Scholarly article on topic 'The Dispute of Mispricing within E-Business-From Comparative Study between Taiwan and the United States'

The Dispute of Mispricing within E-Business-From Comparative Study between Taiwan and the United States Academic research paper on "Law"

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Procedia Engineering
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{E-business / misprising / contract / mistake / "consumer protection"}

Abstract of research paper on Law, author of scientific article — Fa-Chang Cheng

Abstract Dell Computer and Panasonic has several times encountered the situation in Taiwan that the on-line price for product posted on its official website was incorrect and the consumer had already laid down the purchase request, which aroused a lot of disputes on whether Dell should be responsible for those purchase requests. At one hand, these manufacturers were unwilling to endure the loss because of those incidents and trying to convince the court either the contract had not been formed or it should be rescinded. On the other hand, the consumer insisted on the contract had already been formed and those manufacturers should perform the contract as it was. This article will compare the different legal mechanisms between Taiwan and the United States possible in dealing with such mispricing for online purchase business. This article will generally describe three legal aspects in dealing with such situation: formation of contract, misrepresentation and mistake, especially focus on the discussion of mistake which makes the huge difference between these two jurisdictions. And the observation of how to best understand and operate the legal mechanism of mistake will also be emphasized as the most important part of conclusion at the end of this article.

Academic research paper on topic "The Dispute of Mispricing within E-Business-From Comparative Study between Taiwan and the United States"

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Procedía Engineering 29 (2012) 1662 - 1666

Procedía Engineering

www.elsevier.com/Iocate/procedia

2012 International Workshop on Information and Electronics Engineering (IWIEE)

The Dispute of Mispricing within E-Business-From Comparative Study between Taiwan and the United States

Fa-Chang Cheng

a Graduate Institute of Science and Technology Law, National Kaohsiung First University of Science and Technology, 2,jhuoyue

Rd., Nanzih, Kaohsiung City 811, Taiwan, R.O.C.

Abstract

Dell Computer and Panasonic has several times encountered the situation in Taiwan that the on-line price for product posted on its official website was incorrect and the consumer had already laid down the purchase request, which aroused a lot of disputes on whether Dell should be responsible for those purchase requests. At one hand, these manufacturers were unwilling to endure the loss because of those incidents and trying to convince the court either the contract had not been formed or it should be rescinded. On the other hand, the consumer insisted on the contract had already been formed and those manufacturers should perform the contract as it was. This article will compare the different legal mechanisms between Taiwan and the United States possible in dealing with such mispricing for online purchase business. This article will generally describe three legal aspects in dealing with such situation: formation of contract, misrepresentation and mistake, especially focus on the discussion of mistake which makes the huge difference between these two jurisdictions. And the observation of how to best understand and operate the legal mechanism of mistake will also be emphasized as the most important part of conclusion at the end of this article.

© 2011 Published by Elsevier Ltd.

Keywords: E-business; misprising; contract; mistake; consumer protection

1. Introduction

Dell Computer and Panasonic have several times encountered the situation in Taiwan that the on-line price for product posted on its official website was incorrect and the consumer had already laid down the purchase request, which aroused a lot of disputes on whether they should be responsible for those

* Corresponding author. Tel.:886-7-6011000 Ext:3711 E-mail address: fachang1@hotmail.com

1877-7058 © 2011 Published by Elsevier Ltd. doi:10.1016/j.proeng.2012.01.191

purchase requests. There are also some judicial decisions ensuing from those real-case disputes in Taiwan. Unfortunately, these case decisions were ramified in how to approach such dispute and did not ease the concern of what legal infrastructure should be in dealing with such practical situation.

This article is attempting to gain experience form the legal infrastructure in the United States in order to review the appropriateness of current judicial decisions in Taiwan and also bring up some observation in the hope that will lay down the foundation for future change in Taiwan. From this point of view, this article will describe the current judicial decisions in Taiwan at the beginning. Then, by introducing potential legal theories for solving the on-line mispricing dispute in the United States, this article is going to indicate that there is some serious logical flaw existing in Taiwan's mistake theory as a real cause for rescinding contract. Finally, the conclusion sums up the discussion and also puts forth the tentative suggestion to the dispute of mispricing in the end of this article.

2. The Current Judicial Decisions in Taiwan Regarding the Dispute of Mispricing within E-business

In Taiwan, there has been a research paper analyzing the judicial decisions with regard to the dispute of mispricing within E-business, which are caused by Dell Computer and Panasonic. At one hand, Dell and Panasonic were unwilling to endure the loss because of those incidents and trying to convince the court either the contract had not been formed or it should be rescinded. On the other hand, the consumer insisted on the contract had already been formed and those manufacturers should perform the contract as it was. According to the case research [1], there are two different battlefields along the way to march through the dispute:

• Whether there is the formation of contract (meeting of the minds)

• Whether the contract, if it is formed, can be rescinded through the affirmative defense which includes

the consideration of reliance of the buyer

To the first battlefield, the judicial decisions were divided to the issue of whether an on-line price catalog equal to an offer in the formation of contract. Some courts said the on-line price catalog was the offer made by the manufacturer and others said it was just the invitation of offer. Even the modified administrative regulation in Taiwan is to design the on-line price catalog as just the invitation of offer through the formation of standard contract clause by giving the manufacturer, who sales its products online, the opportunity to refuse the offer before two days after the invitation of offer as long as the consumer has not made the payment [2], the reality is this administrative requirement in contract has just taken into force in Jan. 1, 2011 and whether the court will go by this thinking is still to be wait and see.

As to the second battlefield, based upon Article 82 of the Civil Code in Taiwan, the manufacturer can withdraw his (her) acceptance because of the reason of mistake as far as there is no negligence attributable to himself (herself). There are some academic research papers making the observation from these judicial decisions that the reliance of consumer is a very important evidence to be considered in the case [3] [4]. It seems to mean that if the consumer did not rely on the mispricing of manufacturer, there could be no negligence on the side of manufacturer. There has been even one commentator observing that the principle of "violation of good faith" or "abuse of rights" could interpret the situation of no consumer reliance in some cases after finding huge imbalance between the aggregated harm to the manufacturer and the benefits to the individual consumer [5]. To best understand these considerations above-mentioned, it is fairly to say that they are extremely important factors to be considered in deciding the issue of negligence of the manufacturer for mispricing its on-line products. This section is only describing the current legal mechanism in Taiwan for dealing with the legal issues caused by the mispricing of manufacture selling its products through on-line shopping business. The comparison with the counterpart legal mechanism in the United States and observation or suggestion to the problems in

Taiwan will leave until the finishing of discussion to the legal system in the United States which is ensuing in the next section.

3. The Corresponding Legal Infrastructure for Solving the Mispricing Dispute within E-business in the United States

Similar to the legal infrastructure in Taiwan, in the United States, the formation of contract could be the first battlefield in solving the mispricing dispute within E-business. The court will distinguish the difference between a real offer and just an invitation of offer. And the bottom line is whether the so-called offer is really reasonably certain. In a recent year case [6], the court reiterated the important thinking. In this case, the plaintiff sued the defendant for the reward of some kind of promotion program. One of the arguments was whether the offer alleged by the plaintiff was reasonably certain. The court in the case explained why such offer was reasonably certain as follows: The Memo expressly states that "a financial rewards system has now been put in place". It also sets out specific percentages of amounts to be contributed to the bonus pool by each participating Aon entity, and it contains the precise means by which those pool funds will be distributed to ARS staffers. It is therefore more than a mere statement policy or a vague promise regarding future events.---And, while no employee is entitle to "formulaic" bonus and Managing Directors may decide how to allocate the bonus pool among their employee, their discretion is not unfettered.---Thus, the mere inclusion of possible judgment calls by management as to the manner of distribution among its employees does not, under these circumstances, render the Memo too indefinite to operate as an offer for a unilateral contract. From the case mentioned here, it can be fairly said the judgment for a real offer is actually on a case-by-case basis.

Beside the formation of contract, in the United States, the reason of mistake is the affirmative defenses to rescind the contract. Before discussing the substance of mistake, there are two things of contract need to be understood. First, that the meeting of minds is the fundamental idea of contract. And, secondly, the court in the United States is more willing to preserve the formation of contract rather to destroy the establishment of contract. The mispricing dispute was the unilateral mistake since there is only one party's (the on-line seller) mistake and this mistake must be serious enough to materially affect the performance of contract [7]. At this point, the court in the United States still tends to preserve the contract which has the meeting of minds in its appearance. It is not until a time when the non-mistake party knows or has reason to know about the mistake in forming the contract in case, the court will let go the idea of preserving the formation of contract and rescind the contract because of the unilateral mistake. This article observes that, at this time, there is no justification in holding the contract formation, just like the mutual mistake situation where no party in the contract reasonably relies on the substance of the formed contract in appearance.

The first two legal mechanisms for dealing with the mispricing dispute with regard to on-line transaction are inducing from the perspective of contract theory. Different from the first two legal mechanisms, the following legal mechanism in talking about the mispricing dispute with regard to on-line transaction is actually from the point of view in pure tort theory, which is named "misrepresentation". Under the pure tort theory of misrepresentation in the United States [8], there are two different types of misrepresentation: intention and negligence. Generally speaking, both in the intentional or negligent misrepresentation, the defendant must intend the plaintiff relies on his (her) statement and the plaintiff must also be reasonably relied upon such misrepresentation. Especially, in intentional misrepresentation, the amount of consequential or punitive damage could be huge. And the majority of the cases would allow the benefit-of-the-bargain as the tort damages which could be more advantageous than the actual harm in traditional tort cases [9].

4. The Comparison of Legal Solutions between Taiwan and the United States—the potential legal predicaments in Taiwan

From previous discussion in this article, the general description of legal mechanism for these two different jurisdictions has been indicated through the discussion. Generally speaking, the price catalog of on-line business in the United States would be regarded as either the offer or the invitation of offer based upon the facts to decide whether it is the firm offer or not. In Taiwan, the price catalog is defined as the invitation of offer through the administrative regulation promulgated by Consumer Protection Commission. As to the rescission of the formed contract by way of the affirmative defense, mistake, the criterion for trigging such defense in Taiwan is to require no negligence on the side of asserting party. And the consideration of the reliance and (or) good faith or abuse of rights are extremely important in the process of making such judgment for negligence. The United States, unlike the legal mechanism in Taiwan, is going to directly ask whether the other party, in opposing to the asserting party, has or has reason to be reliable to such allegedly formed contract in order to make the decision of rescinding or remaining the contract. Finally, to assert the misrepresentation under the tort theory is potentially possible both in Taiwan and the United States for handling negligent (most likely) of intentional mispricing scenario. The judicial decisions accumulated in the United States have developed the quiet clear rule and judgment criteria but it doesn't seem to be the same situation in Taiwan [10].

Even both Taiwan and the United States have their own way to strike the balance between the interests of manufacturer selling its products on-line and consumer, this article would like to point out that the legal mechanism in Taiwan is not without its theoretically jurisprudent problems. First, the thinking of using the must-stipulated provision technique by way of administrative requirement in on-line transaction to define the legal status of the price catalog will unavoidably face the strong challenge that this administrative requirement actually entrenches the freedom of contract which should be left to the parties in forming their contract. This argument is legitimate and convincing especially this regulation of required stipulation issued by the Consumer Protection Commission has nothing to do with the consumer protection. To put it another way, the balance between the consumer protection and the freedom of contract has not justified this administrative requirement.

Secondly, in Taiwan, compared to the counterpart legal mechanism, the lack of negligence at the part of defendant is the reason to rescind the formed contract. And the legal system of the United States will probably regard the material mistake as not having the meeting of minds in fact and allow the mistaken party to rescind the formed contract in appearance if the other part in the contract knows or has reason to know about the mistake which means there is no reliable interest to the other party. This article would argue that from the experience of the judicial decisions in the United States, to implant the tort concept into the contract dispute is just to put a peg into a square whole. The whole fundamental concept of contract is the meeting of minds between the parties of the contract. And the court in the United States will try hard to preserve the contract formation unless it is convinced that there is no hope to rescue the contract in dispute. In Taiwan, even the judicial decisions recognized the importance of reliable interests of the non-mistaken party; these judicial decisions did not expressly explain why the reliance interest is so important to decide the legitimacy for the affirmative defense of mistake and, more serious flaw, the connection between the reliable interest of non-mistaken party and the decision of non-negligence which is the main element to trigger the mistake affirmative defense.

The last concern of the legal mechanism for resolving the dispute of mispricing for on-line transaction is that the possible tort cause of action (negligence or intention) for misrepresentation. The concept of misrepresentation in dealing with the dispute of mispricing for on-line transaction still has no its clear configuration because there is no such independent provision in the Civil Code in Taiwan and all judicial

decisions are occupied by the negligence theory which is implanted into the mistake affirmative defense. The case research seems no finding that any judicial decision emphasizing on this argument in Taiwan yet.

5. The Tentative Suggestion and Observation

From the discussion of this article, the general legal mechanism in resolving the mispricing dispute happened in on-line transaction for both Taiwan and the United States gives the idea how they work. The comparison between these two different legal infrastructures magnifies not only the difference but also the jurisprudence problems revealing in Taiwan's legal system. These three problems are: the administrative regulation of defining the legal meaning of price catalog on-line, the negligence theory for adopting mistake as the affirmative defense to rescind the allegedly formed contract, and the ignorance of misrepresentation theory as an alternative way to resolve the dispute between the on-line product manufacture and the consumer. This article would like to proffer the corresponding tentative suggestion and observation to these three problems mentioned here based upon the legal experience in the United States. First, the issue for formation of contract shall be left to the free will of the parties and the judicial decision on the case-by-case basis. Then the adoption of mistake affirmative defense should also return to the fundamental meaning of the contract-meeting of the minds, by requiring the non-reliance to such mistake of the non-mistaken party in the contract. The revision of the provision in Taiwan's Civil Code regarding the mistake affirmative defense seems necessary with this regard. After separating the negligence idea from the mistake affirmative defense, the possible negligence theory should be discussed in tort legal remedy and configured through either the interpretation of judicial decisions or the future possible independent legislation to make the meaning of misrepresentation (whether negligent or intentional misrepresentation) more clearer and defined. This article would hope and expect these suggestions (observations) would have referential value and lead to the further study and research, even the possible future change in such legal mechanism in Taiwan.

References

[1] Ruey-Hsing Chang. The fine tuning for online shopping mechanism: lessons from pricing error cases. NCCU Intellectual Property Review 2011;Vol.9 No.1:1-41. (in Chinese)

[2] Consumer Protection Commission, Executive Yuan, Taiwan. The must and must-not stipulated items in the standard contract for the on-line retail business transaction (last visited Sep.25, 2011) available at: http://www.cpc.gov.tw/KnowledgeBase_Query/fp.asp?ID=7012

[3] Jerry G. Fong. Can the on-line sale of product be rescinded because of mispricing? Taiwan Law Journal 2009; 135: 203-8. (in Chinese)

[4] Lih-Jen Lin. The discussion of legal issues in on-line transaction for mispricing. Soochow Law Review 2011; Vol.22 No.4: 1-26. (in Chinese)

[5] Jiin-Yu Wu. the legal effects of mispricing within the website. The Taiwan Law Review 2010; 187: 39-58. (in Chinese)

[6] Steven Emanuel. Emanuel Crnteact. New York: Aspen Publisher; 1998-99.

[7] John W. Wade, Victor E. Schwartz, Kathryn Kelly, David F. Partlett. Perfessre, Wade and Schwartz's trets cases and materials. New York: The Foundation Press Inc; 1994, p. 1013-72

[8] Hinkle v. Rockville Motor Co., Inc., 278 A.2d 42 (1971).

[9] Aon Risk Services, Inc. v. Meadors, 267 S.W.3d. 603 (Ark. App. 2007).

[10] Wei-Ta Pan. The comparison rf misrepresentation tret civil liability between Taiwan and the United States. Taipei; Ruey-Hsing Publishing Inc; 1995, p. 150. (in Chinese)