| Cite as: 2 Nw. J. Tech. & Intell. Prop. 1 at http://www.law.northwestern.edu/journals/njtip/v2/n1/1 | NJTIP Home > Volume 2 > Issue 1 (Fall 2003) |
¶ 1 When Eastman Kodak accidentally placed a camera for sale on its United Kingdom ("UK") website for £100 instead of £329, word spread within hours.1 Customers placed thousands of orders before the company could correct the error—at great expense to Kodak.2 After informing customers of its mistake and stating that it would not fill the orders, Kodak faced a choice: honor the orders or cave to a lawsuit.3 While Kodak tried to argue that the orders were simply bids to accept its offer for sale, the company overlooked the crucial fact that its website accepted and confirmed the orders—forming an online contract.4 Kodak quickly succumbed to customer outrage and honored the lower prices—a data entry error that cost them US$2 million.5 When asked about the mishap and whether customers could have won their lawsuit, Kodak simply remarked: "[i]nternet trading is a grey area."6
¶ 2 Data entry mistakes occur easily in sales transactions, but they can often be reduced through party interaction. However, when mistakes originate from online transactions, the effect is magnified by the speed at which information is communicated to and acted upon by customers.7 In today's electronic landscape, parties can instantly agree to, confirm, and communicate assent with just a few keystrokes.8
¶ 3 It was predicted that over 600 million people would have Internet access and spend over US$1 trillion online in 2003.9 Over eighty-three percent of worldwide online sales will come from business-to-business ("B2B") commerce,10 growing to eighty-eight percent by 2006.11 Simple computer-based contracts will be formed to facilitate these transactions. Indeed, they are formed every day—from a consumer purchasing a camera from a website with a simple click of a "Place Your Order" button to distant merchants acquiring millions of durable goods from each other through complicated automated transactions.12 Legal scrutiny around the formation of computer-based contracts affects consumers and businesses engaging in international trade.13 While most consumers enjoy the security of domestic consumer protection laws to shield them from incorrect, incomplete, or fraudulent computer-based transactions,14 commercial entities have different legal resources embracing their transactions.15 Recourse remedies differ based upon the international jurisdictions of the transacting parties.16 These complications lead commercial entities to question which laws govern international sales transactions. Where does the line between informal communication of an offer and formal acceptance begin? On which party's laws would a legal judgment hinge? Could everyday business activities, such as simply sending an e-mail with a default "signature" attached to it, create a binding contract?17
¶ 4 Such complex sales situations on paper are the genesis behind the United Nations Convention on Contracts for the International Sale of Goods ("CISG"),18 the uniform sales law for two-thirds of nations participating in world trade,19 when "most international transactions [were] completed without difficulty."20 The CISG is the "uniform international law for the most basic transaction of international commerce"—a contract.21 Today's information economy challenges traditional notions of both time and place because improved communication technology enables business to flow freely across borders, "ris[ing] above spatial boundaries,"22 facilitating an instantaneous ability to form paperless contracts.23
¶ 5 The CISG's inception occurred over seventy years ago, and its finalized form was ratified over twenty years ago—at least a decade before electronic contracts became a practicable business solution.24 Within this time, the CISG has remained unchanged, including one remarkably important yet surprisingly overlooked article that defines a contractual writing: Article 13.25
¶ 6 Article 13 describes an international sales contract writing in the following manner: "[f]or the purposes of this Convention 'writing' includes telegram and telex."26 Accordingly, the term writing deems telegram and telex as acceptable contracting methods, but remains silent on computer-based contracts, such as electronic data interchange ("EDI"), the Internet, click-wrap and shrink-wrap agreements, and e-mail.27 As a result, the CISG, the seminal convention governing international sales, contains a vital gap by remaining silent on electronic or computer-based contracts in international sales transactions.28 This gap questions legitimacy of Twenty-first Century commercial contracting methods that international commercial parties bound by this Convention currently rely on to facilitate their transactions.29
¶ 7 This article examines Article 13's origination, placement, and interpretation in light of modern business practices to argue that, although the CISG does not explicitly recognize electronic contracting methods in its definition of a writing, they are acceptable by virtue of the convention's intent, purpose, and support from other articles.30 This article also examines new international and domestic legislation, underscoring the importance of the electronic contracting gap in international commercial sales. These efforts to usher in new legislation accommodating electronic contracts are evidence not only of Article 13's expansive definition to mature with international commercial practices, but also of the necessity to fix the electronic contracting gap for legal frameworks to keep pace with the changing times.31
¶ 8 To this end, Part I examines problems caused by electronic contracts in the CISG. Part II presents the history, scope, and application of the CISG. Part III discusses the origination and application of Article 13. Part IV evaluates how Article 13 and the CISG comport with modern interpretations of a writing to naturally include electronic contracts. Although this article establishes that electronic contracts are acceptable under the CISG, Part V identifies recent international and domestic legislation that also validates Article 13's expansive definition and offers additional ways for the CISG to accept electronic contracts.
¶ 9 Sales transactions are about promises—particularly in a global context where different cultural, social, political, and legal institutions often make them difficult to keep.32 Contract law is a predictable enabler of international sales transactions because it provides certainty for the interpretation of promises, agreements, and their enforcement.33 As a result, the CISG may be seen as an "important attempt to bridge the gap between...regional efforts and the global market as a whole."34 Part I thus examines problems with computer-based contracts under Article 13 because they are not in traditional paper form—laying the foundation to explain the Convention's intent to gap-fill electronic contracts.
¶ 10 Electronic contracting involves two major problematic issues: speed and automation.35 "Electronic communication occupies a functional position somewhere between the traditional letter and telephone communications."36 Face-to-face interaction is non-existent, though some interactions are more direct than others.37 Just as quickly as one submits an offer or acceptance, this information may be instantaneously transmitted to the other party.38 Errors are often difficult to catch and harder to rectify, particularly if one party has relied on the contract.39 Electronic agents, mini-computer programs that automate tasks for the user, further complicate matters by contracting without human intervention.40 An example of an electronic agent is found on any Internet retail site: when a customer places an order, the agent accepts instantaneously and confirms the order.41 While technology makes business quicker and easier to transact, part of this speed comes from a lack of formal interaction with paper contracts. As a result, the certainty and predictability of remedies afforded by a tangible contract are complicated by electronic measures. Consequently, international legal frameworks must adapt to establish the same certainty and predictability for electronic contracts as paper contracts.
¶ 11 The CISG exists in the face of two important business phenomena: the sale of intangible goods42 (such as software) and intangible methods of transacting business, such as fax, EDI, the Internet, e-mail, telex, and online software agreements.43 These phenomena fall generally under the moniker of electronic commerce.44
¶ 12 These new concepts create vast business improvements. As new markets are more easily opened to a wider variety of players,45 transactions become cheaper, and communication costs are reduced.46 Simultaneously, businesses find complex contracting challenges by entering jurisdictions in which they had no intention of conducting business.47 Parties have greater concerns with Internet contracting as opposed to traditional paper contracting because the law stops at country borders, while the Internet allows business to freely cross them.48 However, computer-based contracts, particularly those created via the Internet, do not exist in a lawless cyberspace.49 Governments are challenging fundamental legal concepts, such as contracts, to develop flexible frameworks to protect traditional contract law while recognizing and expanding it to include technology's borderless capabilities and maintain integrity for all legal players (judges, lawyers, legislators, and business people).50 "The first step toward laying a legal foundation for electronic commerce is to clear away the barriers to electronic commerce, and the first and most obvious barrier is found in laws that require paper."51
¶ 13 Modern business and legal infrastructures revolve around paper technology, which presents a challenge to conducting business in today's information economy.52 The unique nature of electronic contracts creates tremendous uncertainty in international legal and business environments because the law is slow to respond to new technology.53 The application of existing law to computer-based commerce is often inadequate.54
¶ 14 Electronic commerce ("E-commerce") presents a multitude of challenges to traditional paper-based contract law, including: jurisdiction, validity, formation, modifications, authentication, message integrity, and non-repudiation.55 This comment does not explore each challenge in detail. Instead, it evaluates contract formation concerns within four electronic media. The fundamentals of contract creation—offer, acceptance, and consideration—come under attack in electronic contract formation in the initial agreement and in modification.56 Ultimately, the "take-it-or-leave-it" nature of electronic contracts, where the agreement is accepted as unread or by acquiescence, poses the greatest challenge to predictability and certainty in sales.57
¶ 15 E-mail, a method of sending an electronic message from one person to another using the Internet, is a convenient method of time-delayed direct communication.58 While an e-mail may be a singular message, it also possesses the ability to form contracts.59 Consequently, e-mail is viewed as both a formal and informal communications medium.60 "[B]usiness people often regard informal e-mail arrangements and business correspondence as non-contractual events."61 However, courts have found telegrams "with typed signatures, letterhead and/or logos [to] provide the 'signature' necessary for a binding contract."62 Therefore, sending an e-mail, with or without a signature line,63 including a name and pertinent contact information, may symbolize assent to contract formation.64
¶ 16 If a court concludes that the sender "intended to acknowledge contents of documents," then he or she will be bound by the terms.65 In contrast, "receipt" in an electronic environment "does not require that the recipient know of, open, or read the message. All it requires is that the electronic message be available for processing by the recipient's information system." 66,67 An important and humorous example of the power of electronic signatures via e-mail comes from President Bill Clinton, remarking on the United States enactment of E-SIGN (The Electronic Signatures in Global and National Commerce Act): "If this [e-mail] had existed 224 years ago, the Founding Fathers wouldn't have had to come all the way to Philadelphia on July 4th for the Declaration of Independence. They could have e-mailed their 'John Hancock's' in."68
¶ 17 EDI is the computer-to-computer transmission of information used by frequently contracting commercial parties to send and receive standard forms—generally purchase orders and invoices—in a store and forward message system.69 It is, perhaps, the clearest example of electronic contracting through the use of an electronic agent. Parties agree on the standardized terms of the transaction.70 Transactions—quotes and automatic responses to them—are sent and received daily via a phone line between electronic agents, devoid of human involvement.71 EDI reduces the time and complexity associated with sending and receiving large volumes of information, reducing keystroke errors.72 Purchase orders are one of the most common uses of EDI.73 For example: Wal-Mart, a large retailer, uses EDI to repeatedly order large quantities of consumer goods, such as laundry detergent, for its thousands of stores. EDI enables the ordering and invoicing of these goods between computer systems. Contract offer, acceptance, and assent occur automatically.74
¶ 18 EDI is a tricky method of electronic contracting because the output is in a specific technical format. Messages are coded in generally acceptable national or international forms and transmitted through a store and forward system. Since parties must agree on the standards and forms before they engage in the lengthy and expensive process of establishing direct communication, contract assent is evidenced by nature of the connections. Transaction efficiency through rapid electronic contracting has gained EDI's instantaneous communication methods international approval with the development of EDIFACT (EDI for Administration, Commerce and Transport), an international EDI standard.75
¶ 19 The Internet is a massive collection of networks cooperating to connect millions of computers globally to pass information to each other.76 The Internet is used for a variety of purposes including communication, file sharing, information posting, and the purchase and sale of goods and services.77 In the United States, the nation responsible for more than forty percent of all on-line spending, e-commerce grew more than nineteen percent to US$32 billion in 2001.78 Europe, the second fastest growing on-line community, was projected to spend US$86 billion in 2002.79 As a result, Internet-based sales are quickly becoming commonplace transactions. Internet sales are divided into three categories: B2B, business-to-consumer ("B2C"), and peer-to-peer ("P2P").80
¶ 20 To understand a basic example of how a sale transacts over the Internet, let's examine a popular Internet retailer: Amazon.com. This online company sells thousands of products such as books, compact disks, and electronics—a familiar example of B2C sales.81 Customers choose products from the Amazon.com website, place them in a virtual shopping basket and provide credit card information to complete the purchase.82 When a customer clicks the "Place Your Order" button, he or she contractually agrees to the purchase.83 The goods are mailed to the customer's designated address.84 There is no physical signature and no paper changes hands, which is the major concern for identification and authentication.85
¶ 21 B2B commerce functions similarly with publicly available or privately protected special websites prepared for valued customers, including direct billing and other inventory management efficiencies. Similar to EDI, purchasing terms are generally agreed upon beforehand. Here, however, users manually interact with the website to select and purchase goods. Dell Computer Corporation is an excellent example of a business that creates customized websites for its top corporate customers to use for easy product selection, special pricing, and automatic invoicing.86
¶ 22 Electronic contracting also occurs in software sales. Software is generally sold in four ways: 1) direct sale of a packaged or customized product, 2) license agreement, 3) subscription or database transaction, or 4) online sales, which results in the shipment of a software product or automatic download.87 Two forms of electronic contracts dominate: "click-wrap" and "shrink-wrap" agreements.88 Software sellers determine the contracting method.89 Click-wrap agreements, also known as "browser-wrap" agreements, allow "a buyer to manifest assent to the terms of a contract by clicking on an acceptance button that appears while the buyer obtains or installs the product."90 A buyer cannot start using the software until he or she has clicked on the button accepting the terms and conditions of the agreement.91 Click-wrap agreements require buyer action in order to begin usage but do not guarantee cognizance of the agreement terms.92 Buyers can assent to the contract without even reading it in order to use the product.93 Buyers cannot negotiate and must, therefore, accept the terms as-is. Most courts find these agreements enforceable.94 Understandably, concern remains that click-wrap agreements may be accepted without users actually reading or understanding contract terms when manifesting assent.95
¶ 23 Shrink-wrap agreements operate slightly differently. For example, they are used when one purchases off-the-shelf software.96 The agreement is imprinted on the software box, cd-rom case, or other materials included inside the package.97 "The license begins when the purchaser reads its terms and tears open the cellophane wrapping or shrink-wrap that surrounds the package."98 Buyers are supposed to return the software package to the retailer if they elect not to abide by the agreement.99 Courts are similarly concerned about buyers actually receiving notice of the sale, consciously agreeing to the sale, and conditioning the sale on acceptance of the license.100
¶ 24 As demonstrated by the aforementioned electronic communications methods, technology offers many ways for parties to exchange information about terms and conditions when forming electronic contracts.101 However, the true challenge in the quest to balance ease of sale with legal protection for both the buyer and seller is "obtaining unequivocal assent to those terms and conditions."102 Without acceptable rules and guidelines, commercial parties may be hesitant to embrace new technology, fearing unenforceable or invalid contracts.103 These tensions currently face the primary convention on contracts for the international sale of goods—the CISG—which did not include electronic communications methods because they were not contemplated at the time of drafting.104 Keeping electronic contract methods in mind, this article will now explore how the CISG, particularly Article 13, embraces the information age and paperless contracts.
¶ 25 On January 1, 1988, the CISG came into effect through ratification by eleven countries.105 The CISG is a United Nations-sponsored treaty regulating contracts for the international sale of goods, including formation, party obligations, rights and remedies for breach of contract.106 Sixty-two nations have adopted the CISG as guiding legislation for international sales.107 The CISG does not purport to answer every question that may arise in transactions involving the international sale of goods.108 Instead, the Convention promotes "the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems [that] contribute to the removal of legal barriers in international trade and promote the development of international trade."109
¶ 26 The drafting of the CISG began in the 1930s by European scholars, at the behest of the International Institute for the Unification of Private Law (UNIDROIT).110 By 1935, a preliminary draft of a uniform law for international sales was issued.111 World War II interrupted drafting, and in 1956, twenty-one nations continued the project.112 Revised drafts were sent to governments in 1956 and 1963 for evaluation.113 Meanwhile, a draft for a uniform law of contract formation began in 1958.114 The 1964 Hague Convention discussed both related drafts, resulting in two Conventions: the Uniform Law for the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF).115 Five states, mostly European, ratified these Conventions in 1972.116
¶ 27 In 1966, a General Assembly of the United Nation's Resolution desired worldwide support of such Conventions to promote the harmonization of international trade law.117 Thus, the United Nations Commission on International Trade Law (UNCITRAL) was born, holding its first session in 1968.118 Because UNCITRAL felt that both Conventions would not achieve worldwide acceptance due to countries' legal, economic and political differences,119 the Conventions were revised by fourteen States.120 By 1978, the updated Conventions, the ULIS and ULF, were combined into one document: the CISG.121 It received unanimous approval122 and represented "the equality and mutual benefit [that] is an important element in promoting friendly relations among the States."123
¶ 28 The CISG is a self-executing treaty124 divided into three distinct parts: Part I explains the sphere of application and general provisions, Part II describes contract formation, and Part III provides substantive rules for contracting.125 The Convention grants a "buyer and seller...[a] reasonable certainty as to their respective legal rules and obligations."126 It encompasses the international sale of commercial goods for business purposes only, not including accompanying services, consumer goods, or products procured through auction.127 It also excludes goods comprising material parts necessary for manufacture or production, including labor services.128 Personal injury liability arising from goods is also excluded from the Convention.129 The Convention only concerns the "formation of the contract of sale and the rights and obligations of the seller and buyer arising from such a contract."130 It does not regulate contract validity or property in goods sold.131 The Convention is further limited to international sales and, therefore, does not encompass domestic transactions.132
¶ 29 Transacting parties must be from different contracting states who have adopted the CISG, in order for the convention to apply to the contract.133 Alternatively, the CISG may be applied when a state has domestically incorporated the rules of the CISG.134 As an example of the former situation, a seller of ceramic tiles from Italy contracting with a buyer from Australia would have the CISG apply to their transaction because the contract is for the international sale of goods (the Italian ceramic tiles) and both contracting states have adopted the CISG.135 As an example of the latter situation, if a South African buyer (non-contracting state) purchased goods from an Austrian seller (contracting state), the CISG would apply because Austrian law has adopted the CISG as part of domestic law.136 The nature of the CISG enables it to have a neutralizing effect on domestic laws, which puts both the buyer and seller from different States on equal footing, enabling transparent decisions and accountability through equal legal principles.137 "At a minimum, the CISG provides a common language for the international business community to rely upon in negotiating and structuring transactions."138
¶ 30 Parties, however, have a right to contract around the CISG's default rules by choosing the application of domestic law, the forum's private international law rules, or particular sections therein.139 Such terms may be expressly accepted or rejected as long as domestic law validity requirements are met.140 Parties may also opt-in to the CISG when their transaction falls outside the Convention's scope.141 Furthermore, parties can also refer to the CISG in their transactions by lex mercatoria (customs and practices governing commercial law developed through time by merchants).142 However, if parties want to ensure that the CISG does not apply to their transaction, an explicit opt-out clause should be inserted in the international sales contract, favoring a choice of law provision instead of or in place of the CISG.143
¶ 31 The importance of the CISG has been established not only by the great efforts taken by the United Nations to transform three uniform sales conventions on contracts for the international sale of goods into one, but also from the sheer number of states who have ratified it.144 Against these conditions, Article 13's limited definition of a contract writing is illuminated.
¶ 32 Article 13 states: "For the purposes of this Convention 'writing' includes telegram and telex."145 Accordingly, Article 13 was written prior to computer-based contracting becoming en vogue.146 To understand how Article 13 functions within the CISG, Part III uncovers Article 13's drafting and legislative history to fully define terms and usage and to view its purpose and connection with other CISG articles.
¶ 33 Though Article 13 defines a writing, it does not interpret declarations or statements made by transacting parties, either expressly or implicitly.147 In fact, a contract does not have to be "concluded or evidenced by writing" at all—the CISG has no form requirements.148 Contract writings under the CISG may be proven by "any means, including witnesses."149
¶ 34 Form requirements were purposely excluded from the CISG to give parties greater flexibility in contracting with each other and to account for oral agreements and modern means of communication.150 This also avoids conflict with States' domestic form requirements, which are often stricter.151 If the CISG has no form requirements, then why does Article 13 exist at all? Article 13 was added to act as a supplementary definition to two other articles on acceptance: Article 21(2) "letter or other writing containing a late acceptance," and Article 29(2) "a contract in writing which contains a provision requiring any modification or termination by agreement to be in writing..."152 Article 13's purpose was to emphasize that telex and telegram are acceptable methods of contract modification,153 even though the CISG does not have form requirements.154 Article 13 was included to ensure that telex and telegram are media that will always satisfy a writing requirement because they are explicitly mentioned.155 Telex and telegram were singled out at the time of drafting (late 1970s) as suitable methods to facilitate communication speed.156 Contract modifications often necessitate quick decisions; telex and telegram were two newly available methods to do so.
¶ 35 Article 13 also links to the proper acceptance of an offer, as described in Article 20.157 Here, Article 13's mention of telex and telegram make two salient points in Article 20. First, a telegram equates to a letter to convey that the period of time for acceptance begins from the moment the telegram is handed in for dispatch, the letter sent, or if no date is listed, the date on the envelope.158 Second, telex compares to the telephone or "other means of instantaneous communication," which fixes the acceptance period starting from the time the offer reaches the offeree.159 Article 13's specific inclusion of these two writing media—telex and telegram—is thus complemented by Article 20, which expounds on assent methods to accommodate new forms of communication.
¶ 36 The legislative history of Article 13 also uncovers motivation behind the mention of only two distinctive forms of writing. The German delegates to the CISG Working Group specifically suggested including telex and telegram to give reserving States who have a domestic writing requirement the option of using these methods for the "conclusion, rescission, or modification" of a contract.160 Dr. Peter Schlechtriem, a notable international law scholar, concludes that telegram and telex were probably included in the final draft of Article 13 because it was drafted on a model provision in the UNCITRAL Convention on the Limitation Period of 1974 (Article 1(3)(g)), which required form.161 Thus, including telex and telegram would enhance form clarity in contract modifications that require quick decisions.162 Further legislative history reveals that CISG Article 13 is comparable to UNIDROIT principles as its definition of a writing: "...any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form."163 The comparable relationship concludes that Article 13 was intended to achieve a uniform objective standard for form requirements, so that parties need not comply with domestic requirements that could pose a higher standard and become difficult to verify.164
¶ 37 It should also be noted that Article 13 had no direct predecessor in the ULF, ULIS or any previous Convention drafts.165 Such little legislative history is unsurprising, given the minimal debate it received in conference meetings and plenary sessions.166 Article 13 was quickly adopted, with forty-two affirmative votes and three abstentions.167
¶ 38 Because the CISG specifically excludes mention of electronic contracting, a question is left unanswered: are electronic contracts valid in international commercial sales?168 If the CISG is outdated, States would violate this treaty by forming electronic contracts via e-mail, EDI, or the Internet. Part IV thus evaluates electronic contracting under Article 13 to reveal that it is an organically acceptable method of international commercial contractual agreement, uniquely worded by the drafters to contemplate future commercial communications improvements. Part IV also explores other CISG articles to establish electronic contracting acceptability.
One obvious instance of a provision that was outdated from the moment the CISG came in to force is Article 13. It mentions the telex—nobody uses a telex anymore—but it doesn't mention the fax or other recently developed means of communication. That, I think, is an example of how quickly a Convention or a civil code can become outdated.169
¶ 39 Article 13, indeed, fails to reflect important features of modern day business practices. However, this does not mean that Article 13 and the entire CISG is "a statutory piece of legislation [that has] largely petrified the law."170 Consequently, this section examines the intent and purpose of the CISG to demonstrate that it naturally extends its boundaries for a writing to include issues not conceived by the drafters.171
¶ 40 As noted in Part III supra, Article 11, defining form, does not impose any official writing requirements, which reinforces Article 13's flexibility.172 This means that even oral contracts— in person or via telephone—are valid under the CISG.173 The lack of writing requirements creates benefits within the CISG. For example, it facilitates confidence in oral agreements, such as telephone sales orders which are evidenced by a purchase order number.174 Facsimile and telex status, widespread commercial methods of contracting or modification, also need not be questioned.175 Lastly, writing requirements often interfere with the "necessary speed of commercial transactions."176 Therefore, excluding formal writing requirements facilitates international trade—the very purpose of the CISG.177
¶ 41 The term writing, however, is not intended to fix the term's outer limits.178 Modern business communication and contracting methods include a multitude of electronic media: e-mail, EDI, and the Internet, which are not rooted in paper form.179 However, they are the ideal contracting tools because they enable distant parties to collaborate, negotiate and communicate more easily, reducing the time and effort involved.180 It could be argued, therefore, that by virtue of the outer limits interpretation, electronic communication would not pose a more serious problem to the CISG than either telex or telegram. Although the medium for the contract is changing, the business principles behind the transaction are not.181 Yet electronic contracts become questionable because they do not exist in a formal paper-based medium known to traditional contracts.182 The key concern with new electronic contract forms is a readable record—whether parties have the ability to create or retain a copy of the contract.183 However, these concerns are resolvable because agreements formed by e-mail, EDI or over the Internet may be stored and printed as evidence, if required.184 This makes them as enforceable as other agreements.185
¶ 42 Article 11's effect on Article 13 also leads to two additional implications: (1) a writing does not require a signature or any other "validating mark or sign,"186 and (2) a contract may be valid in a non-publishable form. Examining each implication in turn, the following conclusions result. The signature on a contract is a critical part of authentication and non-repudiation.187 Under Article 6, parties may not require a signature.188 If no signature is required, no gap exists with telex or telegram to satisfy a signature requirement.189 If parties require a signature, the aforementioned methods would still satisfy this contractual requirement because parties can easily sign or affix a signature mark.
¶ 43 Let us use the facsimile (fax) as an example to test the readability principle under Article 13. The fax is a modern communication method relative to the ratification of the CISG (1980).190 Therefore, it serves as an excellent proxy to understand how Article 13 extends to new forms of electronic contracts. Communication by fax in Europe was virtually unheard of at the time of drafting and, therefore, not mentioned.191 Since fax was an unknown medium, an internal gap existed.192 Article 7(2) provides for gap-filling "according to the general principles on which the Convention is based" or those of private international law.193 Fax possesses the ability to result in traditional written form: a recordable and printable document. A fax creates a printable copy to send through a fax machine, which the receiver views in printed form when it transmits through his or her machine. Faxes sent electronically are equally readable because the document, though sent electronically, may be printed just as easily.194 Lastly, fax satisfies the drafters' intent to provide for modification measures that enable a quick decision on a contract, such as are inherent to telex and telegram. Therefore, including fax as a rapid method of initial agreement is similarly consistent with the drafters' intent to facilitate commercial transactions.195
¶ 44 Although Article 13 precedent is sparse, two Article 13 cases have been decided on the fax issue.196 In 1993, the Austrian Supreme Court decided that fax is an acceptable method to update a domestic lease in a dispute over whether the lessor had legitimately received notice of lessee's lease updates.197 The Court specifically stated that "a message sent by telefax should be considered valid" under Article 13 principles.198 In 1999, a Russian commercial arbitration similarly held that contract modifications are "effective" if sent by fax.199 Parties may "exchang[e] documents by mail, telegraph, teletype, electronic or other means of communication, which allow credible verification that the document is sent by the party to the contract."200
¶ 45 Therefore, a fax is considered a writing under Article 13 and satisfies Articles 21(2) and 29(2) modifications. With fax established as an acceptable form of an Article 13 writing, let's examine how other electronic media follow suit.
¶ 46 If the drafters included telex and telegram to account for the often quick decision needed to modify a contract, then including rapid methods of initial agreement are consistent with the drafters' intent.201
¶ 47 EDI, the computer-to-computer automatic transmission of standard forms, falls within Article 13's scope because contracts are initially required to develop the technical connections necessary to facilitate EDI.202 Parties agree beforehand on the types of documents and technical standards they will send to each other, enabling the automatic exchange of information.203 These prior arrangements are evidence of parties' intent to contract.204 The "store and forward" EDI function, which collects messages from the sender and sends them to the mailbox of the recipient, allows for readability and printing, if desired.205 Principles of European Contract Law ("PECL") also support the acceptance of EDI under Article 13 interpretation. CISG Article 13 has been compared to PECL 1:301(6), which makes no explicit mention of EDI, but encompasses any "means of communication capable of providing a readable record of the statement of both sides."206 "[E]lectronic developments such as FAX and EDI do not present more serious problems of verification than 'telegram and telex' and should be assimilated to the definition of 'writing' in Article 13."207
¶ 48 E-mail functions in a comparable manner to fax because e-mail can result in a printable record.208 Although messages and attachments, such as contracts, are sent between recipients electronically, messages are stored in the systems of both the sender and recipient.209 These messages are easily accessed and printed. Therefore, e-mail fulfills the Article 13 standard for writing as a standard format and for Article 21(2) and 29(2) modifications. Signature issues are irrelevant because form is not required under the CISG.210 If parties choose to require a signature, a signature line211 or other mark may be included to satisfy this requirement.
¶ 49 Internet-based agreements, such as those executed via click-wrap,212 are also valid. Click-wrap agreements enable a party to interact with the document by pushing a button to affirm the contract of sale.213 Parties have similar capabilities for printing out and recording a copy of the click-wrap document. Parties who agree to web-based sales contracts in a commercial context almost certainly have pre-arranged terms of the transaction, similar to EDI,214 and have established this method as a custom.215
¶ 50 Laws that may be readily amended (e.g. income tax laws and regulations) may indulge in detail, but this is "not feasible for laws that must endure."216 Domestic laws on obligations and sales have stood for almost a century and many are even older. International legislative machinery is even harder to put in motion.217 Consequently, the CISG must be read and applied in a manner that permits it to grow and adapt to novel circumstances and changing times.218
¶ 51 The CISG is purposefully a flexible, expanding document—to meet the strengths and challenges of international business, continuously promoting equitable international trade.219 Decades of drafters' work would be eradicated if new methods of electronic communication were excluded. "The key legal mechanism to ensure safe sales in [B2B] transactions is the contract."220 Contracts help parties to reach their goals, avoid disputes, and set expectations for resolving disputes if one arises.221 Because the Convention was drafted for international business people "with no special knowledge of international business law" and not lawyers, modern electronic contracting methods suit the scope and intent of the CISG. The CISG was meant to act as a neutral choice of law to help parties concentrate on transacting business instead of battling over jurisdiction.222 Furthermore, the text of the treaty does not indicate that the Convention was intended "to exclude any specific kind of communication."223 This assumption holds because electronic contracting methods were "largely non-existent" when the treaty was ratified.224 Conceivably, the drafters would have been more explicit with exclusions for a writing had they intended any.225
¶ 52 Perhaps the most revealing element of the drafters' intent for a growing definition of a contract writing is the actual language used in Article 13: "...'writing' includes telegram and telex."226 Use of the word includes indicates a non-terminating list of acceptable forms of writing: more than just the lex mercatoria, or customary, paper contract form. A different interpretation yields similar results: includes specifies that the two ensuing listed methods (telegram and telex), representative of modern electronic communications for 1980, are suitable forms of contract writing.227 Had CISG drafters enumerated acceptable contracting methods instead, a fixed interpretation of a contract writing would have been created.228 Dutch drafters actually proposed contract form enumeration for Article 11.229 However, their proposal was rejected because specific enumeration and inflexibility of terms is inconsistent with the overall purpose, intent and text of the CISG. The lack of fixed terms in the CISG points toward a writing definition that evolves with international business. Hence, use of the term includes ensures that modern communication methods for commercial contracting will not be excluded.230
¶ 53 Two additional assumptions support a liberal interpretation of Article 13. First, Article 6 enables contracting parties to "derogate from or vary the effect of any of its provisions."231 Second, the Vienna Convention specifies that when deviations occur they should not be contrary to the intent and purpose of the treaty.232 Therefore, States possess the ability to specify that a contract must be in electronic form, such as EDI, under the CISG.233 Parties could similarly require that contracts be formed via paper writing, which still would not invalidate the permissibility of electronic methods under Article 13. Thus, when interpreting Article 13, the freedom of formality and freedom of contract principles imply an "inclusive interpretation" that accepts any of the aforementioned electronic contracting methods when a writing is required.234
¶ 54 Article 13's affirmation of electronic contracting is also supported by other Convention articles. The articles' connections magnify the drafters' original intent to promote growing international trade, encourage active contracting, and harmoniously co-exist with states' domestic laws.235
¶ 55 Article 20's provision for fixed acceptance periods also specifies how telegrams, letters, telexes, telephones or "other means of instantaneous communication" are handled.236 The acceptance period for telegrams and letters begins at the point when it is handed in to dispatch, or from the date shown on the letter or envelope, depending on which is available.237 An acceptance via a phone call, telex, or other instantaneous measure begins when the offer reaches the offeree.238 The important distinction drawn from Article 20 supporting Article 13 is the combination of media in each specific fixed acceptance period. Telegrams are included with letters as non-instantaneous means of communication, whereas telex, phone calls, and other means are instantaneous. Because e-mail, EDI, and the Internet provide instantaneous means of communication, their acceptance periods are also fixed when the communication reaches the recipient under Article 20.239 If these measures satisfy Article 20 criteria precisely in the same manner as the cited methods, then they should be viable options for creating a contract under Articles 11 and 13.240
¶ 56 Articles 12 and 96 also support a liberal interpretation of Article 13. Combined, they permit a State to exclude Article 11, which stipulates freedom of contract form, by substituting its own domestic laws on writing.241 Article 96 stipulates that States reserve the option of declaring that Article 11's lack of freedom of form does not apply "where any party has his place of business in that State."242 States invoking this reservation could dictate writing requirements, which must be agreed upon by both contracting parties, though States need not have reserved in order to impose a writing requirement. 243 However, Article 6 allows for variance of CISG provisions, as long as they do not act contrary to the intent of the treaty.244 To this end, parties may choose to impose an electronic contracting requirement just as easily as a paper requirement. One of the key reasons Article 11 allows freedom of form is not to bias modification methods in favor of one party.245
¶ 57 The "observance of good faith in international trade" and gap-filling requirement embodied by Article 7 is perhaps the most compelling support of Article 13's natural extension to include electronic contracting methods within its definition of writing. The CISG's principles are expected to endure and to "embrace the gamut of transactions and conditions that will arise in a diverse and developing international economy."246 Because the CISG was created to facilitate commerce across a variety of political, legal and socio-economic systems, thus requiring a different level of detail than domestic legislation, frequent changes by legislative adjustment are unrealistic.247 Article 7 recognizes that uniform international law is difficult to achieve, must be interpreted "with sensitive regard for its special character and purpose," and is meant to "adapt and grow in light of new circumstances."248
¶ 58 Article 7(1) asserts that the Convention should be interpreted "to promote uniformity" and "the observance of good faith in international trade."249 Good faith applied in the CISG is not a general requirement but an interpretation principle250 that holds a reasonableness standard to those acceptable in trade.251 Article 9 advances this standard by establishing that parties give notice regarding trade customs or usages widely known in international trade so they can apply to contracts and their formation.252 International business customs and usages are always evolving; therefore, the "terrain" to which the CISG is applied will change, along with CISG interpretations. Electronic commerce is "transform[ing] how international trade participants (including governments) conduct business;" thus, electronic contracting is an international business custom.253 It does not "alter the substance of business contracts so much as it alters the process of agreement."254 Therefore, a narrow construction of the CISG would make it inapplicable to grounds it once covered and affect its future applicability and longevity.255
¶ 59 Article 13 of the Vienna Convention also lends support to an expansive interpretation of a writing in Article 13. It proclaims that a treaty is supposed to be interpreted within the "ordinary" meaning of its own terms "in their context and in the light of its object and purpose."256 A Convention that creates obligations between States for contracting in international sales is naturally subject to its purview.
¶ 60 The necessary complement to the good faith inclusion is the "gap-filling" measure provided for in Article 7(2), which governs matters "not expressly settled" in the CISG.257 Such matters must be developed from the general principles of the Convention, or by "virtue of the rules of private international law" if general principles are absent.258 Thus, matters governed by the Convention, such as formation or writings, turn to the Convention itself to provide meaning and solutions or look to private international law to resolve discrepancies.259
¶ 61 Combined, the two paragraphs of Article 7 convey that general CISG principles should be applied to new situations, as it would have been difficult and extraneous to the purpose of a uniform code to anticipate every detailed scenario. Article 13's writing definition would, therefore, naturally include electronic forms of contracting because to do so is consistent with the purpose of the Convention and falls neatly within the gap-filling provision of Article 7. Furthermore, Article 13 lies within Part II (General Provisions) of the CISG, which specifically lends itself to a broader interpretation.260
¶ 62 Shrink-wrap agreements are a form of electronic contracting which could pose a challenge to automatic inclusion under Article 13. Shrink-wrap agreements are affirmed by silence or inaction because the user does not have to take any active measure to demonstrate acceptance.261 The CISG expressly prohibits acceptance by silence or inactivity, per Article 18.262 However, a solution to this problem exists within the CISG. If the Buyer and Seller agree to transact business this way—through a shrink-wrap agreement, their respective intent to contract is established.263 Since the Buyer needs to give his or her acceptance to this method of contracting, he or she takes an active part in assenting to the offer. Therefore, the exclusion of agreements by silence or inaction would not apply.264
¶ 63 In summary, Article 13's articulation of two now outdated writing media does not result in the exclusion of electronic contracting. Article 13's purpose and scope, supported by other articles, and the Convention's intent to expand global trade through uniform contracting principles reveal that these new methods are organically acceptable.265 That the Convention has yet to be updated to reflect electronic forms of contracting is a testament to the uniformity and flexibility of the Convention to smoothly adapt to novel circumstances in changing times.
¶ 64 This comment has argued that computer-based contracts are valid under the CISG. As a result, there is no call for change to the CISG. The intent of the Convention and Article 13 points to an inclusive interpretation of writing, which is supported by legislative history, case law, and lex mercatoria. However, an analysis of Article 13's extension to electronic contracting would lack a thorough evaluation without viewing it in light of international and domestic legislation which has recently started to address the shift toward electronic commerce. Thus, Part V describes how such legislation fills the Article 13 writing gap and how parties might make the CISG subject to its purview. Section A presents the UNCITRAL Model Law on Electronic Commerce—the U.N. framework for States' domestic electronic commerce legislation.266 Since the mid-1990's, the e-commerce phenomenon has incited countries around the world to remove legal barriers to e-commerce.267 As an example of domestic efforts to give equal validity to electronic contracts, Section B examines the world's largest e-commerce player—the United States.268
¶ 65 The U.N. Model Law on E-commerce originated to further progress and harmonize international trade by including electronic transactions within the scope of international contracts, to accommodate increasing usage.269 The Model Law identifies paper as the main obstacle for electronic commerce-based legislation, because of physical writing requirements.270 The Model Law ensures "legal security in the context of the widest possible use of automated data processing in international trade."271 However, the Model Law legitimizes electronic communications without disturbing international or domestic paper-based legislation.272 Its articles apply to any kind of data message used in commercial activities.273 It directly addresses legal obstacles posed by terms, such as writing, signed (or signature), and original, to include electronic contracting.274 Overall, the UNCITRAL Model Law is perhaps the comprehensive answer to omitted parts of the CISG, such as Article 13, because it directly addresses writing issues to resolve contracting concerns, including offer, acceptance, consideration and modification.275
¶ 66 Specifically, the Model Law sets forth that electronic communication should not be denied legal effect "solely on the grounds that it is in the form of a data message."276 Legal effect includes "due evidential right."277 Instead of directly equating electronic documents to paper documents, the Model Law regards data messages as a "functional-equivalent," by isolating "basic functions of paper-based form requirements" and explaining data messages to meet these requirements.278 Offer, acceptance, and any part of contract formation is acceptable "by means of data message."279 Distinct from the CISG, writing is delineated to include data messages if the information can be accessed for subsequent reference.280 It specifies the validity of data messages used as electronic signatures, assuming the signer and his assent can be identified reliably.281 Data message originality is also addressed to account for imagery and integrity.282 Time and place of data message dispatch regulate offer and acceptance.283 Dispatch time is set at the time the sender loses control over the data message in the information system, unless otherwise agreed upon by parties.284
¶ 67 The scope of the Model Law is intentionally broad, to give the "widest possible application" to electronic communications to facilitate its increasing international use.285 The framework purposefully does not set forth every electronic contracting contingency. Instead, it defines key terms with open-ended wording to include enough guidance for States to apply terms as best fitting circumstances. The open-ended choice is based on the functional-equivalent approach toward electronic communications. Model Law drafters believe that "electronic records can provide the same level of security as paper and, in most cases, a higher degree of reliability and speed, especially with respect to the identification of the source and content of the data."286
¶ 68 Perhaps more importantly, the Model Law advises that it can be a "tool" to interpret "existing international Conventions... that create legal obstacles."287 Its "media neutral"288 approach to electronic commerce methods as paper-alternatives to communication, storage and authentication reflects the United Nation's recognition of them as international trade customs.289 Although it has been established in Part IV, supra, that computer-based contracts are acceptable under the CISG, the Model Law also fills the electronic contract gap in Article 13 if states incorporate Model Law provisions into their legislation or create similar legislation themselves. The CISG Article 96 reservation allows States to make a declaration in accordance with Article 12 to require that sales contracts "be concluded in or evidenced by writing" as required by domestic legislation.290 For example, a seller in Australia could specifically require its Romanian buyer to use electronic contracts or assume that these means are acceptable because of existing domestic legislation.
¶ 69 Although the Model Law is not a compulsory piece of legislation, UNCITRAL efforts to provide international recognition for paperless contracts are influential over States whose laws do not equally protect or are silent on electronic contracts.291 U.N. efforts have not stopped at the Model Law on Electronic Commerce. In 2001, UNCITRAL adopted model laws on electronic signatures: UNCITRAL Model Law on Electronic Signatures.292 It reinforces the signature principles of the Model Law on E-commerce to help States build reliance and achieve harmonization on digital marks for legal effect as a functional-equivalent to handwritten signatures.293
¶ 70 UNCITRAL's goal to influence domestic legislation has become a reality.294 The United States, the world's largest e-commerce participant,295 has followed UNCITRAL's quest to remove obstacles from the free flow of electronic commerce—to make it an accountable contracting method for international business.296 In particular, the U.S. has enacted one federal statute, E-SIGN, and two model codes, UETA and UCITA, which states have the option to adopt.297 Although Section B merely introduces the underlying principles and applications of domestic e-commerce law, the compelling thread linking each piece is the direct endorsement of electronic contracts as a valid writing which is given equal legal accord with its paper predecessor.
¶ 71 The United States' enactment of E-SIGN combines the major tenets of the UNCITRAL Model Laws on E-commerce and E-Signatures within the first section of the statute. It provides a general rule for signatures, contracts, "or any other record relating to such transaction" that will not be "denied legal effect, validity, or enforceability solely because it is in electronic form."298 This applies to both consumer and business transactions.299 In essence, E-SIGN gives equal footing to paperless contracts as paper contracts so that parties may transact "without ever exchanging documents in paper format."300 Thus, when a person clicks on "I agree," he or she is bound.301 E-SIGN ushers in paperless contracting without preferring one technology over another and pre-empting state legislation which may wish to attempt such regulation.302
¶ 72 Similar to its federal counterpart, E-SIGN, UETA is the state model law that also protects electronic signatures or records from being "denied legal effect or enforceability solely because it is in electronic form."303 It assures the public that online contracts are valid. Like the CISG, the UETA aims not to be formulistic. For example, it does not requite a writing but instead states that whenever a formal writing requirement exists, it can be satisfied by electronic means as long as the signature method ensures the intention to sign.304 The UETA also has exclusions, which include testamentary documents, most of the UCC, and other specifically identified statutes.305 Although the UETA focuses more on the intent to sign than just the presence of an electronic document itself as in E-SIGN, the UETA places greater emphasis on which party bears responsibility in case of an error. The UETA favors the party relying on the mistake, to ensure that web-site designers craft contracts and other agreements to ensure maximum visibility and interaction, thereby increasing the chance that when a party clicks on a button to affix consent, he or she really means it.306 Electronic agents are also considered to be valid forms of contracting under the UETA, even if its users are unaware of or do not review the contents of agents' transactions.307 If a state adopts the UETA, however, it by no means forces parties to accept an electronic signature unless parties have agreed to transact electronically.308
¶ 73 The third important piece of U.S. domestic legislation is the controversial UCITA, drafted by the National Conference of Commissioners on Uniform State Laws, as a "commercial contract code for the computer information transaction."309 It reflects an achievement after many failed attempts to convert UCC Article 2 into a software and information-based licensing clone.310
¶ 74 UCITA mainly applies to software licenses, licenses to access online databases, website user agreements, and "agreements for most Internet based information."311 The biggest concern with UCITA is that it favors software sellers' rights over those of consumers, which would not exist in a non-UCITA jurisdiction.312 UCITA usurps these rights in the following manner: 1) consumers often must agree to contract terms before reviewing them, 2) sales are conditioned on license agreements instead of sales agreements, which forces a user to agree to set terms before purchase, 3) because the licensor drafts the agreement (and thus chooses the language), the licensor chooses the most favorable jurisdiction.313 UCITA diverges from E-SIGN and the UETA by rejecting "signature" terms in favor of "authentication," which includes sounds, encryption, or any other process including recording or adopting a symbol that indicates a party has identified himself as adopting, accepting or verifying the content and terms of the record.314 The authentication process should be technologically neutral and provide sufficient evidence for affirmation and identification.315
¶ 75 Virginia is the first of only two states to enact UCITA, claiming jurisdiction unless parties contract otherwise before agreement.316 Iowa, in contrast, found UCITA so outrageous that it instituted a "bomb-shelter" provision "expressly forbidding any party from enforcing UCITA as a choice of law against any Iowa citizen or business."317
¶ 76 Although UCITA is the least accepted of the U.S. E-commerce related laws (or model laws), its presence as a body of legal work represents an important step in the evolution of domestic computer transaction law. Despite its controversial nature, UCITA presents yet another example of the accepted nature of computer-based contracts which prevail in international business transactions to comport with and to perhaps fill the gap in the CISG.
¶ 77 Unless the CISG is the domestic law of a State,318 domestic rules are generally not evaluated in a CISG dispute. Recall, the purpose of the CISG is to provide a neutral choice of law for different contracting States.319 However, they may be relied upon for a contract writing, under Article 11, which allows States to require domestic writing form.320 This is accomplished by Article 12 and 96 reservations, which allow the writing requirement to apply to contract formation and modification (Article 29).321 Therefore, parties who are subject to the CISG could require electronic contracts, paper contracts, or remain silent on the issue. In this case, all methods would be acceptable. For example, a U.S. seller could require a German buyer to conform to the requirements of U.S. law, which includes electronic contracting as an acceptable writing. Here, domestic laws favor a liberal interpretation of Article 13 because U.S. legislation gives equal weight to electronic contracts as paper contracts. 322 Each State, however, has its own domestic contract laws.323 Therefore, parties must specify the choice of law when engaging in international sales. If the CISG is chosen, as is common to avoid a battle of the forms, electronic contracts are acceptable contract writings. The complexity of domestic law underlies the purpose of the CISG: to create uniformity for international sales contracts.324
¶ 78 No precedent, other than the two aforementioned fax cases, has been found regarding electronic contract validity under the CISG.325 Perhaps this results from electronic contracts already being naturally accepted as CISG writings. Alternatively, merchants find non-legal recourses to disputes, preferring to focus on maintenance of the commercial relationship or quickly resolving the matter instead of resorting to litigation. Nonetheless, merchants should feel confident that when applying the CISG to international sales contracts, Article 13 evaluation will favor electronic contracts. Merchants can further rely on the U.N. Model Laws on Electronic Commerce and Electronic Signatures and, in many states, domestic legislation for support.
¶ 79 Because the CISG is the foremost authority on international sales, the absence of computer-based contracts in the definition of a contract writing could theoretically leave a significant legal gap in the commercial certainty and predictability of international sales. Electronic contracts have both complicated and facilitated international sales transactions with faster and easier methods of conducting business: even one person with a computer and an Internet connection can become an agile global competitor. This comment has argued that although CISG's Article 13 does not explicitly mention electronic contracting methods as acceptable forms of writing, they are organically included in the CISG by way of Article 13's history and legislative intent, relationship with other articles and scope implied through precedent. Businesses, legal practitioners, and justice systems alike should understand the CISG's capacity, which provides for an expansive scope to develop with the global marketplace, without additional revision. International and domestic legislation is constantly modernized to account for electronic communications to ensure certainty and predictability in commercial transactions, which additionally supports Article 13's inclusion of electronic contracting through reservation or international commercial custom. Accordingly, the United Nations Convention on Contracts for the International Sale of Goods remains an enduring code, flexibly adapting to new trade customs while retaining uniform principles to assist international sales, that earned its adoption by two-thirds of nations engaged in global trade.326
Jennifer E. Hill
JD/MBA Candidate, 2004
Northwestern School of Law/Kellogg School of Management
emailaddress@emailaddress.com
"(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law." Id.
(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.
See also Ramsburg, supra note 215; Schlechtriem, supra note 110, at 40-41.
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