Documenting Your Credit Sale in Cyberspace:
Traditional contract principles apply
By Scott E. Blakeley,
The credit department is going electronic. Following these electronic
advances, your company posts the credit application on its web site.
Your customer completes the credit application electronically and
e-mails the completed application to you. Is your customer bound
by the terms and conditions of your credit application, such as default
interest, attorney's fees and venue selection, should you end up
in a dispute? Does an electronic or digital signature (e-signature)
have the same legal effect as a handwritten signature from your customer
on your credit application? Are there other legal areas of concern
for the credit professional with the e-credit application and documenting
the credit sale electronically? In Specht v Netscape Communications
Corp., the court recently considered whether a digital signature
bound the customer to the electronic contract.
What are Electronic, or Digital, Signatures?
E-signatures are a form of technology, including fingerprint readers,
stylus pads and encrypted "smart cards", used to verify a party's
identity so as to certify contracts that are agreed to over the Internet.
This means that a credit professional documenting a comme rcial e-sale
has many technological methods to verify a customer's representatives'
State and Federal Legislation
Article 2 of the Uniform Comme rcial Code provides that with the
sale of goods over $500, there must be a signed writing. A signature
is to certify the writing for the sale of goods. With the traditional
sale of goods over $500, the credit professional would memorialize
the sale agreement with a signed credit application and signed invoices.
In Specht v Netscape Communications Corp., 2002, the court considered
whether an electronic signature may bind the customer to contract
terms posted on the company's website. In Specht, the plaintiffs
downloaded a software program from defendant's web page. According
to the plaintiffs, they did not agree to certain terms on the web
page, such as an arbitration provision.
The plaintiffs argued that they were unaware that activating a download
icon on defendant's website and signifying assent to acquire the
software clandestinely enabled the defendants to distribute the plaintiffs'
personal file names to makers of a separate " plug-in" software program.
The plantiff's alleged that this second program on defendant's website
violated certain federal statutes.
The plaintiffs said that they agreed to subscribe to the software
program but that the webpage did not disclose that a potential user
of a second software program must scroll down and strike a computer
key affirmatively agreeing to the terms of the contract containing
the license provision and its arbitration clause.
Binding the Customer: Electronic Signatures
The Electronic Signatures in Global and National Commerce Act (The
E-Sign Act) makes e-signatures as legally binding as ink-and-paper
signatures, and can be used in legal proceedings. An e-signature
is generally defined as a form of technology, including fingerprint
readers, stylus pads and encrypted "smart cards", used to verify
a party's identity so as to certify contracts that are agreed to
over the Internet. The E-Sign Act, a federal law, and state law counterparts,
validates electronic signatures, but to enforce an econtract the
signatory must "assent" to the terms.
In Sprecht, the court observed that a prospective party to an e-contract
actions of clicking a keystroke on a computer does not form a contract,
should the offer (credit application on the web site, for example)
does not clearly signify that such an act constitutes consent. Because
the parties had signed the original software contract and were bound
by its licensing agreement containing the arbitration clause, the
court had to determine whether its terms were broad enough to include
coverage of a second and related agreement (the second software agreement).
In Specht, the plaintiffs did not see the licensing agreement for
the second software program, despite subscribing to the initial advertised
program, without instruction to "scroll down" to the next page on
the Web site. No contract was formed, said the court, without the
vendor informing the party of this additional act necessary to form
E-Signatures: What it may mean for the credit professional
As the credit department goes electronic, the Sprecht decision
reminds the vendor that its e-documents, from credit applications,
to order acknowledgments and invoices, should plainly set out any
provisions that the vendor seeks to bind the customer. For exa mple,
the below may be considered as the kind of plain language:
By selecting we accept, I am attaching my electronic signature to,
and our business agrees to, the [vendor's] terms and conditions contained
in the above credit application. Futhermore, I am authorized to sign
the credit application on behalf of our business.
0 Do not accept
Transacting commercial credit sales via the internet means lower
transaction costs for the vendor. However, a credit professional
must be sure that the customer is agreeing to the terms of sale with
the e-contract. With the recent legislation, a credit professional
may transact credit sales over the Internet and bind the customer
with an esignature, rather than a handwritten signature, provided
the credit application, for example, clearly sets this out. This
step will further the use of Internet contracts, as well as guarantees,
by credit professionals.
Corporate Credit Executive
Reprinted by permission from
Trade Vendor Quarterly Blakeley & Blakeley LLP