Five Easy Ways to Make Online Contracts More Enforceable
 
May 1, 2001
 

Not very long ago, it was an open question whether an agreement entered over the Internet was an enforceable contract. There were plenty of good reasons why such agreements shouldn’t be viewed any differently than agreements on paper, but there were few laws or cases that addressed the issue.

As consumers and businesses engage in billions of dollars worth of business online, electronic commerce is hardly even news anymore. Recent legislation, including the federal E-SIGN Act and the state Uniform Electronic Transactions Act, remove any doubt that electronic agreements and signatures are as enforceable as transactions on paper.

Still, the fact that electronic agreements may be enforceable in principle does not mean that a particular agreement is enforceable in practice. Here are five things you can do to increase the odds that a court will enforce an electronic agreement.

Make sure that the transaction is one that can be conducted electronically. Although E-SIGN and UETA authorize a vast range of commercial transactions, there are some exceptions. The cancellation or termination of utility services or insurance benefits, for instance, are not authorized by E-SIGN. Similarly, E-SIGN does not allow notices of default, acceleration, repossession, or eviction under a rental agreement or a credit agreement secured by a home mortgage to be sent electronically. UETA states that it does not apply to UCC transactions except those under Article 2 and 2A. Virtually all states have laws that govern the requirements for wills, codicils and testamentary trusts that are not affected by E-SIGN or UETA.

Display all of the terms of the contract. A party seeking to enforce a contract must show that there was mutual assent to the terms of the contract. If the other party does not have the opportunity to review the terms before executing it, enforcing the contract will be more difficult. Thus, it is important to display all of the terms of the contract to the other party before asking for acceptance so that the other party cannot claim that it did not know to what it was agreeing.

Many agreements cannot be displayed in a single screen. It is typically sufficient to present the contract in a manner that allows the user to scroll through the agreement. Just as many people do not read written contracts before signing them, however, many users do not take the time to scroll through an entire agreement before clicking “OK.” If the transaction is important enough – such as an agreement relating to online banking or a substantial purchase – it is worth designing the dialog box so that the user must scroll through the entire agreement before it can click “OK.” There is no way to force the reader to read and understand the agreement, but setting up the page this way at least negates the argument that the reader did not know that there were more terms than those that appeared in the first screen.

Require users to take some action that will unambiguously indicate their acceptance. Most businesses spend considerable time and resources designing their Web sites so that they are user-friendly and easy to navigate. This is a worthwhile objective, but it should not come at the expense of enforceable contracts. To avoid bombarding visitors with legalese, many Web sites include a statement that users agree, simply by using the site, to be bound to certain terms and conditions that can be found by following a link at the bottom of the page. At least one court has held, in a case involving Ticketmaster, that such terms and conditions are not enforceable because the Web site owner could not show that the user had even followed the link, let alone assented to those terms.

Obviously, it is necessary to strike a balance between ease of use and legal certainty. It may be enough to simply include a link to the terms of use, but if there are significant terms that are important to enforce, such as restrictions on deep-linking or datamining, it is worth taking the trouble to require the user to unequivocally show its assent by clicking on a button that says “I Agree” or “I Accept.” Make the user click twice, if the agreement is important enough. And if there are significant terms, such as forum selection clauses, arbitration clauses, or limitations on damages, require the user to assent separately to those. Just as written agreements will require an initial next to important paragraphs in addition to a signature at the bottom, requiring the user to select “Yes” with a radio button next to key provisions goes a long way to making those provisions enforceable.

Keep evidence of the user’s acceptance. Requiring all of these manifestations of assent is of little value if they cannot later be retrieved to prove that the user assented. Moreover, under both E-SIGN and UETA, the validity of a contract may be denied if it is not recorded in a form that is capable of being retained and reproduced.

Allow the user to download and print the agreement. Finally, just as it is important to keep your own records of the agreement, make sure that users can print out or store the agreement for their own records. If you prevent users from doing so, the agreement is likely to be unenforceable under both E-SIGN and UETA.