Critical Analysis of e-contract

The Information Technology laws of India have gone a long way since the IT Act was introduced in 2000. However, many aspects of an Online Contract, in particular, the requirements of signature as well as stamping, remain uncertain and an bit confused in today’s world. The current trend of demonetizing and digitalization seems a necessity, and we genuinely hope that the government would take appropriate action in that regard, to eradicate all doubts in relation to the validity of e-contracts.

Introduction

Today, contracts are becoming an integral part of our lives. Since the advent of the internet, it is very important to take our traditional type of contracts to the electronic form as it is the need for the today’s fast growing world. The online contract formation uses a communication technology which involves many mediators such as Internet Service Providers (ISPs). In the today’s electronic age, the whole contract can be finished in just a few seconds, with both the parties simply attaching their digital signatures to an electronic copy of the e-contract. There is now no need for the delayed couriers and extra travelling cost in such a situation.

So, before we should know about the E-contracts, we should know what an actual contract ia and what are its essentials.

What is a Contract?

A contract is an agreement between two or more parties which binds them legally. It is basically a written or a spoken agreement involving the mutually agreed terms and conditions regarding the fulfillment of the contract. The making of a contract requires the mutual consent of two or more persons, one of them generally making an offer and another accepting.

The four elements of a valid contract are:

  1. Offer
  2. Acceptance
  3. Agreement
  4. Consideration

Contracts offer a written document that outlines the full understanding of the business relationship and scope of the work so that no one can claim any misunderstanding later down the road. They state precisely what rights are being purchased and what rights you’re retaining.

What is an E- Contract?

E contracts are the contracts which are not those typically paper based contracts but are electronic in nature. E- Contracts are generally being made for speedy entering into a contract and for the convenience of the parties.

In today’s modern proliferating world, E- contracts play a major role in terms of binding the parties upon the agreed terms and conditions. All you need is a digital signature to enter into a contract even if the parties are living miles away from each other. Hence. E- Contracts have today become an integral part of making and executing a contract.

The most common type of e-contracts is “End User License Agreement” or the EULA where the installation of software or the terms/conditions/ user agreement on the Website requires a click on the “I agree” button and proceeds by agreeing upon all the terms and conditions.

Nature of an E- Contract

The nature of an E-contract includes various factors, these factors are based on the current technology advancements and traditions and they are as follows:

  • Both the parties do not meet physically in mist of the cases.
  • There are basically no physical boundaries for an E-contract.
  • There is no requirement of handwritten signature in most of the cases and no hand writing is required.
  • The risk factor is very high because there is no utmost security.
  • A major setback in case of breach of E-contracts is the Jurisdictional issues.\
  • In the whole process, especially in the Shrink Wrap Contracts, there is no single authority to monitor the whole process.
  • The electronic records are used as evidences in court n when need arises.
  • The 3 main options to make a contract electronically are:
    • E-mail
    • World wide web (www)
    • Cyber contracts (Click to agree/online contract)

Essentials/Elements of an E- Contract

There are various elements of an e-contract which satisfies the requirements of the contract. So, let’s take it one by one.

1) OFFER: According to Section 2 (a) of The Indian Contract Act, 1872, an Offer is “When a person signifies his/her willingness to do or to abstain from doing anything with a view to obtain assent of that other to such act, he/she is said to make a proposal”. An offer is must to constitute any contract; hence it is the very first step in making of a contract. But in case of any advertisement, the company is not making any offer rather it is merely an invitation of an offer i.e. inviting the customers to make an offer to the company to purchase their products.

2) ACCEPTANCE: Acceptance of an offer is the second most important aspect of an offer. Acceptance completes the contract as the second party will only accept the offer if it agrees to all the terms and conditions of the contract. Hence, an agreement becomes a contract with the acceptance. But in regard to an E-contract, it is very difficult to know when an agreement has been reached. So, when a contract is concluded except for the postal acceptance rule applies. The postal acceptance rule is an exception to the universal rule that acceptance of a contract must be communicated to the offrer before a contract can be in existence.

3) LAWFUL CONSIDERATION: Any agreement will only be a contract when it will constitute against a lawful consideration. A pro bono contract is not valid under the eyes of the law. Lawful consideration can or cannot be monetary but there should a consideration against the fulfillment of the contract. This Law of Contract cannot entirely apply in e-contracts as in sometimes when an autonomous computer is used.

4) LAWFUL OBJECT: The purpose of such contract must be a lawful one. Courts will not enforce contracts that are illegal or violate public policy. Such contracts are considered void. An agreement which calls for the commission of an offense is illegal and therefore void. For example, if an individual could not implement an agreement with a different party to burn a building down. Also, an agreement that calls for the commission of a civil wrong is illegal and therefore void.

5) FREE CONSENT: The consent of the both parties must be totally free from any deceit, mistake or fraud etc. If any Contract is without the free consent of any of the parties, then it shall be considered as null and void in the eyes of law. It very important for the consent to be free because it may happen that the consent so obtained is not in knowledge of the party or may be obtained forcefully.

Hence, the consent to such must be free. This is very difficult to decide because sometimes the margin used to determine the strict rule of free consent gets narrower.

Recognition E-contracts

The Section 10 of the Information Technology Act, 2008 gives legislative authority to E- contracts. It says, “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.”

So, for any contract to be valid under the eyes of law, a signature from both the parites is a must. Now, in case of an e- contract, an electronic signature comes into play. It is also defined under the Section 2(p) of the Information Technology Act, 2008.

Types of E-contracts

There are basically 3 types of e-contracts, they are as follows:

  • Shrink Wrap Agreements
  • Click Wrap Agreements
  • Browse Wrap Agreements

Shrink Wrap agreements- Shrink Wrap agreements are those which can only be read and accepted by the consumer after the opening of a particular product. The term is described after the shrink wrap plastic wrapping that is used to cover software or other boxes. For example- Installing software from a CD into your PC is a shrink wrap agreement. The shrink-wrap Agreement provides protection by making the product manufacturer of any infringement of copyright or intellectual property rights as soon as the buyer tears the product or the coverage for accessing the product.

Click Wrap agreements- Click Wrap agreements are mostly found in the software installation process. The user has to click either ‘Accept’ or ‘Decline’ to accept or reject the agreement respectively. These agreements lack a certain amount of bargain power. Choosing to make payments online or choosing to refuse can be an example of using a click wrap agreement.

Browse Wrap Agreements- A browsing wrap agreement is an agreement which is to be obligatory on two or more parties through the use of a website. In case of an agreement on browsing on the internet, a normal user of a given website is to accept the terms and conditions of use and other website policies for the continuous use. We usually see such kinds of online contracts in our daily lives. Although this online agreement is becoming general in all of our businesses, there is no specific judgment regarding its validity and enforceability. Several countries like USA have dealt with those online agreements and held that both the Shrink-wrap Agreements as well as the Click-Wrap Agreements are enforceable as the general principles of the contract are not violated in any terms.

Other types of online agreements may comprise of contracts for employment, contractors, and contracts for consultants, sales and resale agreements, distributors, non-disclosure agreements, software developer and licensing agreements.

Enforceability of E- contracts

However, the enforceability of internet contracts is quite uncertain, if written agreements that were signed and agreed are considered binding. While the internet is only emerging, the Internet contracts are usually well governed by the principles laid down in writing.

Many times, the user of the commercial website is requested to read and agree to the terms and conditions of activities before purchasing or receiving the service provided by the website. The agreements entered into in this way are referred to as the click wrap agreements, because as the user generally specifies his agreement to the terms and conditions by clicking the button or the hyperlink marked as “I agree” in the last of an agreement.

The Click wrap agreements are usually implementable and browse wrap agreements are very difficult to implement subject to traditional contractual principles. There are somewhere between shrink wrap agreements, although recent cases support their enforceability.

Advantages of E-Contract over Conventional Contracts

Some advantages E-Contract over Conventional Contracts are as follows:-

  • They are very fast to be executed.
  • They can be easily formed.
  • E-contracts generally do not require any type of physical contact in the whole process.
  • Some contracts can be tasks/ job specific.
  • Traditional contracts need a lot of paperwork but e- contracts require less paperwork.

Liability and Damages

A party that commits a breach of an agreement may face different types of liability under the Indian contract law. Due to the risky and faulty nature of the systems and the networks that business employ to conduct the e-commerce, some parties may find themselves liable for the contracts which are technically originated with them but, due to some programming error, the employee mistake or deliberate misconduct were executed, released without the actual intent or authority of the party. Sound policies say that the parties in receipt of messages are able to rely on the legal expressions of the authority from the sender’s computer and this legally is able to attribute these messages to the sender.

Some employing information security mechanisms and other controls, techniques for limiting the exposure to the liability are as follows:

  • Trading partner and legal technical arguments.
  • Compliance with some recognized procedures, guidelines and practices.
  • Audit and control programmers and reviews.
  • Technical competence and accreditation.
  • Proper trained human resource management.
  • Insurance.
  • Enhanced fast notice and disclosure mechanisms.
  • Legislation and regulation addressing relevant secure electronic commerce issuing.

Conclusion

E-contracts are appropriate to facilitate the re-structuring of business processes occurring today at many firms involving a composite of technologies, processes, and business strategies that provides the instant exchange of the information. The e-contracts have their own merits and demerits. On the one hand they reduce costs; it saves time, fasten the customer response and improve service quality by reducing the paper work, thus increasing the automation in the businesses. Hence, the E-commerce is estimated to improve the productivity and competitiveness of participating businesses by providing access to an online global market place with millions of customers and thousands of products and services. On the other hand, since in e-contract, the proposal focuses not on humans who make decisions on specific transactions, but on how risk should be structured in a computerized situation. Therefore the objective is to create some default rules for delivering a message to a party so as to avoid any type of fraud in the contract.

FAQ

Q.1) Is an E- contract recognized under law?

A=1) Yes, an e- contract is recognized under the eyes of law.

Q.2) Does the concept of E- contract comes under the Indian Contract Act?

A=2) The concept of E- contract comes under the provisions of the Information Technology Act, 2000 particularly Section 10-A, an electronic contract is valid and enforceable. The only essential requirement to validate an electronic contract is compliance with the necessary pre-requisites provided under the Indian Contract Act, 1872.

Q.3) What is an electronic signature?

A=3) Electronic signatures enable you to legally sign digital documents and replace paper based handwritten “wet” signatures.

Q.4)  Can we terminate an E- contract?

A=4) Yes, we can terminate an e- contract. The traditional type of contracts be terminated on some grounds, the same can be applied on e- contracts.

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