The Need for a Written Website ContractBy Ivan Hoffman, BA, JD
For reasons that are somewhat unclear, some Web designers and site owners seem to view their relationship one-to-the-other not from a place of prosperity, but from a place of scarcity. Some seem to have chosen to lose when they could both win.
There are apparently still many independent contractor Website designers and owners who conduct the business of designing (and hiring those who design) sites without having a sufficient and legally enforceable written contract. In the world of Web design and rights ownership, written contracts are not add-ons to your business — written contracts are your business.
This practice of not employing such written contracts seems unwise for both the site owner and its designer. Neither side can win in this battle of the oral agreement. But in the world of free market capitalism, there are no laws that mandate wisdom. Often wisdom only comes after many hard, if indeed unnecessary lessons.
It therefore pays to explore the rights of both parties in this matter of their contractual relationship.
The Benefits of a Written Contract to the Designer
Under the provisions of the Uniform Commercial Code, it would appear that, in order for the designer to protect him or herself in most instances, there must be a written contract signed by the site owner, which adequately describes the work to be done. The code sections below refer to the California version of the Uniform Commercial Code but you should check with a local attorney to see if these or similar provisions are applicable in your state or country.
Section 2201 of the California Commercial Code states in part:
(1) Except as otherwise provided in this section a contract for the sale of goods for the price of five hundred dollars ($500) or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his or her authorized agent or broker.
The Commercial Code goes on to define "goods" and the definition seems broad enough to cover a Website. In this regard, section 2105 states in part:
(1) "Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid…
(2) Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are "future" goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
The above section seems to define a Website as "goods" that are movable (to distinguish them from real property). Transferring Websites around the Net, electronically, seems about as movable as one can get. It would thus seem that the creation of a Website is governed by the provisions of this code.
Section 2106 below defines a "contract for sale" and this, too, seems broad enough to encompass a Website design agreement.
(1) In this division unless the context otherwise requires "contract" and "agreement" are limited to those relating to the present or future sale of goods. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price (Section 2401). A "present sale" means a sale which is accomplished by the making of the contract.
The sum of all this legal verbiage is that, if the Code applies, and if the Website design agreement is for more than $500.00, then the designer risks not being able to enforce an oral promise to pay on the part of the site owner. No matter how much work the designer has put into the site, if the contract price is in excess of $500.00 the site owner may not be obligated to pay the price orally agreed upon if there is not sufficient writing signed by the site owner. This is known in law terms as "The Statute of Frauds", a concept that arose long ago with the intent to make it clear that in certain very important transactions, the parties must have the agreement in writing (there are some potential exceptions to this rule but they are beyond the scope of this article and depend upon the facts of the given situation).
Thus, it is to the clear benefit of the designer to have a valid, binding agreement in writing, signed by the site owner. The contents of that agreement are, of course, another subject.
The Benefits of a Written Contract to the Site Owner
For somewhat different reasons, it is also to the benefit of the site owner to have a written contract signed by the designer. The design and creation of a Website involves, in substantial part, the creation of copyrightable elements by the designer, and the transfer of some or all of those rights to the site owner (I am presuming for the sake of this article that the designer is not an employee of the site owner. As an independent contractor, any transfer, whether as a work made for hire or otherwise, requires a valid signed writing).
The United States Copyright Act of 1976 states that the owner of all the rights in copyright is the creator, or author, of those rights. This means that, from the moment that the designer creates something copyrightable and it becomes fixed in some tangible medium of expression, the copyright rights to that creation belong solely and exclusively to the designer. The site owner has no rights of any sort in that creation.
Section 201 of the United States Copyright Act states the following, in part:
Sec. 201. Ownership of copyright
(a) Initial Ownership – Copyright in a work protected under this title vests initially in the author or authors of the work.
Section 204 of the same Copyright Act goes on to state in part:
Sec. 204. Execution of transfers of copyright ownership
(a) A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.
Some of this may look familiar. It’s a relative of our old friend "The Statute of Frauds" again. And taken together, what these provisions of the United States Copyright Act mean is that if the site owner does not obtain a written contract, signed by the designer, the site owner may end up owning nothing except perhaps some non-exclusive rights to the work as a Website only.
The Benefits of a Written Contract to Both Parties
Therefore, it clearly benefits both the site owner and the designer to have a written contract, signed by both parties, which defines what the rights and obligations of each party in the design relationship are to be. Vagaries can be eliminated if the contract is sufficiently thorough. Both parties may then rest a bit easier. Each side knows what the other is expected to do and what rights each will acquire or relinquish. It’s neat, professional, efficient and, as you can see, necessary. Each side benefits from this "win-win" situation, while, without such a contract, both parties are likely to find themselves in a "lose-lose" situation.
Despite what would appear to be a self-evident matter — that a written contract is to the benefit of both parties — it appears that there are many site owners and designers who do not use written agreements.
Is this because the designer is afraid that if he or she presents a written contract that the site owner will be "scared away"? Is it because the site owner is unaware of the copyright issues involved in not having a written contract? Or is it the old saw from either side: "I can’t afford it"? In this case, the immediate reply is "Can you afford not to be paid for your work?" or "Can you afford not to own what you have paid for?"
I don’t know the answers to these questions. But I have been practicing law long enough to know that to have your agreement in writing is far better than not. Maybe free market capitalism should mandate wisdom.
Â© 1996 Ivan Hoffman. This article is not intended as a substitute for legal advice. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws.