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contract_laws:part-1:econtract

E-Contract

Introduction

The advent of revolutionary technologies has ensured robust e-commerce in the country. However the usage of technology without adequate legal framework will lead to chaos in the society and will prove counterproductive to the business. The Indian Contract Act, 1872, The Information Technology Act, 2000 and The Indian Evidence Act, 1872 are the crucial legislations which determine the validity of an e-contract. E contracts are formed by way of exchange of Emails and through on line agreements viz. browse wrap, shrink wrap and click wrap agreements. All the said forms are valid under Indian law as if they comply with the prerequisites of a valid contract. Major issues which arise pertain to capacity to contract, free consent, decision on the applicable law and decision on the court jurisdiction. Though the Indian legal system adequately addresses the e-contracts, the challenge before the law makers will be to keep abreast of the issues which will arise with evolving technologies and to adequately address them. The electronic contract is generally different from traditional contracts. E-contract is a contract executed and enacted by way of software systems. The internet conveniently integrates into a single screen traditional advertising, catalogues, shop displays/windows and physical shopping. A viewer from any part of the world may want to get into contract to purchase a product as advertised. In this transaction, the issue is raised for its execution and protection of the consumers. Fundamental Principles of contract law continue to prevail in contracts made on the internet. Nevertheless, not all principles will or can apply in the same manner that they apply to traditional paper-based and oral contracts. In India, the recognition of an electronic contract is mainly supported by the Information Technology Act, 2000. This paper is divided into basic research issues in e-contracts, including conceptual analysis of e-contract, standard forms of e contracts, and the ways in which e-contract is concluded, the laws governing to it in India and the consumer’s protection in e-contract.

Definition

E-contract is a kind of contracts formed by negotiation of two or more individuals through the use electronic means, such as email, the interaction of an individual with an electronic agent, such as a computer program or the interaction of atleast two electronic agents that are programmed to recognize the existence of a contract. E-contract is one of the divisions of e-commerce or e-business. It holds a similar meaning to traditional business wherein goods and services are switched for a particular amount of consideration. The only extra element it has is that the contract here takes place through a digital mode of communication like the internet. It provides an opportunity for the sellers to reach the end of consumer directly without the involvement of the middlemen.

E-Contracts are contracts attracting principles of Uberrimaefidei in which the contracting parties are not dealing at arm's length but one party is entirely dependent upon the information supplied by the other party on the basis of which alone he expresses his willingness to contract. The doctrine of Uberrimaefidei should be considered the foundation of e-contracts as the chances of misrepresentation or suppression of material facts is most likely to occur in such transactions. Although legal capacity is not explicitly dealt by the Information Technology Act, the law presumes that once an online contract is concluded, both the parties are presumed to be competent to do so. In other words, neither party is allowed to raise an objection at a later stage that the contract is unenforceable for want of competence on the part of the parties.The doctrine of Uberrimaefidei will be strictly adhered to in case of electronic contract and one party acting to his detriment on the representation of the other that he is competent should not be put to any prejudice. E-contract is made through electronic mode with the help of internet. According to the mode of its formation, there are different types of electronic contracts.

Types of Electronic Contracts

Broadly, e-contracts may be classified into following three types. While the shrinkwrap transaction has been around for some time and actually exists in a paper environment, the other two types of transactions (click-wrap and browse-wrap) are suitable to electronic commerce:

  • Click-wrap Agreements
  • Shrink-wrap Agreements
  • Browse-wrap/Web-wrap Contracts

Click-Wrap Agreements

In click-wrap agreements, a party after going through the terms and conditions provided in the website or programme has to, normally, indicate his assent to the same, by way of clicking on an ‘I Agree’ icon or decline the same by clicking ‘I Disagree’. This type of acceptance is usually done before receiving the merchandise. These sorts of contracts are extensively used on the internet, whether it be granting of a permission to access a site or downloading of any software or selling something via a website. This may be called the creation of contracts by conduct. By clicking on any of these choices, he accepts or declines the terms. If he does not agree, the process is terminated. Click-wrap agreements can further be of the following kinds:

Type and Click

In this case, the user must type ‘I accept’ or other specified words in an on-screen box and then click a ‘Submit’ or similar button. This demonstrates acceptance of the terms of the contract. A user cannot proceed to download or view the target information without observing these steps.

Icon Clicking

In this case, the user must click on an icon of ‘I agree’ button on a dialog box or pop-up window. A user may signify rejection by clicking ‘Cancel’ or closing the window.

Shrink-Wrap

Agreements The sale of software in stores, by mail and over the internet has resulted in quite a few specialized forms of licensing agreements. For instance, software sold in stores is commonly packaged in a box or other container and then wrapped in the clear plastic wrap. Through the clear plastic wrap on the box, the purchaser can see the warning that states the use of the software is subject to the terms of a license agreement contained inside, an agreement that cannot be read before purchase of the software. The license agreement generally explains that if the buyer does not wish to enter into a contract by purchasing the software, he must return the product prior to opening the sealed package containing the CD on which the software resides. If the software is returned with the sealed package unopened, a refund will be obtained.

Browse-wrap/ Web-wrap

Contracts In browse-wrap contracts, the internet users will find the terms or conditions hyperlink somewhere on web pages that proposes to sell goods and services. According to these terms and conditions, using the site for buying the goods or services offered itself constitutes acceptance of the conditions contained therein. An agreement is considered as a browse wrap agreement which is intended to be binding upon the contracting party by the use of the website. These include the use of the website. These include the User Policies and terms of service of web sites and are in the form of a “terms of use” or “terms of service”, which can be used as the links at the corner or bottom of website.

Enforceability Of E-Contract

India is transforming into a visual jungle with internet becoming part and parcel of our life. The growing trend of social media, online shopping, e-retailing has created a predicament for the law makers in protecting the users from fraud, misrepresentation, identity theft and other such challenges. The Information Technology Act of 2000 was implemented for the governance and providing legal sanctity to transactions undertaken through electronic means and also provide for authentication of digital signature, jurisdiction, penalties in case of breach, etc. Section 10-A of the said Act has recognized the validity of these e-contracts. It specifies that if an e- contract fulfils all the essentials as specified in Indian Contract Act of 1872 of a traditional contract i.e. valid offer and acceptance, capacities of the party, free consent, etc., it will be considered valid and is enforceable in the court of the country for any kind of breach when undertaken through any electronic means. As in case of Trimex International FZE v. Vedanta AluminiumLtd. India, the hon‘ble Supreme Court recognized that the contract whose terms and conditions are discussed through e-mails between parties, though no formal contract was formed or signed is valid in the eyes of law.

The enforceability of click wrap, browse wrap and shrink wrap contract have been challenged in various US Courts. Like, in case of Feldmanv Google, Inc the validity of Clickwrap contract was discussed and the hon‘ble court observed that Feldman had sufficient notice of terms and conditions of the contract as he went through a proper signing up process including scrolling through whole terms and conditions page before assenting for it. Hence, the court held that the contract entered between Feldman and Google was valid. However, in the case of browse wrap contracts foreign courts are hesitant in enforcing its validity. In such contracts, judicial opinion holds that for constituting a valid contract it is necessary for the party to have constructive or actual notice of the terms and conditions of it. Therefore, where the defendant failed to specify near the download button‘that the user will be bound to the license agreement if he downloaded the software from the website; no contract was executed between the parties. In light of these, the websites are now a day’s more inclined towards click wrap contracts.

Similarly, in case of shrink wrap contracts the court infers the assent of the party from their scrapping of the wrap which has terms and conditions attached with it. In the case of ProCD, Inc v. Zeidenburg,Zeidenburg protected his price discrimination policy of the product through shrink-wrap licensing agreement however, ProCD after purchasing the product uploaded the information on less rate over the internet violating the license agreement. The court, in this case, held that ProCD had the option to reject the terms and conditions of the contract by returning it, but his scrapping the wrap providing terms and conditions was inferred by the court as his consent, thus he is bound by it. Indian judiciary has failed to acknowledge the question of validity of these contracts as there is no precedent till date for providing any type of ground rules over the enforceability of these contracts. Although in the case of L.I.C India v. Consumer Education and Research Centre the hon‘ble court has tried defining such contracts and observed that where the weaker parties do not have a bargaining power, such type of contracts were referred as dotted contracts. ‘Thus, it can be said that the Indian courts have recognized the concepts of these contracts though no guidelines for its regulation have been laid down by it. The reliance can be placed on the foreign judgments based on the facts and circumstances of the case, yet a strong necessity for proper legislative structure for its implementation has aroused has the Indian economy is moving to paperless transactions.

Issues Faced By E-contract

The concept Of virtual world has impacted commerce of various countries including India. The easy access to the internet, fax, computer programs or smart phones has acted as blood in the body of e-commerce industry of our country. The enforcement of Information Technology Act of 2000 has provided a legislative framework and governance to it. However, as nothing is perfect in this whole might world, this statue also has certain shortcomings pertaining to the raising issues in the country in respect of these e-contracts. Following is few issues faced by electronic contracts in our country:

Jurisdictional Issue

Paperless transactions like e-contract are borderless, therefore, it gets difficult to determine the jurisdiction i.e. the extent of the limit of the court‘s authority over any suit or appeal at the time of breach of e- contracts. As per Section 13(3) of the Information Technology Act of 2000: a) the place of business of the originator will be deemed to be place where the information was dispatched, and b) place of business of the addressee will be deemed to place where the information was received. This implies that the location of computer sources through which it was dispatched and received, places no role in determining the jurisdiction of the case. However, this section limits the power provided by Section 20 of Code of Civil Procedure, 1908. As Section 20 clause c ‘specifies that the suit can be instituted in the court within whose local jurisdiction the cause of action has aroused. Therefore, it raises the question over the jurisdiction of the courts as cause of action may arise in e-contract at the place where the electronic information was dispatched, irrespective of the fact of principle place of business.

In case of P.R. Transport Agency vs. Union of India & others, the Allahabad Court dealt with the question jurisdiction and held that the acceptance of the contract was sent through Email and received in Chandauli (U.P) and principle place of business of the petitioner was at Vanaras (U.P) thus, the place of jurisdiction on the present case lies in U.P. As electronic transactions have no boundaries, it has become difficult to deal with the jurisdictional issue, especially when both parties belong to different part of the world. The present legislations governing e￾contract have failed to answer questions as to jurisdiction lies in which country in case of dispute, Law to be applied to solving the disputes (suppliers or consumers) or how will decision be enforced in both the countries.

Parties To Contract

Transactions in an electronic contract are between parties which are stranger to each other. This poses threat to both the contracting parties. As for validity of the contract under section 11 of the Indian Contract Act of 1872 it is necessary that parties are not minor, lunatic or disqualified by the law however, while executing e-contract the major question arises are over the competencies of the parties. Minors can easily enter into contracts through click wrap or browse wrap contracts with the website. So, the legal liability is on the websites to ensure that the party contracting is competent under Indian Contract Act of 1872 for it. To ensure the competency of the party, the online websites have come up with various methods such as signing up to the site, in which the person enters personal details including birth date ensuring the website that the party has the capacity to enter into the contract. It is sometimes accompanied with a dialogue box containing pictures, and users are required to identify things in them to ensure the lunacy of the party. Despite these methods the enforceability of e-contract is in question due to lack of stringent legislation to deal with such issue in depth.

Signature Authentication

Indian Contract Act of 1872 recognizes both oral and written contracts; therefore, it is not mandatory under this law for the valid contract to be signed by the parties. The signature in traditional contracts signifies the intention of the party to constitute the contract and has more legal value in the eyes of law. However, certain statute provides for the contract to be signed by both parties such as in case of Indian Copyright Act, 1957, etc. E-contract being generated through electronic means cannot be signed traditionally by the parties, so, it is required to be signed electronically through electronic signature or digital signature as defined under section 3-A or Section 5. But, the major drawback of it is that not e signature is not valid on every document. Documents like:

  1. Negotiable instrument except the cheque
  2. Powers of attorney
  3. Trust Deed
  4. Real Estate Documents

These are the documents which are required to be physically signed by the parties and Information Technology Act 2000 has no applicability over it.

Loss Due To Technical Error

E-contracts are documents which are entered into by the parties through electronic transmissions and are stored in the virtual world. But, like paper transactions there is no safety in the information stored in the world. Though, it is believed that anything which enters the digital world always exists and is never lost yet there are no administrative, legal or judicial guidelines over the scenario where the whole information or part of information is lost due the failure of the technology.

Laws Governing E-Contracts in India

Indian Contract Act, 1872

The Indian Contract Act, 1872 governs the manner in which contracts are made and performed in India, so every contract made should necessarily comply with the provisions of the Act to make it legally enforceable. The provisions of the Indian Contract Act are wide enough to cover such transactions. In the context of contract formation unless otherwise agreed with by the parties an offer and acceptance of an offer or either of them, may be expressed by means of data messages or electronic record. Where electronic record is used in the formation of contract that contract shall not be denied validity or enforceability on the sole ground that data messages were used for that purpose. As between the originator and the addressee of the electronic record, a declaration of will or other statements should be valid, effective or enforceable even though it is in the form of database.

Information Technology Act, 2000

The electronic contracts would be considered absolutely valid under the Information Technology Act, 2000. As per Section 4 of the Information Technology Act, 2000 legal recognition of electronic records, where any Information is in writing, typewritten or printed form is made available to a user in the electronic form for subsequent reference shall be deemed to have satisfied the requirement of law. In a layman’s language, this means that any document which is in the written or printed version would be treated same and will have the equal validity in the electronic form also. As per the newly introduced Section 10A 15of the Information Technology Amendment Act, 2008” clearly states that the “Validity of contracts through electronic means, that “Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”The Act also lays down the instruments to which the Information Technology Act, 2000 does not apply, it includes negotiable instruments, power of attorney, a trust deed, a will, and contracts for sale or transfer of Immovable Property.

Indian Evidence Act, 1872

It is pertinent to contextualize at this juncture that evidence recorded or stored by availing the electronic gadgets is given the evidentiary status. For instance: the voice recorded with the help of a tape recorder. Now-a-days, the digital voice recorder, digital cameras, digital video cameras, video conferencing are adding a new dimension to the evidentiary regime. The emergence of information and communication witnessed a sea change by elevating the status of the evidence recorded, generated or stored electronically from the secondary to primary evidential status. The evidentiary value of e-contracts can be well understood in the light of the various sections of Indian Evidence Act. Sections 85A, 85B, 88A, 90A and 85C deal with the presumptions as to electronic records, whereas, Section 65B relates to the admissibility of the electronic record.


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