Electronic Contracts

Q.1. What is the most pre-dominant form of electronic contracts with which law is concerned?

Ans. E-commerce is associated with the buying and selling of information, products and services via computer networks. It is a means of transacting business electronically, usually, over the Internet. It involves a composite of technologies, processes, and business strategies that aids the instant exchange of information within and between organizations, buyers and sellers.

  • Click-wrap or web-wrap agreements:
  • Click-wrap agreements are those whereby a party after going through the terms and conditions provided in the website or program has to typically indicate his assent to the same, by way of clicking on an "I Agree" icon or decline the same by clicking "I Disagree". These type of contracts are extensively used on the Internet, whether it be granting of a permission to access a site or downloading of a software or selling something by way of a website.

  • Shrink-wrap agreements
  • Shrink-wrap agreements have derived their name from the "shrink-wrap" packaging that generally contains the CD Rom of Softwares. The terms and conditions of accessing the particular software are printed on the shrink-wrap cover of the CD and the purchaser after going through the same tears the cover to access the CD Rom. Sometimes additional terms are also imposed in such licenses which appear on the screen only when the CD is loaded to the computer. The user always has the option of returning the software if the new terms are not to his liking for a full refund.

  • Electronic Data Interchange
  • In other words they are contracts used in trade transactions which enables the transfer of data from one computer to another in such a way that each transaction in the trading cycle (for example, commencing from the receipt of an order from an overseas buyer, through the preparation and lodgment of export and other official documents, leading eventually to the shipment of the goods) can be processed with virtually no paperwork. Here unlike the other two there is exchange of information and completion of contracts between two computers and not an individual and a computer.

Q.2. How and when does an electronic contract stands concluded?

Ans. There are 3 basic stages in a valid contract:

  • Offer or proposal and acceptance,

  • Intention to create legal relations,

  • Consideration.

Unless and until all these 3 stages are satisfied there cannot be said to be a valid and enforceable contract. Similarly, there are three significant stages in electronic transactions-

  • The first stage is known as the "searching" stage where there is only interaction between the suppliers and consumers but actual transaction does not take place.

  • The second stage is the "ordering" stage which entails ordering and payment for the good or service, through the electronic transmittal of credit card or bank account information.

  • Finally there is the "payment / delivery" stage wherein only those transactions that can be concluded entirely through electronic delivery of digitised information are carried out.

Law governing electronic contracts has been envisaged under the Information Technology Act, 2000.

Q.3. What are the relevant provisions of the IT Act 2000?

Ans.Ss.11, 12 & 13 provide for time, place, and receipt of the electronic records. This would therefore also provide for the basis of electronic contracts.

Exceptions to E-Contracts:

The Information Technology Act, 2000 excludes the transactions related to:

  • a negotiable instrument

  • a power-of-attorney

  • a trust

  • a will

  • any contract for sale or conveyance of immovable property or any interest in such property.

Q.4. What would be law applicable in the cases of electronic contracts?

Ans.In both common and civil law systems, statutes and other legal rules assign legal significance to both the courses of dealings between parties over time and to generally accepted and followed practices of the trade. Generally in contract disputes, unless it can be proved that the parties agreed otherwise, choice of law rules mandate that the place where the contract was formed governs.

Ans.The set of laws and rules governing a transaction may be summarized generally as follows and any inconsistency between them will, with certain exceptions, to be resolved in favor of the higher set.

  • Provisions of the agreement between the parties,

  • Course of dealing between the parties,

  • Accepted trade practices in the applicable field of commerce,

  • Pertinent statutory laws and regulation, such as the Uniform Commercial Code and other legislative and administrative enactment and

  • The civil code of jurisdiction or the common law as applicable.

UNICITRAL Model law on Electronic Commerce (1996) in Sec 11 gives statutory recognition of Click-wrap licenses where it says that an offer and acceptance can be validly expressed by data messages which include information generated, sent, received or stored by electronic, optical or similar means including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.

Mention may be also made of India's Information Technology Act 2000 whereby by way of Sec 11 the legislators accept offer by way of data message either by himself or by any electronic system programmed for that specific purpose. (Which would include offer in case of Click-wrap) but is silent as regards mode of assent or acceptance of the same.

More >>