- Providing for Autonomous Electronic Devices in the Electronic Commerce Act 1999
- I. The Technological Promise of Autonomous Electronic Devices
- II Doctrinal Difficulties Associated with Automated Electronic Commerce
- III. Curing Doctrinal Difficulties by Treating Electronic Devices as Independent Legal Persons
- IV. Curing Doctrinal Difficulties by Treating Electronic Devices as Extensions of Human or Corporate Interaction
- V. Curing Doctrinal Difficulties by Treating Electronic Devices As Agents
- VI. Summary of Recommendations
- All Pages
IV. Curing Doctrinal Difficulties by Treating Electronic Devices as Extensions of Human or Corporate Interaction
The above recommendation against treating electronic devices as independent legal persons is consistent with the current approach adopted by the UNCITRAL Model Law on Electronic Commerce, the proposed Uniform Electronic Transactions Act, the proposed Uniform Computer Information Transactions Act and other similar legislation.101 Instead of treating electronic devices as independent legal persons, the relevant provisions in each of these codes utilizes a mechanism that attributes the interactions of electronic devices to the legal persons utilizing those devices. On this style of approach, one simply disregards the autonomy demonstrated by the electronic device in the formation of the agreement and pretends that it is nothing more than a communication tool. This technique has been described by some authors as the adoption of a legal fiction: we pretend that anything issuing from the computer really issues from its human controller.102
For example, the “Guide to Enactment” accompanying the UNCITRAL Model Law states that "[d]ata messages that are generated automatically by computers without human intervention should be regarded as 'originating' from the legal entity on behalf of which the computer is operated."103 The typical justification for this kind of approach is exemplified by comments that were made during a meeting of the UETA Drafting Committee, which underscored “that the key aspect of this term is its function as a tool of a party.”104 The UETA Reporter’s Notes go on to say that
As a general rule, the employer of a tool is responsible for the results obtained in the use of that tool since the tool has no independent volition of its own. ... This Act (S.114) provides that a person is responsible for the actions taken and accomplished through electronic agents in the absence of human intervention.105
Similarly, the “Reporter’s Notes” in the Uniform Commercial Code-2B (the precursor to the UCITA) states that the electronic agent “is in effect a mere extension of the person utilizing it and its actions constitute the actions of the individual.”106 The viewpoints expressed in each of the above policy statements has led to the formulation of attribution rules in each of the respective proposed statutes.
Attribution Rules in the Proposed and Enacted Legislation
1. The UNCITRAL Model Law on Electronic Commerce107
Among the first bodies to formulate legislation108 on electronic commerce was the United Nations Commission on International Trade Law (UNCITRAL). This initiative was undertaken partly in response to the fact that many countries have inadequate or outdated legislation governing the communication and storage of information. Perhaps more importantly, it was felt that many countries’ existing laws actually impede the potential growth of electronic commerce by prescribing rules which impose restrictions on the use of modern media of communication.109 The aim of the Model Law was not simply to enhance global trading by removing legal barriers such as these, but to do so in a manner that would result in certainty and uniformity in international trade.110
Article 2 of the Model Law sets outs out a number of key definitions. Although it does not define or even refer to autonomous electronic devices, in its definition of an “Originator” of a data message, it permits such devices to perform operations on an originator’s behalf:
ARTICLE 2. DEFINITIONS
For the purposes of this Law:
(c) "Originator" of a data message means a person by whom, or on whose behalf, the data message purports to have been sent or generated prior to storage, if any, but it does not include a person acting as an intermediary with respect to that data message;111
The above definition provides an implicit recognition of the use of autonomous electronic devices as it does not limit an intermediary to a “person” while allowing for circumstances in which a message might be sent on some person’s behalf.112 Indeed, the “Guide to Enactment” states that “[d]ata messages that are generated automatically by computers without direct human intervention are intended to be covered by subparagraph (c).”113
In Article 13 of the Model Law, not only is the use of such a device recognized, its operations are attributed to the person using it.
ARTICLE 13. ATTRIBUTION OF DATA MESSAGES
(1) A data message is that of the originator if it was sent by the originator itself.
(2) As between the originator and the addressee, a data message is deemed to be that of the originator if it was sent –
(a) by a person who had the authority to act on behalf of the originator in respect of that data message; or
(b) by an information system programmed by, or on behalf of, the originator to operate automatically.114
The deeming provision in Article 13 attributes to the originator both the acts of traditional agents, (i.e., persons conferred with the authority to act by some principal) and the operations of information systems. Although the provision goes on to assign limits to the circumstances under which an addressee115 is entitled to regard a data message as being that of the originator,116 nowhere in Article 13 or in any of the other provisions are there specified limitations with regard to the power of an information system to bind the person on whose behalf the system was operating. In other words, information systems programmed by or on behalf of the originator to operate automatically – though they are not meant to be made the subject of rights and obligations117 – are treated in precisely the same manner as persons who have been given the authority to act on the originator’s behalf. That is, they have the power to bind the originator. As stated in its “Guide to Enactment”, “[d]ata messages that are generated automatically by computers without human intervention should be regarded as ‘originating’ from the legal entity on behalf of which the computer is operated.”118
The Proposed Uniform Electronic Transactions Act119
The most recent draft of UETA, which will ultimately be considered for adoption by the National Conference of Commissioners on Uniform State Laws, deals with electronic devices in a more sophisticated manner than the Model Law and it expressly recognizes that such devices can operate independent of any human review.
SECTION 102. DEFINITIONS
“Automated transaction” means a transaction conducted or performed, in whole or in part, by electronic means or electronic records in which the acts or records of one or both parties are not reviewed by an individual in the ordinary course in forming a contract, performing under an existing contract, or fulfilling any obligation required by the transaction.
(6) “Electronic agent” means a computer program, electronic, or other automated means used to initiate or respond to electronic records or performances in whole or in part without review by an individual in the ordinary course of a transaction.120
Section 113 of the UETA expressly permits contracts to be formed by electronic agents. According to the Reporter’s Notes, “[t]his is in keeping with the purpose of the Act to deal with removing barriers to electronic transactions while leaving the substantive law, e.g., the law of mistake, law of contract formation, unaffected to the greatest extent possible.”121
SECTION 113. FORMATION OF CONTRACT
(a) If an offer in an electronic record initiated by a person, or by its electronic agent, evokes an electronic record in response, a contract is formed in the same manner and with the same effect as if the electronic records were not electronic, . . .
(b) In an automated transaction, the following rules apply:
(1) A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents’ actions or the resulting terms and agreements.
(2) A contract may be formed by the interaction of a person’s electronic agent and an individual, including by an interaction in which the individual performs actions that it is free to refuse to perform and that it knows or has reason to know will cause the electronic agent to complete the transaction or performance.
(c) The terms of a contract are determined by the substantive rules of law applicable to the particular contract.122
In addition to enabling electronic agents to contract, the above section provides a mechanism for click-through transactions. Its effect is to validate online transactions, such as where a consumer effects a purchase by interacting with an electronic agent on a commercial Web site. It will likely also affect other informational transactions, such as agreements in which one party enables another to use information contained on a Web site for personal purposes in exchange for a promise to agree to the Web site owner’s terms and conditions.123
Despite a recognition that electronic devices can operate autonomously and can enter into contracts without human oversight, the operations of such devices are still treated in UETA as nothing more than the extensions of human action. In fact, the attribution formula found in section 114 is quite stark.
SECTION 114. OPERATIONS OF ELECTRONIC AGENTS
[Operations of an electronic agent are the acts of a person if the person [knowingly] used the electronic agent for such purposes.]124
The square brackets enclosing the underlined word “knowingly” indicate that the Committee is undecided as to whether that word should remain in the section. Although it is obvious that its inclusion would result in a knowledge requirement of some sort, the wording of the section is ambiguous. Is it meant to suggest that those persons who know that they have initiated the operations of an electronic agent will be liable for all of its operations? Or does it mean that only those who know the purposes for which their electronic agents will operate are liable when the electronic agents operate as such? In many instances, the difference could be crucial.
The square brackets enclosing the entire provision indicate that the Committee is still considering whether this section is necessary at all. The Reporter’s Notes imply that a number of Committee members think that it merely “states the obvious”125 since the term ‘electronic agent’ is characterized in the Definitions section as a kind of tool. Though the discussion does not specifically include any consideration of the fact that automated transactions might one day soon involve technologies that produce unexpected or unpredictable results, the Reporter’s Notes do express that this section presents a fundamental policy question: Should legal issues arising from the use of electronic agents be addressed more broadly in the Act or “[w]ould it be better to leave the development of the general responsibility of parties in such cases to the development of the law?”126 According to the Reporter’s Notes, this matter remains unresolved by the Committee.
Two other sections of the UETA are involved in its attribution process. Section 108 has the effect of attributing an electronic record or electronic signature to a person when that record or signature resulted from the operations of his or her electronic agent.
SECTION 108. ATTRIBUTION AND EFFECT OF ELECTRONIC RECORD AND ELECTRONIC SIGNATURE
(a) An electronic record or electronic signature is attributable to a person if it was in fact the electronic record resulted from the act of the person, or its electronic agent. Attribution may be proved in any manner, including by a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.
(b) The effect of an electronic record or electronic signature attributed to a person under subsection (a) must be determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if any, and otherwise as provided by law.127
This section is similar to though perhaps more elegant than Article 13 of the Model Law. In addition to attributing the operations of electronic agents to the persons utilizing them, this section highlights the important role to be played by security procedures in the electronic environment. Not surprisingly, reliable authentication mechanisms will become necessary as electronic agents are used more and more to create electronic records and electronic signatures. Another similarity between section 108 UETA and Article 13 of the Model Law is that neither provide for the possibility that an autonomous electronic agent might operate in a manner unknown, unforeseen or unauthorized by the person who initiated its use. Currently, both provisions would attribute liability to the person who initiated the electronic agent even if it malfunctioned or performed operations unintended by the person on whose behalf it was operating. This is highly problematic and will be further addressed below in Parts V and VI.
The final relevant provision in UETA is section 109. Although this section deals primarily with the legal effect of changes or errors in an electronic record, subsection (b) contains a special provision for mistakes that occur in the contract formation process as between an individual and an electronic agent. Such a provision is premised on a recognition that the process of automation may generate an number of unexpected results in the form of keystroke errors and other human mistakes. This provision is therefore necessary to make up for the fact that, in an automated transaction, it will not always be possible for an individual to communicate to the electronic agent after the fact that he or she hadn’t meant to enter into the transaction. The section seeks to accomplish these things without otherwise disturbing the law of mistake. In fact, subsection (c) specifically refers to the substantive law and indicates that it applies, as always, with the exception of the circumstances contemplated in subsections (a) and (b). The section also seeks to provide an incentive for the implementation of error correction mechanisms.
SECTION 109. EFFECT OF CHANGES AND ERRORS
Unless otherwise agreed, if a change or error in an electronic record occurs in a transmission between parties to a transaction, the following rules apply:
(a) If the parties have agreed to use a security procedure to detect changes or errors and one party has conformed to the procedure, but the other party has not, and the nonconforming party would have detected the change or error had that party also conformed, the effect of the changed or erroneous electronic records is avoidable by the conforming party.
(b) In an automated transaction involving an individual, the individual may avoid the effect of an electronic record that resulted from an error by the individual made in dealing with the electronic agent of another person only if the electronic agent did not provide an opportunity for the prevention or correction of the error and, at the time the individual learns of the error, the individual:
(1) promptly notifies the other person of the error and that the individual did not intend to be bound by the electronic record received by the electronic record received by the other person;
(2) takes reasonable steps; including steps that conform to the other person’s reasonable instructions, to return to the other person or, if instructed by the other person, to destroy the consideration received, if any as a result of the erroneous electronic record; and
(3) has not used or received the benefit or value of the consideration, if any, received from the other person.
(c) If neither subsection (a) nor (b) applies, the change or error has the effect provided by law, including the law of mistake, and the parties’ contract if any.
In the context of consumer purchases, one of the most important aspects of this provision is contained in subsection (b). According to it, an individual will be precluded from avoiding a transaction on the basis of a mistake in situations where the electronic agent has provided an opportunity for the individual to prevent or correct the error. Although this seems fair enough, it is sure to create a disadvantage for the average consumer who has by now become accustomed to clicking-through a Web site rapidly and without carefully inspecting its terms and conditions. Such consumers are likely to click “yes” on the “Are you sure?” screen long before giving pause to consider whether they had made any mistakes along the way. Although section 109 merely provides default rules,128 it is unlikely that the parties in a typical automated consumer purchase scenario will have been in a position to agree to a separate set of rules to govern mistaken transactions.
The focus of subsection 109 (b) is on human errors in automated transactions . However, in addition to situations where an individual transmits an offer or an acceptance by accident, it is also possible that an electronic agent might malfunction or, even more likely, function properly though unpredictably to transmit an offer or acceptance that was unintended, unforseen or unauthorized by the person on whose behalf the electronic agent was operating. It is important to note that nothing in this provision or in any other section of UETA contemplates this possibility. Aside from its potential to yield unjust results, the failure to include electronically generated mistakes in this section might provide a disincentive to merchants in electronic commerce, who would be hesitant to utilize autonomous agent technology if that technology is given an unlimited power to bind them, regardless of the circumstances of the transaction.
The Proposed Uniform Computer Information Transactions Act129
The National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law Institute have been working for several years on a set of coherent legal standards to support electronic transactions. Originally, it was thought that the proposed legislation would be incorporated into the Uniform Commercial Code as Article 2B. However, on April 7, 1999, it was announced that the NCCUSL would promulgate legal rules regarding computer information transactions as a separate Act entitled Uniform Computer Information Transactions Act (UCITA). Like the Model Law and UETA, the UCITA is being created in response to the tremendous growth in the information industry. It too is intended to address the need for uniformity and clarity in the online environment. The Act purports to deal with three issues of contract law that apply to electronic commerce: i) the authentication of electronic records, ii) the manifestation of assent, and iii) the attribution of electronic messages. The new proposed statute is to be presented at the meeting of the NCCUSL on July 23-30, 1999 in Denver, Colorado. The NCCUSL has targeted the UCITA for enactment in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands in the fall of 1999.
Like the Model Law and UETA, the former UCC-2B treated the operations of electronic agents as an extension of human action. According to its Reporter’s Notes, “[p]arties who employ electronic agents are ordinarily bound by the results of their operations.”130 However, on June 2, 1999, a newly revised version of the UCITA was released which includes a number of modifications to this general rule. Those modifications are found in the following relevant sections of UCITA.
SECTION 102. DEFINITIONS:
(a) In this [Act]:
“Automated transaction” means a contract formed or performed in whole or in part by electronic means or by electronic messages in which the electronic actions or messages of one or both parties which establish the contract are not intended to be reviewed in the ordinary course by an individual before the action or response.
(15) "Conspicuous", with reference to a term, means so written, displayed or otherwise presented that a reasonable person against which it is to operate ought to have noticed it. A term in an electronic record intended to evoke a response by an electronic agent is conspicuous if it is presented in a form that would enable a reasonably configured electronic agent to take it into account or react without review of the record by an individual. Conspicuous terms include the following:
(B) with respect to a person or an electronic agent, a term or reference to a term that is so placed in a record or display that the person or electronic agent can not proceed without taking some action with respect to the term or reference.
(28) “Electronic agent” means a computer program, electronic, or other automated means used independently to initiate an action or respond to electronic messages or performances without intervention by an individual at the time of the action, response or performance.131
In spite of the Reporter’s Note that electronic agents are not fully equivalent to the common law notion of an agent, UCITA does define computer programs that operate independent of human review as “electronic agents”. The definition of “electronic agent” and “automated transaction” aren’t all that different here from those of UETA. UCITA does add some sophistication by considering the fact that the contract law notion of “conspicuous terms” will have a particular meaning in the context of automated transactions.
Section 202 is a general provision on contract formation which validates transactions entered into by electronic agents. The language contained in subsection (a) is somewhat different than the language found in the Model Law and UETA. It implies that a contract will be formed through the operations of electronic agents only if the transaction demonstrates the existence of an agreement between the parties using the electronic agents. This requirement is effective and important. It furthers the objective of creating a media neutral environment while, at the same time, harmonizes electronic commerce with the traditional approach to contract formation.
SECTION 202. FORMATION IN GENERAL
(a) A contract may be formed in any manner sufficient to show agreement, including offer and acceptance or conduct of both parties or operations of electronic agents which recognize the existence of a contract.132
Subsection 215 (a) of the newly released UCITA is perhaps the most important provision relevant to this study. It prescribes the circumstances under which an electronic event will be attributed to a person. Though the first sentence in subsection (a) is generally meant to parallel Article 13 of the Model Law and section 108 UETA, it contains a major addition. The provision now attributes the operations of an electronic agent to the person using it where he or she “is otherwise bound by it under the law of agency or other law.”
SECTION 215. DETERMINING ATTRIBUTION OF ELECTRONIC EVENT TO PERSON; RELIANCE LOSSES.
(a) An electronic event is attributed to a person if it was the act of that person or its electronic agent, or the person is otherwise bound by it under the law of agency or other law. The party relying on attribution of an electronic event to another person has the burden of establishing attribution.133
As will be discussed below in Part V, some of the principles of agency law are well suited to operate in conjunction with an attribution rule and should be used in electronic commerce legislation. However, there are several respects in which the above provision is problematic. First, it is not clear that a person would be “otherwise bound by [an electronic agent] under the law of agency.” As will be discussed in Part V, the doctrinal difficulties enumerated in Part II preclude the possibility of invoking the law of agency without an additional deeming provision that would make it applicable to electronic agents. The above provision does no such thing. Second, subsection 215 (a) fails to articulate the relevant principles of agency to be applied in electronic commerce. What of the rules in agency dealing with the relationship between agent and principal or between agent and third party? Can agency law be invoked to the effect that duties are owed to the electronic agent by the person using it or vice versa? And what about the possibility of duties owed by an electronic agent to the third party? By referring to the law of agency without articulating which aspects of it are said to be relevant, the above provision confuses the law of electronic commerce rather than clarifies it.
The rest of section 215 pertains to the rules surrounding an attribution procedure chosen by the parties themselves. Many of these rules are similar to the UCITA predecessor and to those discussed above.
SECTION 215. DETERMINING ATTRIBUTION OF ELECTRONIC EVENT TO PERSON; RELIANCE LOSSES.
(b) If there is an attribution procedure between the parties with respect to the electronic event, the following rules apply:
(1) The effect of compliance with an attribution procedure established by other law or administrative rule is determined by that law or rule.
In all other cases, if the parties agree to or otherwise knowingly adopt, after having had an opportunity to review the terms of an attribution procedure to verify the person from which an electronic event comes, the record is attributable to the person identified by the procedure, if the party relying on that attribution satisfies the burden of establishing that:
- the attribution procedure is commercially reasonable;
- the party accepted or relied on the electronic event in good faith and in compliance with the attribution procedure and any additional agreement with or separate instructions of the other party; and
- the attribution procedure indicated that the electronic event was that of the person to which attribution is sought.
- If the electronic event is not binding on a person under subsection (a) but is otherwise binding under paragraph (2), the person is nevertheless not bound under paragraph (2) for the electronic event if the person satisfies the burden of establishing that the electronic event was caused directly or indirectly by a person:
- that was not entrusted at any time with the right or duty to act for the person with respect to such electronic events or attribution procedure;
- that lawfully obtained access to transmitting facilities of the person and that access facilitated the misuse of the attribution procedure; or
- that obtained, from a source controlled by the person, information facilitating misuse of the attribution procedure.
The provisions of subsection (b) may not be varied by agreement in a consumer contract except in a manner that provides greater protection to the consumer. In all other cases, the effect of an attribution procedure may be specified by agreement if the attribution procedure is commercially reasonable.
(d) If an electronic event is not binding on a person under subsection (a) and is not effective under subsection (b), the person identified as the source of the electronic event is nevertheless liable for losses of the other party measured by the cost of that party's performance in reliance if the loss occurs because:
- the person identified as the source failed to exercise reasonable care;
- the other party exercised reasonable care and reasonably relied on the belief that the person identified was the source of the electronic event because access materials, computer programs, or the like created the appearance that it came from that person; and
- the appearance on which the party relied resulted from acts of a third person that obtained the capability to create that appearance from a source under the control of the person identified as the source of the record.
One important addition in this provision worthy of special mention is subsection 215 (d). Under this subsection, a third party’s reliance interests will be protected. In other words, liability for losses will be attributed to a person who is identified as the source of an electronic event which induced third party reliance. Interestingly, the legal mechanisms used to achieve this end are the tort principles of negligence and reasonable reliance. By virtue of this new subsection, a person using an electronic agent can be held liable not only in contract but in tort. This is a useful provision. As well, since it requires that the person using an electronic agent must have “failed to exercise reasonable care”, this subsection will not apply in situations where an electronic agent malfunctions or where operates in a manner that was completely unpredicted or unintended by the person using it.134
Section 107 sets out the conditions under which a person will be bound by the operations of an electronic agent.
SECTION 107. LEGAL RECOGNITION OF ELECTRONIC RECORD AND AUTHENTICATION; USE OF ELECTRONIC AGENTS.
A person that uses its own electronic agent for authentication, performance, or agreement, including manifestation of assent, is bound by the operations of the electronic agent, even if no individual was aware of or reviewed the agent’s operations or the results of the operations.135
Section 107 is important because it specifically contemplates the possibility of autonomous electronic agents. It enumerates three uses of electronic agents in electronic commerce. First, electronic agents can be used to authenticate records either by electronically signing documents on a person’s behalf or otherwise. Second, an electronic agent can be used to perform certain contractual duties. If the transaction involves an exchange of information, or information in exchange for something else, there are circumstances in which an electronic agent can perform some or all of the obligations undertaken by the person for whom it is operating. For example, a Web based music provider can employ an electronic agent in conjunction with MP3 technology to fill orders without human oversight or intervention.136 Third, in addition to authenticating records and performing contractual duties, electronic agents can be used to manifest a person’s assent. Although it is presently nonsensical to say that an electronic agent has the capacity to consent to contract, it makes perfect sense to say that an electronic agent can be used to manifest the assent of the person using it.
UCITA goes further than any of the other proposed legislation by defining the contractual notion of a “manifestation of assent” in the context of electronic commerce. Section 112 stipulates when an electronic agent manifests assent on behalf of the person using it.
SECTION 112. MANIFESTING ASSENT; OPPORTUNITY TO REVIEW.
(b) An electronic agent manifests assent to a record or term if, after having an opportunity to review, the electronic agent:
- (1) authenticates the record; or
- (2) engages in operations that the circumstances clearly indicate constitute [sic] acceptance.
(d) Conduct or operations manifesting assent may be proved in any manner, including a showing that a procedure existed by which a person or an electronic agent must have engaged in the conduct or operations in order to obtain, or to proceed with use of the information or informational rights. Proof of assent depends on the circumstances. Proof of compliance with subsection (a)(2) is sufficient if there is conduct that assents and subsequent conduct that electronically reaffirms assent.
With respect to an opportunity to review, the following rules apply:
An electronic agent has an opportunity to review a record or term only if the record or term is made available in [a] manner that would enable a reasonably configured electronic agent to react to the record or term. 137
Although the most recent draft of subsection (b)(2) seems to contain an extra word, the provision seeks to make it clear that the manifestation of assent requires circumstances that constitute a person’s acceptance of an offer.138 The subsection would be improved if it more clearly indicated that the manifestation of a person’s assent is sometimes made through an electronic agent, though never by an electronic agent. Thus the statutory language “electronic agent manifests assent...” ought to be rewritten. After all, the whole point of the provision is to indicate that an electronic agent can be used by a person to manifest his or her assent. Besides improving the language, such a change would allow for contractual liability to be limited to only those instances in which a person intended to manifest assent through the electronic agent. This would justly accommodate situations in which an electronic agent’s manifestation of some person’s assent is unreliable.
Like UETA, UCITA also recognizes that electronic commerce is likely to generate errors that will not be immediately detected by electronic agents. It therefore contains a similar attribution procedure for the detection of changes and errors.139 UCITA provides an incentive for creating a procedure by which mistakes can be corrected. Section 216 creates a rebuttable presumption that the electronic record is accurate and unchanged. Where the parties have failed to adopt such a procedure, in the case of consumer transactions, section 217 applies.
SECTION 217. ELECTRONIC ERROR: CONSUMER DEFENSES
(a) In this section, “electronic error” means an error in an electronic message created by a consumer using an information processing system when a reasonable method to detect and correct or avoid the error was not provided.
(b) In an automated transaction, a consumer is not bound by an electronic message that the consumer did not intend and which was caused by an electronic error, if the consumer:
(1) promptly on learning of the error or of the other party’s reliance on the message, whichever occurs first:
notifies the other party of the error; and
(B) causes delivery to the other party of all copies of the information or, pursuant to reasonable instructions received from the other party, delivers to another person or destroys all copies; and
(2) has not used or received any benefit from the information or caused the information or benefit to be made available to a third party.
(c) If subsection (b) does not apply, the effect of an error is determined by other law.140
Unlike section 109 of UETA cited above, this section applies only in the case of consumer transactions. Still, it will not permit a consumer to avoid an automated transaction merely because he has changed his mind. Although the section appears to contemplate “errors created by an information processing system”, it fails to provide a mechanism that would allow the party using an electronic agent to avoid transactions where a machine generated error has occurred.
Fortunately, such a mechanism is contemplated in section 206.
SECTION 206. OFFER AND ACCEPTANCE; ELECTRONIC AGENTS
(a) A contract may be formed by the interaction of electronic agents. If the interaction results in the electronic agents engaging in operations that confirm or indicate the existence of a contract by commencing performance, a contract is formed unless the operations resulted from fraud, electronic mistake, or the like.141A provision that contains a mechanism for limiting contractual liability in the case of computer generated mistakes is extremely important, yet this seems to be the only proposed legislation that addresses the issue. Unfortunately, the term “electronic mistake” is nowhere defined.
Section 111 does provide an additional safeguard. According to the Reporter’s Notes, “the unconscionability doctrine may apply to invalidate a term caused by breakdowns in the automated process.”142
SECTION 111. UNCONSCIONABLE CONTRACT OR TERM
(a) If a court as a matter of law finds the contract or any term thereof to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may limit the application of any unconscionable term so as to avoid any unconscionable result.
(b) If it is claimed or appears to the court that a contract or any term thereof may be unconscionable, the parties must be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.143
Although this section provides a useful safety valve, it is not clear why breakdowns in the automation process would lead to “unconscionable” transactions, as that term is traditionally used.
Other Relevant Proposed and Enacted Legislation
Several other jurisdictions have either proposed or enacted legislation that deals with the use of electronic devices in electronic commerce.144 Singapore’s Electronic Transactions Act145 contains a number of relevant sections, many of which are borrowed from and are therefore similar to the various provisions of the Model Law, UETA and UCITA cited above.146 Recently, the Commission of the European Communities has put forth its own Proposal for a European Parliament and Council Directive On Certain Legal Aspects Of Electronic Commerce In The Internal Market.147 Its intention is to put in place a legal framework by 2000. Recognizing that, “the particular acts performed by parties with a view to concluding electronic contracts may result in considerable legal uncertainty as to the conclusion of electronic contracts”, the Proposal contains an Article which deals with the treatment of electronic contracts.
ARTICLE 9. TREATMENT OF ELECTRONIC CONTRACTS
Member States shall ensure that their legislation allows contracts to be concluded electronically. Member States shall in particular ensure that the legal requirements applicable to the contractual process neither prevent the effective use of electronic contracts nor result in such contracts being deprived of legal effect and validity on account of their having been made electronically.148
Such a provision is in keeping with the approach adopted in the proposed legislation discussed above. Though the details remain to be worked out, the “Executive Summary” accompanying the Proposal states that, “Member States will ... not prevent the use of certain electronic systems as intelligent electronic agents...”149
The last example of legislation to be discussed in this Part is Australia’s Electronic Transactions Bill 1999.150 The ETB was prepared by the Attorney Generals’ Department of Australia on the basis of recommendations from its Electronic Commerce Expert Group, as part of the Australian government’s strategic framework on electronic commerce. Though based on the Model Law, the ETB contains several important exceptions. Like many of the other legislative materials cited above, the ETB sets out default rules which parties can alter by way of contract. Although the ETB contains no specific mention of electronic agents, it creates a unique attribution rule based on the agency law notion of “authority.”
SECTION 15. ATTRIBUTION OF ELECTRONIC COMMUNICATIONS
(1) For the purposes of a law of the commonwealth, unless otherwise agreed between the purported sender and the recipient of an electronic communication, the purported sender of the electronic communication is bound by that communication only if the communication was sent by the purported sender or with the authority of the purported sender.
(2) Subsection (1) is not intended to affect the operation of a law (whether written or unwritten) that makes provision for:
conduct engaged in by a person within the scope of the person’s actual or apparent authority to be attributed to another person; or
(b) a person to be bound by conduct engaged in by another person within the scope of the other person’s actual or apparent authority.151
It is unclear whether the words “or with the authority of the purported sender” found in subsection (1) of the ETB include electronic communications sent by an electronic agent. Part of the difficulty with interpreting this provision is that it does not contain any express language such as, “or by an information system programmed by, or on behalf of, the originator to operate automatically”. In fact, it is important to note that the “Explanatory Paper” indicates that such language contained in the parallel section of the Model Law152 was specifically rejected by the Electronic Commerce Expert Group.153
If subsection (1) is indeed meant to include electronic communications sent by electronic agents, the attribution rule in the ETB is radically different from the approach adopted in all of the proposed or enacted legislation discussed thus far with the exception of the most recent version of UCITA. If electronic agents are meant to be included, subsection (1) would require that the relevant question to be asked in a particular case is whether an electronic agent had the authority to operate on behalf of the purported sender. If this is correct, the Australian approach, like the most recent version of UCITA, takes the ‘electronic agent’ metaphor seriously. That is, it imports aspects of the law of agency into electronic commerce. What makes this different from the attribution rules most of the other proposed or enacted legislation is that, in Australia, the operations of an electronic agent will not always be attributed to the person using the electronic agent. The common law concept of authority will act as a limiting principle. Assuming that subsection (1) of the Australian ETB was meant to include electronic agents, the purported sender will not be liable in situations where an electronic agent has exceeded its authority. This is an extremely creative strategy and one that will be further explored in Part V.
It is important to note that section 215 of UCITA will not necessarily achieve the same effect. Subsection 215 (a) of UCITA refers to agency law only to the extent that agency law might be applicable to attribute the operations of an electronic agent to the person using it. Nowhere in UCITA are agency principles referred to or utilized as a mechanism for setting limits on the contractual liability of the person using an electronic agent. The agency concept of “authority” is not specifically mentioned, as it is in the ETB.
B. The Rationale Underlying the Attribution Rules
As mentioned previously, it has been said that the attribution rules discussed above involve the adoption of a legal fiction. Generally, one pretends that anything issuing from the computer really issues from its human controller.154 One might therefore ask: Why pretend? Is there no rationale underlying these attribution rules?
One need not pretend. There is a rationale. It is perhaps best understood as a simple extension of the widely accepted contract principle stated in L’Estrange v. Graucob: a person who signs a contract without reading it is normally bound by its terms.155 Of course, this principle is itself based on a more fundamental principle in the law of contract, namely, the notion of reliance. As Atiyah once put it in the context of signed but unread contracts:
The truth is (a party) is bound not so much because of what he intends but because of what he does .... The man who signs a written contract is liable because of what he does rather than what he intends. And he is liable because what he does for the good reason that other parties are likely to rely upon what he does in ways which are reasonable and even necessary by the standards of our society.156
By analogy, those who operate devices that have the ability to create reliance in the minds of others ought to be bound by the agreements generated by the devices – whether or not those agreements were specifically intended. If an electronic agent authenticates a record, manifests (a person’s) assent, commences or promises performance, the result will be that a reliance interest is created in the person on the receiving end. Admittedly, the analogy loses some of its initial plausibility when one contemplates transactions between two electronic devices. In what sense could an electronic device be said to rely on the agreement in situations where no human was ever aware of the particular transaction?
Still, there is some merit in this approach. By holding liable the person using an electronic agent for what it does rather than what he or she intends, the risk of producing unpredicted obligations is placed on the person who is best able to control that risk. If the risks are allocated in this manner, a strong incentive is provided to those who use electronic agents to ensure that they are properly programmed and monitored frequently.157 There is, however, a certain danger inherent in attributing each and every computer communication to the human or corporate operator of the electronic device. For example, the liability for an unintended transaction might in some circumstances be more appropriately attributed to the developer of the electronic device rather than to its user. This is so in cases where the device malfunctions.158
One can also imagine situations in which a transaction or series of transactions initiated by an electronic device are not the result of a malfunction but were nonetheless unintended and perhaps even unforeseen by its operator. As contemplated above in Part I section C, once electronic agents become more intelligent, their use in non-consumer, commercial enterprise is bound to develop. Instead of employing small programs limited to individual elements of business activity such as information search agents, inventory tracking, customer support or book‑keeping, single integrated agents will preside over multiple functions. For instance, in a manufacturing business, a “super-agent” might monitor the in‑house stocks of manufacturing supplies, keep track of the rate of consumption, determine the need for new supplies, communicate with a number of suppliers, and be responsible for the bidding, contracting and ordering of those supplies.
Because of its multiple functions, such a system would have to contain some form of decision making capacity in which would include a program that prioritizes its various functions. A system such as this could be sufficiently complex so as to make it difficult if not impossible for the average user to predict how the super-agent would resolve a particular series of conflicts in a given set of circumstances. As supplies dwindled, the need to bid for new supplies might become more urgent, something that might be programmed as an element of the software’s bidding style. At the same time, however, the super-agent might have been programmed to include as a priority the limiting of in‑house stocks to conserve warehouse resources. Further priorities might include keeping the rate of factory consumption at a certain level, the preference of certain suppliers over others, and so on.
An incredibly complex balancing act would follow, and any given outcome would depend on the way in which the priority structure assigned to the super-agent. It is inevitable that such a program, if sufficiently complex, will occasionally make decisions that are perfectly logical though completely unintended by its users. Certain combinations of priorities might lead the software agent to form contracts that would never have been anticipated by its principal. Given the complexity of the demands made upon the machine, this is bound to happen as easily with mechanized employees as with human ones. What should happen in such a situation if an unintended offer is quickly snapped-up by some third party who is completely aware of the fact that the person using the device would never have consented to any such transaction? If the law simply attributes the communication initiated by the electronic device to its operator without in any way accounting for the intermediary events initiated by the electronic device, the result will surely be unjust since the failure to recognize the intermediation will render inapplicable equitable relief that would have otherwise been available via the law of contract.159 Recall, as well, that the error provisions in each of the proposed statutes (except UCITA) did not apply to persons using an electronic agent.
The success of the approach articulated in most of the proposed and enacted statutes considered above will therefore depend on the adoption of a flexible principle that can operate in conjunction with the attribution rules. The role of such a principle would be to set limits on the contractual liability of persons using electronic agents so that people will not necessarily be signing their lives away simply by choosing to initiate devices that have the potential to generate transactions that were unintended, unforseen or unauthorized. Without some sort of limiting principle, electronic agents will have an unlimited power to bind those who use them. Not only is this unjust, it is impractical. Strict or even absolute liability simply will not foster the growth of electronic commerce.
Having investigated many of the profits and pitfalls contained in the key provisions of the proposed and enacted legislation on electronic commerce, the following recommendations are offered:
1. Currently, both the Model Law and the UETA attribute the transaction of an electronic agent to the person using it even if the electronic agent malfunctioned or performed operations completely unintended by the person using it. This is highly problematic. Although there are a number of situations in the law of contract where the emphasis on a party’s actual intentions are displaced in favour of the objective theory of contract or the reliance theory, an attribution rule which has the ultimate effect of imposing strict or even absolute liability is inappropriate. It is therefore recommended that the attribution rules contemplated in the UECA contain a mechanism that will not impose strict or absolute liability on the person using the device.
2. At present, the error provision found in section 109 (b) UETA focuses solely on the mistakes potentially made by individuals when entering into an automated transaction. However, it is also possible that an electronic agent might malfunction or, alternatively, function properly though unpredictably to enter into transactions that were completely unintended, unforseen and unauthorized by the person on whose behalf the electronic agent was operating. The failure to include electronically generated mistakes and other unpredicted and unintended transactions in the Act could deter merchants from engaging in electronic commerce if electronic agents are given an unlimited power to bind them without any regard to the circumstances of the transaction. It is therefore recommended that the error provision in the UECA contemplate electronically generated errors and other unpredicted and unintended transactions.
3. The most recent version of section 202 of UCITA contains language that is somewhat different from the language found in the parallel provisions in the Model Law and UETA. Section 202 implies that a contract will be formed through the operations of electronic agents only if the transaction demonstrates the existence of an agreement between the parties using the electronic agents. Presumably, as is the case in traditional contract law, this will be determined through an objective test based on the reasonable intentions of the parties. This requirement furthers the aim of creating a media neutral environment while, at the same time, harmonizes electronic commerce with the traditional approach to contract formation. It also allows the notion of consent to neutralize the strict liability effects of the attribution rules. It is therefore recommended that the contract formation provision contemplated in the UECA contain language similar to that of UCITA, section 202.
Though its language is flawed, the most recent version of UCITA, section 112 attempts to make it clear that the manifestation of assent through the instrumentality of an electronic agent will require circumstances that constitute a person’s acceptance of an offer. In order to justly accommodate situations in which an electronic agent’s manifestation of some person’s assent is unreliable and to thereby allow for contractual liability to be limited to only those instances in which a person intended to manifest assent through the electronic agent, it is recommended that any provision in the UECA pertaining to the manifestation of assent should use language which expressly indicates that the manifestation of assent is made through an electronic agent, never by an electronic agent.
The defect in the error provision found in section 109 (b) UETA is contemplated in the most recent version of UCITA, section 206. This section does contain a mechanism for limiting contractual liability in the case of electronic mistakes and is the only proposed legislation that addresses the issue. It is recommended that the UECA adopt a provision similar to 206. Such a provision should attempt to improve upon 206 by defining the notion of an “electronic mistake”. It is further recommended that the notion of an electronic mistake be defined with sufficient breadth to include computer (and computer program) generated errors, as well as circumstances in which the electronic agent operated in an unpredicted manner that resulted in a transaction completely unintended by person using it.
The most recent version of UCITA, subsection 215 (d) contemplates a tort law remedy for losses incurred by someone who relies to his or her detriment on electronic events initiated by another. This is a useful provision in that it provides a legitimate remedy that might be otherwise unavailable via the law of contract. It is recommended that the UECA adopt a provision similar to subsection 215 (d)