Older Uniform Acts

Providing for Autonomous Electronic Devices in the Electronic Commerce Act 1999

V. Curing Doctrinal Difficulties by Treating Electronic Devices As Agents

The general approaches examined in Parts III and IV (with the possible exception of the recent UCITA and the ETB) appear to present a dichotomy: either we treat autonomous electronic devices as independent legal persons or else we treat the operations of those devices as the extended acts of the persons using them. It should be pointed out that this is a false dichotomy. One need not catapult from one extreme to the other. The choice not to treat electronic devices as independent legal persons does not entail a singular rule which attributes every transaction generated by an electronic device to the person who initiated its use. As discussed above, the use of an electronic device as an intermediary is sure to result in some transactions that are unintended, unforeseen or unauthorized by the person using it. Consequently, in certain circumstances, it might be unjust to attribute those transactions to that person. How, then, should we treat electronic devices, recognizing that they sometimes operate more like intermediaries than instruments?

A. The Electronic Slave Metaphor

It is worth keeping in mind that the problem of intermediaries in commercial transactions is by no means novel. To take an ancient example, the Romans dealt with similar difficulties in the context of slavery law. In fact, there is a certain similarity in the legal status of Roman slaves and that of autonomous electronic devices.160 Like autonomous electronic devices, Roman slaves possessed valuable skills and could independently perform various important commercial tasks upon command. Still, Roman slaves were not recognized as legal persons according to the ius civile.161

Although they were not considered to be legal persons and therefore lacked the power to invoke the law for their own protection, Roman slaves were not treated merely as chattel either.162 There were a number of legal rules that made it possible for slaves to participate in commerce in a meaningful way, sometimes even with the power to alter the legal positions of Roman citizens. For example, Roman slaves were permitted to enter into contracts.163 Given that slaves in Rome were without rights, such contracts could only be enforced through their masters. Still, this meant that a slave could enter into a contract and thereby bind a third party on his master’s behalf. It is worth noting that the slave’s power to bind both parties was asymmetrical. According to Roman law, a master would be bound to the third party only if the master had given his slave prior authority to enter into the contract on his behalf.164 This meant that a Roman citizen who wished to contract with another Roman citizen through the instrumentality of the other’s slave had to be careful to make sure that the other citizen actually held a similar intent. If that other citizen had not expressly authorized the deal made by his slave, that other citizen could escape liability. Notice the effect of this rule. It allowed cunning citizens (or at least those who were unafraid of sharp practice) to build an escape clause into slave-made contracts. By sending slaves out to make contracts without authorizing any of the particulars, citizens could bind third parties without binding themselves. The effect of such a rule is obviously unfair to third parties. Although there is no evidence that this was a well established practice, this example illustrates the kind of complexities that can arise once intermediaries are allowed to take part in business transactions. It also illustrates the kind of rule that should be avoided.

In order to protect the various parties to a transaction involving slaves as intermediaries, Roman commercial law ultimately became honeycombed with a number of legal fictions, i.e., ad hoc formulas through which exceptions could be generated without threatening the existence of the general rule that allowed slaves to act as intermediaries in contractual transactions.165 Despite the challenge that such a system would offer to legal taxonomists at that time and ever since, one thing is certainly clear: “Roman commerce was mainly in the hands of slaves.”166

If predictions turn out to be accurate and electronic commerce falls mainly in the hands of intelligent agent technology, the electronic slave metaphor could turn out to be more instructive than typical metaphors used to describe intelligent agent technology such as the “personal digital assistant.”167 Although they are not presently considered to have the status of person in law, if the promise of this technology is fulfilled and they begin to display high levels of autonomy and intelligence then there might be good reason to treat these devices more like intermediaries rather than as mere instruments. The aim of doing so is not to confer rights or duties upon those devices. Rather it is simply the first step in the development of a more sophisticated and appropriate legal mechanism that would allow persons interacting through an intermediary to be absolved of liability under certain circumstances. To this extent, the Roman law of slavery offers a valuable lesson to legislators who are considering how best to treat autonomous electronic devices. Instead of viewing the alternatives as a dichotomy – either we attribute legal personality to electronic devices or else we impose strict liability on those who initiate their use – the electronic slave metaphor reveals a third option. As they did in ancient Rome, the legislators of electronic commerce might decide that it is appropriate to enact a special set of rules that define the parameters of liability for those who choose to conduct commerce through the use of intermediaries, recognizing that the acts of an intermediary are not always identical to those contemplated by the person initiating the use of that intermediary. To this end, it is useful to consider certain principles of the modern law of agency.

The Electronic Agent Metaphor

Following in the footsteps of the law of master and servant, the modern law of agency also “recognizes that a person need not always do things that change his legal relations himself: he may utilise the services of another to change them, or to do something during the course of which they may be changed.”168 In the law of agency, an intermediary has the power to affect the legal relations of the person who has authorized the intermediary to act on his behalf. The original expression of this idea is founded upon the Roman law formula: qui facit per alium facit per se (he who acts through another acts himself). Interestingly, this Roman fiction bears some similarity to the general attribution rule contemplated by the Model Law, the proposed UETA and UCITA. Its formula is one of identity: the agents acts are the acts of the principal.

Of course, our modern law of agency is much more sophisticated and subtle. Agency law has developed a number of discrete principles for dealing with complex transactions involving intermediaries. For example, a person can give her agent a general authority so that he can act on her behalf according to his own discretion. This could result in circumstances where the person who granted authority to the agent (the principal) is unaware of the fact that she has entered into particular commercial transactions. Still, the law of agency will impose limits on the acts performed by her agent. Only in certain circumstances are the acts of the agent deemed to have the same legal effect as if they were acts performed by the principal. But before investigating the relevant agency principles, it is important to recognize that agency law by itself would be insufficient to cure the doctrinal difficulties enumerated above in Part II, since agency law applies only to legal persons. In order to invoke the principles of agency law it is therefore necessary to include electronic devices within the set of rules that form the external aspect of agency.169

A provision that would deem an electronic device to be an agent for the purposes of electronic commerce would not be altogether farfetched. After all, it is a well established principle in the law of agency that one need not have the capacity to contract for oneself in order to be competent to contract as an agent. “For example, an infant ... even though incompetent to be a principal in respect of a particular contract, may none the less act as an agent in the making of such a contract. It is irrelevant to his capacity to act as an agent that, because of his infancy, he may not be liable to the third party on the contract, where an adult agent would have been personally liable.”170 Likewise, courts have held that corporations which are not legally capable of carrying on a particular type of business (e.g., insurance) might still act as the agent of a principal who is licensed to carry on in such a business.171 As Bowstead and others have pointed out, “The rationale of this seems to be that the agent is a mere instrument and that it is the principal who bears the risk of inadequate representation.”172 Although this statement is clearly hyperbolic,173 it suggests an important contractual point. When a principal authorizes an agent to contract on her behalf, the relevant contractual intent belongs in fact to the principal and not her agent. Where the principal has expressly authorized a transaction, her agent is, legally speaking, the instrument through which the principal’s contractual intent is expressed. Consequently, the agent’s capacity and intent are superfluous to the transaction, so long as the agent is able to manifest the principal’s assent to contract.174 As Bowstead put it:

The basic justification for the agent’s power as so far explained seems to be the idea of a unilateral manifestation by the principal of willingness to have his legal position changed by the agent. ... There is certainly no conceptual reason which requires a contract between principal and agent to achieve this creation of power, and it is indeed clear that no contract is necessary, for a person without juristic capacity may be an agent. Further, if only the relations between principal and third party are in issue, it may not be necessary for the agent to have agreed to, or perhaps even to have knowledge of, the conferring of authority at all, if it can be established that the principal had conferred it; though such a situation would be an unusual one.175

Although Bowstead clearly did not have electronic commerce in mind when he wrote the above passage, electronic devices comport well with the scenario envisioned. Since disputes in electronic commerce will involve only the relations between principal and third party, there is no need for the ‘agent176 (i.e., the electronic device) to have agreed to or to have knowledge of the conferring of authority at all. So long as it can be established that the ‘principal’ (i.e., the person initiating the electronic device) did confer ‘authority’ in one way or other, the ‘agency’ relationship will be established and the ‘principal’ will be bound by the operations of the electronic ‘agent’. Although, as Bowstead acknowledges, it would be unusual for an agent not to have agreed to or not to have known about the conferral of authority in situations where the agent has juristic capacity, the same cannot be said of ‘agent’ mediated electronic commerce.

Having established a credible basis for the electronic agent metaphor, it is important to determine which of the various principles of agency law are relevant to electronic commerce.

Relevant Principles in the Law of Agency

Agency law is sometimes characterized as having an internal and an external aspect. “The external aspect is that under which the agent has the powers to affect the principal’s legal position in relation to third parties. The internal aspect is the relationship between principal and agent, which imposes on the agent (subject to contract) special duties vis-à-vis the principal, appropriate to the powers which he can exercise on the principal’s behalf.”177 Obviously, given that electronic devices are not presently the subject of rights or duties, only the external aspects of agency law are relevant to electronic commerce. In other words, the only aspects of agency law relevant to electronic commerce are those that pertain to the relationship between the person who initiates an electronic device and third parties who transact with that person through the device.178

1. Authority

As Fridman has stated, “[t]he question of the authority of an agent is at the very core of agency. It is complex and difficult, but it must be understood, if the nature of agency is to be comprehended.”179 One might begin by thinking of authority as a special kind of legal power held by an agent, a power to perform some act which affects the principal’s legal relations. In cases where that power is voluntarily conferred by the principal to her agent, the agent is said to be “authorized” or to “have the authority” to act on the principal’s behalf.180 Although consent is the paradigmatic mechanism by which authority is conferred, in some cases an agent will obtain the power to affect the principal’s legal relations without the her consent. In such cases, the agency relationship is not the result of the unilateral manifestation by the principal of a willingness to have his legal position changed by the agent. Rather, it is the result of the application of the common law principle of estoppel. Fridman characterizes the application of estoppel as follows. “[A] person who by words or conduct has allowed another to appear to the outside world to be his agent, with the result that third parties deal with him as his agent, cannot afterwards repudiate this apparent agency if to do so would cause injury to third parties; he is treated as being in the same position as if he had in fact authorised the agent to act in the way he has done.”181 The fact that authority can in some instances be conferred in the absence of a manifestation of consent demonstrates that the agency relationship results as an operation of law. Authority that is the result of a principal’s consent is often referred to as “actual authority” whereas authority said to result from an operation of law, in this case the rule of estoppel, is often referred to as “apparent authority” (sometimes: “ostensible authority”).

Applying the first of these two types of authority to the electronic commerce scenario, the person initiating an electronic device might voluntarily confer a power by the unilateral manifestation of a willingness to have her legal position changed through the operations of the electronic device. This power shift would allow the operations of an electronic device to alter the legal position of that person. As is the case with infants and corporations under certain circumstances, it matters not that the device lacks the juristic capacity to perform certain acts.182 All that matters is that the person initiating the device had in fact consented to the operations performed by that device. If a willingness to have her legal position changed through the operations of the electronic device has been made manifest or is implied by the circumstances, one might say that the device has an ‘actual authority’ to operate on behalf of the person who initiated its use.

The second type of authority can also be applied to the electronic commerce scenario. In some instances, the person initiating an electronic device will make things appear to the outside world as though the electronic device is operating under her authority. In situations where a representation is made which makes it appear as though a person has initiated an electronic device to operate on her behalf and another person relies on the representation in a manner that results in the alteration of his position, the person initiating the device effectively confers a power which allows the device to alter her legal position. On the basis of the estoppel principle, this is true even if that person has not voluntarily conferred a power to the device. To describe this process in the language of agency, one might say that the device has an ‘apparent authority’ (‘ostensible authority’) to act the behalf of the person who initiated its use.

The authority concept, as applied to electronic commerce, can be used to set limits on the liability of persons utilizing electronic devices. In other words, authority can be used in conjunction with an attribution rule to set parameters that will help to determine when a person is liable for transactions generated by her electronic devices and when she is not. Essentially, a person will not be liable for the transactions generated by her electronic device where the operations of that device have exceeded her consent. Likewise, she will not be liable in situations where the operations of the device did not result in representations that allowed it to appear to the outside world as though the device was operating on her behalf.

Since electronic devices are programmed (for the moment, at least), it is safe to say that there will be no occasions in electronic commerce where the authority of an ‘agent’ is conferred in such ambiguous terms or where the instructions are so uncertain as to be capable of more than one construction. Consequently there is no need, in electronic commerce, to determine whether an electronic ‘agent’ is said to have acted “reasonably” or “in good faith”.183 However, as the technology becomes more refined, one might expect issues to arise in the context of whether an electronic ‘agent’ has operated in excess of its implied actual authority when it functioned in a particular manner so as to execute the instructions of the person who initiated its use. For example, assume that an electronic ‘agent’ is ‘authorized’ to buy certain shares. If so, the device would also have the ‘implied authority’ to operate within the scope of that which is necessary in the usual course of business to complete the transaction.184 Is the ‘agent’ authorized to open a line of credit in order to pay for the shares? What if the ‘agent arranged the line of credit through an illegitimate lender? Given that intelligent devices might one day soon ‘do business’ in a completely unpredictable and unconventional manner, the scope of that which is “necessary in the usual course of business to complete the transaction” might undergo a radical shift. Part of the problem, as highlighted above in Part I, is that the operations of these devices will not always be dictated by those who program them. The electronic devices of tomorrow will ‘learn for themselves’ what is necessary in the usual course of business to complete the transaction.

Another authority issue that could become problematic is whether and when an electronic device may delegate its ‘authority’ to another device and, if so, to what extent is the person who initiated the original device responsible for the operations of the device to which a task was delegated. As discussed above in Part I, the technologies of tomorrow will likely incorporate collaborative electronic devices that operate in a collaborative manner across an open, interoperable platform. It is quite likely that when people ‘authorize’ devices to undertake complex transactions, they will do so without knowing that those devices will delegate portions of the task at hand to other devices. ‘Sub-agency’ problems could arise if those other devices engage in transactions that are not sufficiently related to the task as conceived by the person who initiated the original device.

2. Ratification

In cases where an electronic device is said to enter into ‘unauthorized’ transactions with some third party, it is possible that the person who initiated the device might later affirm its operations notwithstanding the want of authority. In such instances, it will be important to determine whether the traditional agency principle known as “ratification” applies and, if so, under what circumstances. Ratification has been defined in the American Restatement as,

The affirmation by a person of a prior act which did not bind him but which was done or professedly done on his account whereby the act, as to some or all persons, is given effect as if originally authorised by him.185

Some authors have referred to ratification as “subsequent authority.”186 By this it is meant that the doctrine of ratification makes it possible in certain circumstances for authority to be conferred ex post facto.187 Where a principal is said to have ratified the acts of his agent, he will be bound by those acts, as if it had been antecedently authorized, “whether it be for his detriment or his advantage.”188 However, the doctrine of ratification can be invoked only under certain circumstances. According to Bowstead,

The only person who has the power to ratify an act is the person in whose name or on whose behalf the act purported to be done, and it is necessary that he should have been in existence at the time when the act was done, and competent at that time and at the time of ratification to be the principal of the person doing the act; but it is necessary that at the time the act was done he was known, either personally or by name to the third party.189

The doctrine of ratification aims to complete the relationship between a principal and third party by seeking to accomplish what both parties had actually intended.190 In the case of electronic commerce, the third party’s intentions are satisfied in the sense that she or he had always intended to contract with the person in whose name the device purported to be operating. Likewise – notwithstanding the fact that the device in question ‘exceeded its authority’ – the ‘principal’’s ultimate intentions are also satisfied through the doctrine, though not until the moment of ratification. It is important to underscore the fact that, in order to satisfy the actual intentions of the parties, the doctrine of ratification will only apply in situations where a third party is contracting with a device that is purportedly operating on behalf of some ‘principal’. It will not apply in situations where the third party is unaware of the existence of a person who initiated the device.

3. Disclosed and Undisclosed Principals

By requiring third parties to know that the intermediary is purporting to transact on another’s behalf, the law of agency is said to distinguish between disclosed and undisclosed principals. A disclosed principal is one whose interest in the transaction as principal is known to the third party at the time of the transaction in question.191 An undisclosed principal is one whose existence is not known to the third party at the time of the transaction.192 When a third party contracts with an agent who is acting for some undisclosed principal, the third party will, by definition, do so under the mistaken impression that he is in fact contracting with the agent alone. Mistakenly, the third party believes that the agent is the principal.

The third party’s mistaken impression is theoretically unproblematic in situations where the agent is authorized to transact on the undisclosed principal’s behalf. Where the undisclosed principal has authorized the agent to act, the law will treat the agent as though he or she is the principal. The same cannot be said, however, when the agent of an undisclosed principal acts in excess of his or her authority. In such a case, if the principal is undisclosed, it will not be possible for that principal to invoke the doctrine of ratification. Since the third party was unaware of the existence of the real principal, the third party cannot be said to have intended to contract with that person. Because the third party did not have the requisite contractual intent vis-à-vis the undisclosed principal, the two parties were never ad idem. Consequently, the undisclosed principal will be precluded from ratifying an unauthorized transaction entered into by his or her agent.

The rule that precludes undisclosed principals from ratifying unauthorized transactions could have a useful application in electronic commerce. It could indirectly encourage those who initiate a device to make conspicuous the fact that the third party is transacting with a device and not a person. In other words, the ‘principal’ will come to recognize it as a good business practice to disclose the fact the she is transacting through an electronic ‘agent’ so that she will not be precluded from enforcing agreements made by the ‘agent’. If such a business practice does become accepted and the standard use of electronic devices is conspicuous rather than transparent, this will without a doubt result in fewer mistaken transactions in electronic commerce. To take a simple example, if a third party knows full well that he is ordering certain goods through an electronic device, the third party will be less inclined to attempt counter-offers or other sorts of negotiations that one might reasonably attempt if dealing with another human being; the third party will likely be aware of the fact that the device might not be able to ‘read’ or ‘understand’ certain kinds of responses.193 In essence, the application of the rule that precludes undisclosed principals from ratifying unauthorized transactions would seek to ensure that the ‘principal’ and ‘third party’ have in fact reached a consensus ad idem, as is required by the law of contract.

D. Recommendations

In this Part, it has been suggested that there exists a middle ground between treating electronic devices as persons and treating electronic devices as mere instruments. By analogy, it is useful to think of autonomous electronic devices as the Romans thought of their slaves: the peculiar legal existence of these entities vacillates between res and personam. In other words, although they are not presently considered legal persons and therefore have no rights by which to invoke the law on their own behalf, these devices are sufficiently autonomous to alter significantly the rights and duties of the people who use them. Thus there is a need for a special set of rules to set limits on what those devices have the legal power to do and what they do not. One useful theoretical framework for explaining how and when an electronic device will be said to affect the rights and duties of the persons who transact through it is the external aspects of the law of agency.

1. It is recommended that the principles that comprise the external aspect of agency law be used in conjunction with an attribution rule in order to preclude the possibility that an electronic agent will have an unlimited power to bind its ‘principal’. The principles that comprise the external aspect of agency would harmonize with fundamental principles of contract law and would assist in determining whether there has in fact been a “manifestation of assent” in particular instances.

2. It is recommended that agency law’s ‘authority’ concept be utilized to place limits on the liability of those who initiate electronic devices for the purposes of electronic commerce. The implementation of such a recommendation would safeguard the contractual intentions of ‘principal’ and ‘third party’ by ensuring the existence of a true consensus ad idem. Applying the electronic agent metaphor and utilizing the authority concept will not disrupt or alter the fundamental principles of agency which, for hundreds of years, have allowed entities lacking juristic capacity to act as agents even when those entities would not have been capable of acting for themselves. Because an agent’s capacity and intentions are considered irrelevant to the external agency relationship, i.e. the relationship between principal and third party, treating electronic devices as ‘agents’ is far less controversial than treating them as independent persons.

3. It is recommended that agency law’s doctrine of ratification be adopted in electronic commerce. The implementation of such a recommendation would further safeguard the intentions of ‘principal’ and ‘third party’. It would also operate to cure minor defects in an electronic ‘agent’’s ‘authority’, it would could minimize technical defences and it would prevent unnecessary lawsuits. As between ‘principal’ and ‘third party’, the ‘third party’ will get exactly what he bargained for while the ‘principal’ is simply held to the transaction that she chose to adopt.194

4. It is recommended that the rule in agency law which precludes undisclosed principals from ratifying unauthorized transactions be adopted in electronic commerce. Such a rule will encourage those who transact through the intermediary of an electronic device to present those transactions as openly and honestly as possible. The implementation of such a rule would also have the salutary effect of reducing the number of mistaken transactions. Further, it would minimize technical defences and perhaps prevent unnecessary lawsuits.

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