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Fundamentals of Business Law & Electronic Contracting

E-commerce is growing by leaps and bounds, propelling business further into the information age with each passing day. People just like you and me clicked our mouse and purchased approximately $10 billion in merchandise during 1999. The U. S. Department of Commerce forecasts Internet retailing will exceed $50 billion within the next two years, and business-to-business e-commerce will top $1 trillion. With millions of transaction taking place, it is inevitable that contract disputes will arise, and common rules to authenticate and confirm the integrity of electronic documents and their signers are of paramount importance.

On September 16, 1999, Governor Gray Davis signed Senate Bill 820 making California the first state to adopt an electronic contracting law. The law went into effect January 1, 2000. Its primary purpose is to "ensure that electronic contracts (records and signatures) have the same legal effect as their hardcopy counterparts." In addition, the law legalizes electronic signatures and even extending the electronic signature, under certain circumstances, to satisfy requirements that a signature be notarized. The law, however, only applies to transactions where the contracting parties have agreed in advance to be bound by an electronic transaction.

Maybe the law's most extreme fault is that it fails to cover all transactions. The following contracts are excluded:

Wills, codicils, and testamentary trusts.

Certain transactions governed by various consumer protection laws (for example, notice of mortgage late fees, non-judicial foreclosure notices, and statements of finance charges).

Any transaction under the Automobile Sales Finance Act or the Vehicle Licensing Act.

Some retail installment sales contracts.

Even with these shortcomings, the law undoubtedly will have a significant effect on the future of contract law in California and the nation. Exactly what that effect will be, however, remains to be decided in the courtroom. In the following section, we will examine some of the issues.


What will be the long-term impact of electronic contracting on the nation's business?

What are the potential pitfalls you see with electronic contracting?

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Please see response below, and two supplementary articles as well. I hope this helps and take care.


1. What will be the long-term impact of electronic contracting on the nation's business?

It has been reported that electronic contracting will increase within the nation's business. It should come as no surprise, then, that a full 47% of Americans are dissatisfied with store-based retailing and 50% more consumers as compared to last year expect to make a purchase over the Internet as reported in the Deloitte & Touche Reviewof March 17, 1997. The long-term impact on the nation's business will be positive such things as increases in efficiencies and lower costs for the nation's business. By using electronic contracting, for example, a business can legally process and maintain paper contracts quickly and at lower costs. It is estimated that the long-term benefits of EC will outweigh the costs by a margin of 10 to 1. The short-term start-up costs associated with new hardware and software are estimated to start at approximately $ 2,000. (1) For example, most universities use electronic contracting. Each student has the option to electronically sign the student handbook or print it and send it in to the university. Electronically signing a contract is also reported to be a faster and easier way for all parties involved.

In addition, web information systems hold great potential to streamline and improve business-to-business-transactions. However, not all Web technologies are equally suited to support the different business processes throughout their distinct phases (see Instead of regarding the Internet as a mere sales channel, the companies' utilization of emerging technologies has the potential to cut costs out of the supply-chain by streamlining procurement processes and improving collaboration. In times of intense competition and increasingly open markets, the ability to achieve efficiency improvements can become key to commercial success (see more detail at It also creates a greater flexibility and automation of business-to-business interactions (see

From a legal perspective, it is argued that the changes in contracting paradigms and presumptions wrought by purely electronic agreements ...

Solution Summary

Based in the scenario, this solution examines the two questions: What will be the long-term impact of electronic contracting on the nation's business? What are the potential pitfalls you see with electronic contracting? Supplemented with two related articles.