By Brett S. Krantz, Mark D. Rasch, and Melissa A. Yasinow
At stage left we see Jack Smith, the sales representative for Crown Corp., sitting next to his work telephone. He has a bandage on his forehead. At stage right we see Jill Jones, the supplies manager for Hill, Inc., sitting at her desk. Jack picks up his phone and dials.
Jill: Hello, Jill Jones, supplies manager for Hill, Inc., speaking.
Jack: Hello, this is Jack Smith, sales representative for Crown Corp.
Jill: Oh, hi, Jack, great to speak with you. I heard that you fell down – how are you?
Jack: Minus a couple of stitches, I’m doing fine. Hey, I just got your message that Hill, Inc. is interested in buying ten pails of water. Is that correct?
Jill: Yes, we want to purchase ten pails of water.
Jack: All right. [Jack presses another button on his phone]. Jill, this conversation is going to be recorded; is that all right with you?
Jack: Excellent. This is a conversation between Jack Smith, sales representative of Crown Corp., and Jill Jones, supplies manager for Hill, Inc., on Jan 1, 2012. Crown Corp. is willing to sell Hill, Inc., ten pails of water for $50 with delivery in five business days. Does Hill, Inc., wish to make this purchase?
Jill: Yes, we do.
Jack: In that case, please press #5 on your touchtone phone to confirm your order. [Jill presses #5 on her phone. A touchtone sound is heard by the audience.]
Jack: Thank you very much. A copy of the contract will be mailed to Hill, Inc., immediately.
Jill: Thanks, Jack – bye!
Ladies and gentlemen, as you probably already know, you have just witnessed the creation of a binding oral contract between Hill, Inc. and Crown Corp. However, what you may not realize is that, thanks to two relatively new sets of laws – the Electronic Signatures in Global and National Commerce Act (“E-SIGN”) and the Uniform Electronic Transactions Act (“UETA”) –you have witnessed something far greater than the creation of a mere oral contract. Instead, because Jack and Jill intentionally recorded their telephone conversation, and because Jill gave vocal acceptance and touchtone confirmation for her purchase, Jack and Jill actually created an enforceable signed, written contract.
How E-SIGN and UETA Work: Under both E-SIGN and UETA, electronic contracts (that is, contracts comprised of “electronic records” and/or “electronic signatures”) are the legal equivalent of physically signed and written contracts. This legal reality is important for businesses because, thanks to a nationwide law called the Statute of Frauds, many contracts – such as contracts for the sale of goods worth over $500 – are unenforceable if they are not memorialized in a signed, written contract.
An electronic record is created when the parties store the terms of their agreement through electronic means, such as when Groupon offers its deals on the Internet or when Jack recorded his conversation with Jill. An electronic signature is created when the parties express their intent to be contractually bound through electronic means, such as when a consumer clicks on Groupon’s “Complete Order” button or when Jill vocally assented to the contract and then intentionally pressed a button on her phone. Thanks to E‑SIGN and UETA, anytime businesses and consumers create electronic records and electronic signatures, regardless of the medium, they will be creating signed written contracts that satisfy the Statute of Frauds.
Providing Well-Informed Consent: To create legally valid, signed, written contracts over the telephone, businesses must be able to prove that their customers intended to become contractually bound. The easiest way businesses can accomplish this goal is for them to adopt a formal, multi-step process that secures and records their customers’ knowing and well-informed consent.
First, when businesses contact their customers, they should make sure that their customers understand they are being recorded. Not only will this help businesses prove that their customers intended to create an electronic record, it will also help businesses comply with state audio-recording consent laws.
Second, businesses should inform their customers about the material terms of the contract and state that any additional terms will be delivered with their ordered product or service. Businesses should also tell customers that they may reject these additional terms by refusing delivery or returning their order.
Third, businesses should clearly warn their customers that they are about to enter into a binding legal contract. For example, a telephonic seller might tell a customer:
“Ma’am, thank you very much for your business. You are about to enter into a binding, written contract with [insert business name]. Do you understand that you are about to enter into a contract with [insert business name]?”
“Yes, I do.”
Two-Step Confirmation Recommended: Additionally, businesses should also use a recorded two-step vocal-and-touchtone confirmation process to secure their customers’ electronic signature. Although a customer’s vocal agreement alone might be enough to prove her intent to be contractually bound, an additional step of “touchtone confirmation” would help businesses prove, beyond any doubt, that their customers intended to contract with them. For example, a telephonic seller might record the following interaction:
“Sir, do you agree to purchase ten widgets from us for three payments of $9.99 a month?”
“Yes, I do.”
“Please press five on your phone to confirm your order.” The consumer presses five. “Thank you very much for your business. Have a good day.”
By engaging in this multi-step process, businesses will be better able to protect themselves and prove that their customers intended to sign the contract.
Final Considerations: Finally, businesses should remember to check relevant state consumer protection laws, such as the Iowa Discount Buying Club Act, which requires businesses to give consumers physically written contracts in boldface type and large font. Although E-SIGN and UETA help businesses create valid contracts, they do not replace the substantive provisions of state consumer protection laws, and many businesses cannot comply with these laws over the phone. Remember: businesses can receive “signed writings” produced by their customers over the telephone, but they cannot telephonically give their customers a “writing” for them to sign and then telephonically return.
If these recommendations are followed, then, under both UETA and E-SIGN, businesses should be able to enter into signed, written contracts with their customers over the telephone and avoid potential litigation.
Brett S. Krantz is a partner and the head of litigation at the Cleveland, Ohio, law firm Kohrman, Jackson & Krantz, where he specializes in representing clients in responding to regulatory investigations of consumer practices in the telemarketing field.
Mark Rasch is the director of cybersecurity and privacy consulting at technology company CSC, where he helps companies protect the confidentiality, availability, and integrity of digital information.
Melissa A. Yasinow is an associate at the Cleveland, Ohio, law firm Kohrman, Jackson & Krantz, where she practices in litigation and assists clients in the telemarketing industry in responding to regulatory concerns and investigations.
[From Connection Magazine – Jul/Aug 2012]