Some short time ago I wrote a very brief article under the title "Do We Have A Deal". That article went to the distinction between the creation of an enforceable contract and the creation of a non‑binding letter of intent. One response to this article was an encouragement to write about the formation of contracts in the practical world … the world of the internet, the world wide web and e‑mail.
So lets go … do we have an eDeal?
But first back to the dull old world of my training. The legal premise and starting point is that subject to a few thousand exceptions, a contract can come into existence only as the result of an offer and its acceptance. Many textbooks and very many cases are authority for this proposition. But have the old common law principles of offer and acceptance been altered by the advent and operation of the internet, the world wide web and e‑mail? Some people have made this issue their life's work. We will but here scratch the surface.
Let's establish an oil and gas hypothetical. Your Company A, as farmor, had been negotiating a farmout with Company B on lands which were soon expire. Company A had a long list of parties wishing to farmin on this expiring acreage but initially settled on Company B for a number of reasons. Given the expiry date of the farmout lands, the spud date requirement was imminent and because of the tight time frame, the fundamental terms and conditions of the farmout were found in e‑mails back and forth between Company A and Company B. You think you have finalized the deal and send a confirming e‑mail to your colleague at Company B (the "offer"). Your colleague at Company B sends a reciprocal and confirming e‑mail back to you which you either never received or inadvertently deleted, if received without reading. Given the "no response" or no acceptance from Company B and as the expiry date was fast approaching, you quickly finalize the farmout agreement with Company C who subsequently drilled a very successful earning well. Company B is meanwhile protesting that it has or had the farmout deal and is entitled to some measure of compensation.
Was there electronic and effective acceptance by Company B of Company A's offer?
In the "old" world and as once again established by numerous judicial and academic authorities, acceptance has been defined as a final and unqualified expression of assent to the terms of an offer. Still in the old world, this action of acceptance was often effected by delivery of a document signed by the accepting party. In this manner acceptance of the offer was communicated to the offeror. Ah, but here we go once again with exceptions to this old world general rule … the "postal rule". This rule (or perhaps more appropriately an exception to the general rule) has it that the time of acceptance should be when an acceptance is put into the charge of the post office, regardless of whether or not such acceptance is ever received by the addressee from said post office, just so long as the reason for non‑delivery can't be traced back to the party mailing the acceptance. Applying the "postal rule" to our farmout hypothetical, there would have been effective acceptance by Company B concurrent with the sending of the confirmatory e‑mail and regardless of whether or not the intended recipient of the e‑mail at Company A ever received or read the same.
But I am not done … .
Enter the "instantaneous acceptance rule" where in circumstances of parties not being present at the same time and place and if "communication is instantaneous or near instantaneous", the contract is made only when the acceptance of the offer is actually communicated to the offeror. Applying this rule to our farmout hypothetical, no contract arose as the acceptance was never effectively communicated to Company A.
So in the internet battle of the rules and the exceptions to the rules, is it the postal rule over the instantaneous acceptance rule, or vice versa?
But perhaps it doesn't matter, for now enter Alberta 's Electronic Transactions Act which was proclaimed in force April 1, 2003. There are any number of interesting provisions in this Act, but attempting to remain grounded in our hypothetical, clause 30 provides in part:
Time of sending of information or records in electronic form
30(1) Unless the sender and addressee otherwise agree, information or a record in electronic form is sent when it enters an information system outside the sender's control or, if the sender and the addressee use the same information system, when it becomes capable of being retrieved and processed by the addressee.
(2) Information or a record in electronic form is presumed to be received by the addressee
(a) if the addressee has designated or uses an information system for the purpose of receiving information or records of the type sent, when the information or record enters that information system and becomes capable of being retrieved and processed by the addressee, or
(b) if the addressee has not designated or does not use an information system for the purpose of receiving information or records of the type sent, when the addressee becomes aware of the information or record in the addressee's information system and it becomes capable of being retrieved and processed by the addressee.
On this provision, I think it best to quote directly from the commentary on similar provisions within the Uniform Electronic Commerce Act:
Computer communications usually depend on intermediaries, whether privately contracted services like value-added networks (VANs) or public Internet service providers (ISPs) or others. On the Internet, messages travel in packets through unpredictable combinations of computers on their way to their destination. This complicates deciding when messages are sent and received, and where. The law often makes it important to know these things.
This section provides that a message is sent when it leaves the control of the sender. This means effectively that the sender cannot recall it any more, whether from the original system or from some other system acting as dispatch agent or computing service. If the sender and the addressee are in the same system - say a big system like sympatico.ca or aol.com - then the message is sent when the addressee could retrieve and process it.
The section provides a presumption, not a rule, on when a message is received. Current practices of storing and checking messages suggested that it was premature to create any rule about receipt. The UN Model Law deems a message to be received when it enters an information system within the control of the addressee, or where it is accessible to the addressee. However, people may not check their e-mail regularly, especially if they have several addresses. The section says that if they designate an address, or use it for a purpose, then they will have a duty to check that address for messages.
If the addressee does not designate or use an address for the purpose for which someone wants to send a message, then the message is not presumed to be received until the address has notice of it, and is able to retrieve it and process it. The section does not require actual retrieval and processing, in order to prevent people from preventing receipt by refusing to open messages that they could open if they chose to. However, the consent principle of section 6 continues to operate, so someone who is told that an electronic message is available on his or her system may still be able to decline to deal electronically at all and insist that a writing requirement be satisfied on paper.
Subsection (2) does not say "unless otherwise agreed", as do subsections (1) and (3). This is in part because it is a presumption. Where a presumption applies rather than a rule, the parties may be able to agree to the existence of facts that qualify for the presumption, thus in effect altering the burden of proof. If the addressee designates a system by agreement or by conduct, that will lead to a presumption of receipt. If the sender can show that the message entered the designated system and was retrievable, the addressee may have trouble rebutting the presumption. Parties may also agree on what the addressee is capable of processing. Allowing for an agreement to make receipt easier to show, e.g. by agreeing that a message is received when sent, was not thought appropriate for electronic communications at this time.
It may be that ISPs will not have the logs or other evidence of the time at which messages were received in their systems. Senders who really need to know for sure that their messages have been received will want to get evidence of actual receipt, such as acknowledgements from the addressees.
Critical to our hypothetical is that these provisions operate only to create a presumption, not a rule. The individual at Company A who was the "intended" recipient of Company B's confirming and accepting e‑mail has the ability to attempt to rebut the presumption of receipt. How? Well it has been suggested by Cem Kaner, a software specialist and lawyer to the U.S. Federal Trade Commission inquiry into consumer issues in electronic commerce:
- the message did not actually reach the electronic mailbox from which the intended recipient selects, opens, and reads messages.
- the message was titled inconspicuously, in a way that did not suggest that it was a notice that had legal significance, and because of this, the recipient did not read the notice until long after the notice was delivered (or never read it).
- the notice was titled in a way that resembled the unsolicited electronic messages commonly sent by online marketers (spammers), or it appeared to have been sent by an organization that has a history of sending unsolicited electronic messages, or it had other characteristics that would make it reasonably likely that the message would be rejected or discarded by a junk mail filter that was configured by a reasonable person who adopted an aggressive strategy of filtering out spam, and the intended recipient did in fact either discard the message without reading it or used a filter that rejected or discarded the message before the person could read it.
So and in the end, Company A and Company B did likely have a presumed eDeal subject to Company A being able to rebut the presumption.
All of which and as I say is just a primer and barely (if at all) scratches the surface of issues swirling about the advent of electronic mail and its electronic variants on the way and manner we do business in the oil patch in Canada and the United States. To my knowledge there have been no Canadian cases considering our hypothetical situation but as you can surmize, such day is not too far off.