The total percentage of business in the United States conducted online has grown exponentially in recent years. Being able to ascertain your legal rights and obligations as they pertain to electronic transactions is crucial in managing your business or simply engaging in the digital marketplace, as more transactions are discussed and consummated through electronic mediums.
Electronic contracts create ambiguity as opposed to their physical counterparts, as “a person using the internet may not realize that she is agreeing to a contract at all, whereas a reasonable person signing a physical contract will rarely be unaware of that fact.” Kauders v. Uber Technologies, Inc., 486 Mass. 557, 576 (2021). The following will attempt to bring some clarity in determining whether or not an electronic communication amounts to a contractual obligation.
Statutory Authority
Electronic contracts are enforceable under both state and federal law. On the state level, electronic contracts are governed in large part by the Massachusetts Uniform Electronic Transaction Act (MUETA). Chapter 110G, Section 7 of the Massachusetts General Laws provides in relevant part that “a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.” The federal equivalent to MUETA, the Electronic Signatures in Global and National Commerce (E-SIGN) Act, contains a nearly identical provision: 15 U.S.C. § 7001.
App-Based Transactions
Many app-based transactions include a non-negotiable standard form contract. You have likely encountered, and subsequently agreed to, several of these types of contracts. Think of any app you have downloaded where you have been prompted to read and accept the “terms and conditions.”
Massachusetts has helped determine if an electronic contract has been formed in these contexts with a readily applicable two-prong test: (1) reasonable notice of the terms; and (2) a reasonable manifestation of assent (agreement) to those terms: Good v. Uber Technologies, Inc., 494 Mass. 116, 126 (2024). Federal courts have applied a nearly identical standard when evaluating online or app-based contracts: Berman v. Freedom Fin. Network, LLC, 30 F.4th 849, 856 (9th Cir. 2022).
Notice of the terms can be either actual or reasonable. Actual notice is rarely achieved in this context, as it requires the user to actually review the terms, and app users rarely actually read the terms of use prior to accepting. Reasonable notice, on the other hand, only requires that the user has an opportunity to read the terms.
To determine if there has been reasonable notice, courts in the Commonwealth look towards the nature and size of the transaction, the user interface and form of the contract, and whether the notice conveyed the full scope of the terms.
In this context, because of the ease and modest price attached to most app-based transactions (e.g. calling for an Uber, or ordering food), the size of the transaction is not necessarily dispositive when determining whether notice has been given to the user. In contrast, a larger transaction is more likely to put a consumer on notice that contractual conditions are attached.
With respect to the interface, businesses have managed to provide notice through mechanisms such as generating pop-up screens that require the user to interact with the terms in some manner before commencing the transaction, or conspicuously displaying the terms with iconography indicating that a legal document is being presented.
So long as the terms are made readily available to the consumer, and the consumer has the opportunity to review said terms, they are considered to have been apprised of the full scope of the agreement. Despite this being an age of instant gratification, a user can seldom argue that they were not given an opportunity to review the terms because they were in a rush to obtain the business’s goods or services. It is the consumer’s choice whether to read the terms once they are made readily accessible.
To fulfill the second prong of this test—assent to the terms—many businesses have opted for what is often referred to as a “clickwrap” agreement. These agreements, which you have likely seen before, require a user to affirmatively assent to an online agreement by checking a box, clicking an “Accept” button or other input, which theoretically alerts the user to the significance of their actions.
Ultimately, the manner in which the contract is presented, and input required by the user, may satisfy more than one element of the foregoing standard. In any case, it is important to be mindful that when engaging in an app-based transaction, contractual obligations are likely attached.
Electronic Contracts and the Statute of Frauds
The standard presented above generally only applies to smaller transactions entered into by an individual consumer, leaving the question open as to the validity of an electronic contract as the basis of a larger transaction subject to the Statute of Frauds.
Every state has a Statute of Frauds which requires that for particular types of contracts to be enforceable, they must be in writing and signed by the party against whom enforcement is sought. Chapter 259, Section 1 of the Massachusetts General Laws requires the previously stated elements to be present in agreements pertaining to sureties, in consideration of marriage, the sale of land, contracts that cannot be performed within one year and contracts that provide the basis for a claim against an estate.
Pursuant to MUETA, Massachusetts courts have held that even an e-mail exchange may satisfy the Statute of Frauds. However, the validity of the e-mail or other electronic record ultimately depends upon the surrounding circumstances. To be certain that these requirements are met, relevant factors include whether the parties expressly agreed to the essential terms over e-mail, whether there were negotiations leading up to the e-mails and whether an e-mail signature block was included, among other contextual considerations: K & K Development, Inc. v. Andrews, 103 Mass. App. Ct. 338, 350 (2023).
Federal courts have employed similar considerations, and also found e-mail exchanges to constitute a valid contract and satisfy the Statute of Frauds, even prior to the E-SIGN Act taking effect: Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 295 (7th Cir. 2002).
In conclusion, although electronic contracts may create uncertainty, the traditional principles of contract nevertheless apply to electronic transactions, “[t]he touchscreens of Internet contract law must reflect the touchstones of regular contract law”: Kauders, 486 Mass. at 571.
The enforceability of these agreements imbues a responsibility not only as a consumer but as a business owner, to maintain the understanding that your words and actions online can enmesh you in a contractual relationship.
If you require assistance in reviewing or negotiating the terms of an electronic or physical contract, do not hesitate to contact one of our lawyers today.