Online Contracting
Copyright © 2006 - Jeffrey Pittman
Historical View of Contract Law
The Code of Hammurabi
• Hammurabi was a ruler of ancient Babylon,
the world’s first metropolis
• The Code of Hammurabi is the earliest known
example of a ruler publishing for the people
an entire body of laws
• The code, carved in a stone monument,
dates to approximately 1750 B.C.
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The Code of Hammurabi
CODE OF LAWS
• 1. If any one ensnare another, putting a ban upon
him, but he can not prove it, then he that ensnared
him shall be put to death . . .
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The Code of Hammurabi
Contract Examples
• 45. If a man rent his field for tillage for a
fixed rental, and receive the rent of his field,
but bad weather come and destroy the
harvest, the injury falls upon the tiller of the
soil.
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The Code of Hammurabi
Contract Examples
• 228. If a builder build a house for some one
and complete it, he shall give him a fee of
two shekels in money for each sar of surface.
• 229 If a builder build a house for some one,
and does not construct it properly, and the
house which he built fall in and kill its owner,
then that builder shall be put to death.
• 230. If it kill the son of the owner the son of
that builder shall be put to death.
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The Code of Hammurabi
Contract Examples
• 244. If any one hire an ox or an ass, and a
lion kill it in the field, the loss is upon its
owner.
• 245. If any one hire oxen, and kill them by
bad treatment or blows, he shall compensate
the owner, oxen for oxen.
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Contract Definition
• A contract is an agreement between two or
more parties that can be enforced in a court
of law
• Contract law protects promises that have
been made, allowing commerce to function
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Electronic Contracts
• From Hammurabi’s time to today, the
methods for contracting have changed as
well as the substance of contracting
• The Internet and electronic contracts are
currently important regarding the method
and substance of contracting
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Sources of Contract Law within the United
States - the Common Law
• The common law refers to each state’s judicial
opinions in areas where statutory law is absent
• Many questions of contract law are controlled by
state common law
– For example, a state’s common law controls
questions about contract fraud,
unconscionability, capacity, consideration,
offer and acceptance, and remedies
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State Common Law
• Though states will vary on common law
rules, our common history has produced legal
similarity among the states
• The textbook presents a summary of state
common law as presented in the
Restatement Second of the Law of Contracts
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The National Conference of
Commissioners on Uniform State Laws
• The National Conference of Commissioners on
Uniform State Laws (NCCUSL) organized in the late
1800s to provide uniformity of law among the states
• After adoption of a uniform law by the NCCUSL, the
group presents the law to each state for
consideration
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The National Conference of
Commissioners on Uniform State Laws
• Until adopted (if ever) by a given state, the
proposed uniform law has no legal effect in that
jurisdiction
• One of the most successful NCCUSL projects has
been the Uniform Commercial Code
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The Uniform Commercial Code
• Drafted and proposed in 1949, 49 states have
adopted the UCC
• The UCC supplements and overrides portions of the
state’s common law, particularly UCC Article 2 on
the sale of goods (tangible, personal property)
• UCC Article 2 will apply where an e-commerce
transaction involves the sales of goods
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The Uniform Electronic Transactions Act
• Another law prepared by the NCCUSL is the Uniform
Electronic Transactions Act (UETA)
• Through 2005, 47 states and the District of
Columbia have adopted UETA
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The Uniform Electronic Transactions Act
• Primarily, UETA does the following:
– Provides for the enforceability of contracts
based in whole or part on electronic records,
messages, or media
– Defines and validates electronic signatures
– Provides that electronic records and messages
satisfy the Statute of Frauds (Under the
Statute of Frauds, state law sometimes
requires that a contract be in writing, signed
by the party refusing enforcement)
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The Uniform Electronic Transactions Act
• UETA functions (cont.)
– Provides for party authentication in electronic
transactions
– Provides for the enforceability of contracts
based on the use of electronic agents
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The Uniform Electronic Transactions Act
• A key point from UETA is that this law only applies
to transactions in which each party has agreed to
use some electronic communications
• The rules in UETA are “default” rules, meaning the
parties may agree to vary, alter, or ignore most
UETA rules
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The Electronic Signature Act
• Federal statutory law is generally silent regarding
contract law; the issue is left for state regulation
• One relevant federal statute is the Electronic
Signature Act (E-Sign Act)
– E-Sign is similar to UETA
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The United Nations Convention on the
International Sale of Goods
• Another key federal law is the United Nations
Convention on the International Sale of Goods
(CISG)
• The federal government has adopted CISG as a
treaty obligation
– CISG regulates the international sale of goods
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The United Nations Convention on the
International Sale of Goods
• CISG is model legislation drafted under the direction
of the United Nations Commission on International
Trade Law (UNCITRAL)
• The United States is a party to the CISG
• CISG applies to international sales of goods
involving participants from countries that have
adopted CISG
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Sources of Contract Law
State Law Summary
State common law
Court created rules regulating
contracts involving:
• The sale of land (real
property) – see the
following slide for property
definitions
• The sale of services, and
• The sale of intangible
personal property
State statutory law
Example - the Uniform
Commercial Code (UCC)
regulating contracts
involving the sale of
tangible, personal property
Example – The Uniform
Electronic Transactions Act
(UETA), regulating
electronic records used in
contracting
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Property Definitions
• Real property is land and buildings attached to the
land
• Personal property is everything that is not land
• Tangible property has a physical existence (you can
“touch” tangible property)
• Intangible property represents legal rights that
cannot be “touched”, for example, copyrights,
trademarks, patents, etc.
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Sources of Contract Law
Federal Law Summary
Federal Statutory Law
• E-Sign, regulating
electronic records used
in contracting
International Law
• CISG, regulating the
international sale of
goods
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Requirements for Enforceable
Contracts
An agreement must satisfy the following requirements
in order to be an enforceable contract
• Mutual Assent
– The parties must have reached an agreement,
an offer followed by an acceptance
– The assent must be genuine, not procured
through fraud or misrepresentation
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Requirements of an Offer
• Intent - offeror is serious, not joking, and intends to be bound
by the offer
– Note the rules regarding advertisements and auctions
– E-Bay auctions are generally without reserve
• Definite – the offer has reasonably certain and definite terms
• Communication – the offer is communicated to the offeree,
either actually or constructively
– Constructive communication is a reasonable attempt at
communicating the offer terms, e.g., a prominent notice,
effectively placed, on a Web site
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Requirements of an Acceptance
• Acceptance is a voluntary agreement to be
bound by the terms of the offer
• Silence generally is not viewed as acceptance
• Silence may be a valid acceptance when the
parties have so agreed in advance, either
explicitly or through custom or prior behavior
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Requirements for Enforceable
Contracts
• Consideration - each party must exchange or
promise to exchange with the other side something
of legal value
• Using a simplified method, the requirement of
consideration means that each party must suffer a
“detriment” with his/her promise
– A detriment occurs with a promise to do
something the promisor had no duty to do, or
a promise to give up a legal right
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Consideration Example
Tom promises to sell
a trademark to Acme Manufacturing,
a promise that he had no prior
legal duty to perform
Acme promises to pay $
for the trademark, a promise
The company had no prior legal
duty to perform
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Requirements for Enforceable
Contracts
• Capacity - each contractual party must have
the ability to understand the import of their
promises
– Minors and intoxicated individuals have
limited capacity
– The Internet poses interesting questions in
verifying capacity
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Requirements for Enforceable
Contracts
• Legality - agreements must have a legal purpose
– For example, agreements to fix prices
between competitors, or agreements that are
extremely unfair –unconscionable- are illegal
and unenforceable
– Exculpatory clauses are unenforceable unless
agreed to in areas that involve goods and
services that are optional, not necessary for
the purchaser
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Requirements for Enforceable
Contracts
• Written Form – under U.S. law, some
agreements must be in writing and signed to
be enforceable
• Most contracts are not required to be in
written form
– See CISG Article 11 for an example of
international law regarding form
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What Contracts Must Be in Writing?
The United States
– Under the common law statute of frauds, the
following contracts must be in writing
• Contracts that involve an interest in land (real
property)
• Contracts that cannot be performed in less than
one year
• Promises to pay the debt of another
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What Contracts Must Be in Writing?
– Under the UCC, the following contracts must
be in writing
• Contracts for the sale of tangible goods, $500 or
greater
• Contracts for the lease of tangible goods, $1000 or
greater
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Complying with the Statue of Frauds
• When the statute of frauds applies to a
contract, there must be some written
evidence that
– Identifies the parties to the agreement,
– Specifies the essential terms of the
agreement, and
– Is signed by the party against whom
enforcement is sought
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What constitutes a signature?
• Name, initials, or other symbol, as long as
the party intends for the used mark to
authenticate the writing
• Note that UETA allows the use of electronic
signatures to satisfy the statute of frauds
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Warranties
• In the United States, warranty law is
governed by the UCC, Sections 2-313
through 2-316, regarding the sale of goods
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