In a Digital World, Don't Lose Sight of Contract Basics

Playing basketball in my younger days, I remember one thing would happen in practice after any loss—the coach would make you go back to practice basic fundamentals. Dribble. Pass. Shoot. It was a good life lesson. Any time you find yourself facing an overwhelming problem, break the problem down into the basics. With the rise of modern digital contracts, where a mere “click” means you just bought 100 rolls of toilet paper, I think digital contract providers would be wise to go back to the contract fundamentals.

At any contract’s core, are three elements: an offer, an acceptance of the offer, and consideration. Here are some fundamental contract doctrines that apply to all contracts, even digital contracts.

An offer should include definite terms. This is the common law rule and a good one to follow. The opposite of definite terms are vague terms. A contract that is too vague may not be enforceable, but that is often not the case. More likely, a court reviewing the contract will interpret the vague term according to the parties’ course of dealing in the past, or construe the vague term against the drafter, or even fill in the blanks based upon law and precedent. But better to avoid this uncertainty and carefully define contract terms. People should know and understand, whether a paper contract or digital version, what they are signing.

Acceptance must mirror the offer. One of the fundamental contract principles regarding “acceptance” is that acceptance must mirror the offer. The person must accept exactly what is offered to form the contract. This means that, when a person strikes out a term in a contract, then signs it and sends it back, the person has just changed the terms of the deal. There is no contract until the person making the offer accepts the new terms. This principle is helpful for signing “click to accept” contracts or terms. Companies should make sure that users know what they are accepting.

Any consideration is sufficient. In general, courts do not second-guess whether consideration in a contract was adequate. Any amount of payment is generally sufficient consideration for a contract. But what happens when there is no consideration, for example, during a software’s free trial period? Could a user of a free online service sue the software provider because its software fails to work as promised? I think this would be a hard case due to the lack of consideration.

Finally, there must be a meeting of the minds. Because few people read contracts that are online, few people understand them. Courts will generally assume that a person has read and understands a contract that has been signed—but there are exceptions. There must be what courts refer to as a “meeting of the minds”. With digital contracts, the offer, acceptance, and consideration can get buried in the fine print. Still, do not forget these fundamental building blocks for any contract.

If you would like to learn more about contract basics, check out my presentation on Agricultural Contracting Basics.