Adapting contract law to accommodate electronic contracts: overview and suggestions.

• Author: Kidd, Donnie L., Jr.
• Position: E-commerce

1. INTRODUCTION

   Law is not a static body of inflexible rules and unyielding tradition. The dynamism of contemporary economic, cultural, and technological evolution requires the law to adapt itself to modern demands. Attempts to graft archaic legal systems onto ever-changing circumstances result in a struggle to conform novel issues into an out-dated legal framework.(1) Currently, courts and legislatures are facing issues raised by business conducted over the Internet. Failing to blanket current developments, old law leaves new problems exposed for litigation and requires attorneys and judges to explore uncharted seas of legal complexity.

   Although the continued application of traditional laws that are unresponsive to changes in the underlying society may promote injustice, a judicial activism that randomly develops "new law" to remedy inadequacies is equally deficient. When confronted with modern problems left unaddressed by existing law, a "rapid solution" is to create novel law to fit the situation. The American legal system, however, relies upon precedent and a coherent, predictable body of authority. Rather than granting arbitrary discretion to create law as needed on a case-by-case basis, the American legal regime requires application of prior law by analogizing existing authority to the issues in question. This process leads to an adaptation of the law through stretched analogies that construct a bridge between prior authority and novel legal problems.

   A theory of adaptation presumes that the existing legal framework can be structured to fit novel circumstances that arise. This presumption implicitly requires that new issues can be analogized to issues already addressed by the current law.(2) Further, adaptation recognizes that politics, culture, and technology are forces that shape the social environment and the law that governs it. If the political, cultural, and technological climate remains stable, the law adapts gradually over time as circumstances remain unchanged. Stability promotes only minor variations of existing legal issues that the law can address by analogy without warping the framework. If a force that shapes society and its law rapidly changes, however, new fundamental issues may arise that do not fit within the traditional legal framework that developed under much different circumstances. At this juncture, in recognition of altered circumstances, courts and legislatures must choose to apply existing law blindly, create new law, or adapt existing law by analogy.

   The history of America alone contains numerous instances when rapid alterations in the social fabric forced adaptations of the law. Following the American Revolution, the democratic government developed a legal system to reflect the new political environment, but did so through adaptation of English law. During the nineteenth century, the Industrial Revolution introduced powerful technologies that rapidly precipitated economic and cultural changes.(3) Although this era witnessed several new legal theories, including the creation of corporations and the evolution of tort law, the changes arose through adaptation by analogizing existing law to new circumstances. The Great Depression of the 1930s led to expansion of the role of federal government. Cultural revolution during the 1960s emphasized racial and gender equality, promoting affirmative action programs, as well as recognition of environmental concerns.

   The Information Age has introduced unprecedented technological development. Following the millennia of an agrarian-based society, the Industrial Age centralized communities and economies in local factories and cities that could support mass populations. During the first half of the twentieth century, technological innovation expanded distribution channels through the creation of transportation and communication improvements. All points of the nation became accessible directly through the use of telephones, automobiles, and airplanes, as well as indirectly through television and radio. Today, computers and the Internet have expanded the horizon by permitting communications access to the world at large. Tasks that once required dozens of workers, weeks of preparation, and additional time for delivery may now be completed in minutes by one person using a computer connected to the Internet.

   A major beneficiary of improved technology is the business sector, which utilizes improvements to enhance efficiency and reduce transactional costs.(4) The Internet provides rapid communication capabilities at reduced costs and expands access to a global market. Business can be conducted almost anywhere by using the Internet.(5) An important product of this technological development is the increasing phenomenon of electronic commerce, or "e-commerce,"(6) that harnesses the Internet's abilities for commercial purposes. Electronic commerce encompasses a broad category of economic activity conducted on-line, including everything from e-mail contracts and memoranda to advertising and on-line sales of both tangible goods and information delivered over the Internet.

   The recent technological advances, however, have fundamentally altered the structures of many businesses and broadened enterprise opportunities.(7) While regulation of corporate activities and protection of consumers remain vital in e-commerce,(8) the existing law also must address the world of paper contracts, tangible property, and geographical boundaries.(9) Few companies are likely to rely exclusively on the "old ways" of doing business. Accordingly, the law governing business transactions must recognize e-commerce to promote certainty in the law, a precious goal for the business community. To retain a viable legal framework while recognizing extensive technological changes, the desirable solution is the adaptation of existing law by analogizing current problems to issues earlier addressed by the legal system.(10)

   Three fundamental issues affecting a business are its amenability to suit (jurisdiction), the validity and enforceability of its agreements (contracts), and its rights and obligations in transactions (sales).(11) The existing law embodied in statutes and case precedent resolves many of the issues that arise in these three areas. Electronic commerce, however, has affected all of these areas through its use of technological innovation.(12) As mentioned, the Internet has expanded the potential geographic business market while reducing the cost of access. Contract formation and performance can be conducted over electronic media and can occur without using a single sheet of paper or a drop of ink.(13) "Virtual" products may be purchased with "virtual" currency before being transferred from one computer to another in the form of electronic packets of information.(14) Since existing law rests upon a more limited business scope, physical documentation, and transactions involving more than electronic signals, an urgent need exists to adapt the law to reflect new business practices while retaining the predictability and authority of legislation and common law.(15)

   This article asserts that adaptation of current law to address the novel issues presented by e-commerce is the proper course of action. Legal problems arising in e-commerce can be analogized to issues already resolved within the established legal framework. Important variations in the legal structure will be required, however, to ensure that the law addresses the reality of e-commerce while remaining grounded in pre-existing judicial and legislative authority.(16) Primarily, this article will demonstrate that commercial law, as embodied in the Uniform Commercial Code (hereinafter "U.C.C.") and common law contract principles, can adapt to the circumstances of e-commerce and serve equally well as an analytical tool for evaluating issues that may arise in electronic contracts.

   This article addresses several specific problems by analogizing e-commerce issues to issues already addressed by current law. Section II provides a general overview of Internet capabilities and how they can be used for purposes of e-commerce. Section III briefly addresses the issue of personal jurisdiction and how e-commerce may expand a business's amenability to suit in foreign courts, nevertheless limiting its focus to treatment of the three types of "Internet" jurisdiction. Additionally, Section III addresses issues concerning "Internet contracts" and enforcement. These issues include whether e-commerce contracts satisfy the traditionally required elements for valid contracts, where e-commerce contracts are formed or executed, and the application of various contractual rules to e-commerce.

   Section IV continues the analysis of commercial law and e-commerce through a discussion of how to define e-commerce transactions. Beyond characterizing e-commerce transactions as "transactions in computer information," the section also analyzes application of the Uniform Computer Information Transactions Act (UCITA) to "mixed" contracts that may involve more than merely a transaction in information. Finally, Section V concludes that the obvious changes that e-commerce embodies, nonetheless, can be analogized within the context of prior circumstances. Commercial law can be adapted to analyze the issues without sacrificing predictability in the law or restricting healthy development of commercial activity.(17)

2. THE RISE OF ELECTRONIC COMMERCE

   Electronic commerce does not alter the substance of business contracts so much as it alters the process of agreement.(18) For example, a magazine subscription purchase agreement will have the same terms regardless of whether it is made on a slip of paper, over the telephone, or on the Internet. The real issue is whether contract law will recognize that each process produces an equally enforceable agreement.(19) In other words, will agreements made via the Internet receive the same protection under commercial and...