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Documenting Your Credit Sale in Cyberspace:
Traditional contract principles apply
By Scott E. Blakeley, Esq.

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' signature.

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.

An E-Contract?

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 the contract.

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 Accept
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
Summer 03

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