-316(2) provides that, if a disclaimer of the implied warranty of merchantability is in writing, it must be conspicuous. (A disclaimer of an implied warranty means, in effect, that the buyer has waived any right to enforce that warranty.) The disclaimer on the Web site is in tiny 6 point type. (This is what 6 point type looks like.)

The dress is delivered. Sarah cleans it, precisely following the cleaning instructions on the tag in the dress. The dress shrinks to ½ its original size. This constitutes a breach of the implied warranty.

The seller claims it has an enforceable valid disclaimer of the warranty.

Does an agreement on a Web site meet the requirements of 2-201? Does the agreement come within the UCC’s definition of “written?” UCC 1-201(46).

What is the effect of the E-Sign Act?

What is the effect of the E-Sign Act on the “conspicuous” requirement of the UCC?


1. As discussed below (e.g., Walmart II, MagazineCity), the seller may structure the transaction so that even after a contract has been formed, the consumer may be able to get out of the transaction (e.g., by returning the goods pursuant to a ‘satisfaction guaranteed’ policy), and the seller may be able to cancel (e.g., if the seller does not receive the consumer’s check within the required time period).
2. Restatement (Second) Contracts, $#167; 19(1) (1981).
3. Restatement (Second) Contracts, $#167;$#167; 17-19 (1981).
4. UCC $#167; 2-204(1).
5. UCC $#167; 2-204(2).
6. UCC $#167; 2-204(3).
7. UCC $#167; 2-206(1)(b).
8. UCITA $#167; 112. UCITA applies only to computer information transactions, which are defined as agreements to create, modify, transfer, or license computer information. Computer information is information in electronic form which is obtained from or through the use of a computer or which can be processed by a computer. $#167; 102. Whether or not UCITA applies to a given transaction, it provides a useful model for analyzing Web sales and will likely influence judges where applicable law is not explicit on an issue in controversy.
9. The description of Web sites reflects their content and format as of the dates in December, 1999 when they were visited. These sites change substantially over time. Auction sites were not included in the survey and pose their own set of contract formation issues.
10. UCC $#167; 2-316(2).
11. UCITA $#167; 112. See supra note 8.
12. UCITA $#167; 112, Comment 8.


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