smart
Image address: https://images.law.com/contrib/content/uploads/sites/397/2018/06/LTN-Smart-Contracts-Article-201805231757.jpg

Written by Kaushal Kumar, pursuing Diploma in Cyber Law, Fintech Regulations and Technology Contracts offered by Lawsikho as part of his coursework.  Kaushal works as Technology and Management Professional at an IT company and has a keen interest in obtaining knowledge on Cyber Security and Cyber Law.

The Internet has revolutionized people’s way of communicating. In addition, the way people are doing business has also changed the Internet and electronic data exchange. It created a new kind of trade and trade called e-commerce. E-commerce is booming with a high level of internet penetration worldwide and the rise of internet users. High speed and a geographic absence have contributed greatly to the growth of e-commerce, which is the key advantage of the Internet. For instance, a buyer in India can buy goods from a vendor in the United States with just a few clicks of the mouse, without having to leave their home or office. In an electronic world called electronic contract or simply e-contract or on-line contracts, e-commerce brought about a new form of contracting. Electronic contracts are commonly known to many of us. The most common contracts are “End User License Agreement” or the EULA where the installation of software or terms/conditions/ user agreement on the Website requires a click on the ” I agree ” button.

Contracts and Validity

In India, the Indian Contract Act, 1872 governs all agreements and contracts, including online contracts. Simply put, a contract is a legally binding agreement. The fundamental essentials of a valid contract are addressed in Section 10 of the Indian Contract Act:

  • A party offer and the other party’s acceptance.
  • Mutual agreement among the Parties.
  • Intense legal relationship building.
  • Contracting parties should be legally able, i.e. be over the age of 18 years, have the soundness of mind, solvent etc.
  • The purpose of the contact is legal and is not contrary to government policy, e.g. a prohibited drug’s sales agreement is not a valid contract.
  • The agreement should be supported by means of cash or in any kind i.e. consideration
  • The agreement should be capable of being performed.
  • The contract terms are sure.
studying law
click above

A contract cannot be said to be valid until the above conditions are fulfilled. In India both the Indian Contract Act 1872 and the Information Technology Act 2000 should be complied with in accordance with a valid e-contract. An online contract is legally binding on the user when he/she clicks on the ” I agree ” button if the above essential terms are met.

Types of Online Contract

Online contracts can be of three types as underneath:

1.    Shrink-wrap agreements

Shrink wrap contracts are usually a licensing agreement for software purchases. In the case of shrink-wrap agreements, the terms and conditions for access to such software products shall be enforced by the person buying it, with the initiation of the packaging of the software product. Tightening-up agreements are simply the agreements that are accepted by users, for instance, Nokia pc-suite, at time of installing the software on a CD-ROM. Sometimes, after loading the product onto your computer, additional conditions may only be observed and then, if the buyer disagrees, he has an opportunity to return the software product. The shrink-wrap Agreement provides protection by exonerating the product manufacturer of any violation of copyright or intellectual property rights as soon as the purchaser tears the product or the coverage for accessing the product. However, the validity of shrink-wrap agreements does not exist in India with a stable judgment or precedent.

2.    Click or web-wrap agreements

Click-wrap contracts are web-based contracts that require the user’s consent or consent through the “I Accept,” or “OK” button. The user must accept the terms of use of the particular software with the clickwrap agreements. Users who disagree with the terms and conditions cannot use or purchase the product after cancellation or refusal. Someone almost regularly observes web-wrap agreements. The terms of use shall be set down before acceptance by the users. For instance, online shopping agreement, etc.

3.    Browse-wrap agreements

A browsing wrap agreement can be called an agreement which is to be binding on two or more parties through the use of the website. In case of an agreement on browsing, an ordinary user of a given Website is to accept the terms and conditions of use and other website policies for continuous use. We usually witness such kinds of online contracts in our daily lives. Although this online agreement is becoming common in all of our businesses, there is no precise judicial precedent regarding its validity and enforceability. Other countries, such as courts in the USA, have dealt with those online agreements and held that both Shrink-wrap Agreements and Click-Wrap Agreements are enforceable as far as the general principles of the contract are not violated.

Other types of online agreements include contracts for employment, contractors, contracts for consultants, sales and resale agreements, distributors, non-disclosure agreements, software developer and licensing agreements and contracts for source-code escrow.

Formation of Online Contracts or Electronic Contracts

Like an ordinary contract, e-contracts consisting of an offer and acceptance are enforceable. The conduct of the parties, such as exchanging e-mails or acceptance of a condition or terms or by downloading can also imply a contract. A variety of procedures are available for forming electronic/online contracts:

Email: The parties may create a valid contract by exchanging e-mail communications. Offers or acceptances can be completely exchanged via e-mail, or combined with paper documents, faxes, and oral debates.

Website Forms: In many cases, an e-commerce website offers for sale goods or services that are ordered by customers, by filling in and submitting an on-screen order form. The seller will enter into a contract once the order has been accepted. The products and services can be delivered off-line physically. A contract would also be valid for the terms of use of a website once the user accepts the contract by clicking “I Agree.”

EULA: The End User License Agreements also form valid contracts in which end users click “I Accept” or “I Accept the Terms.”

In summary, an e-contract is very different from a traditional contract: it is paperless and it is sometimes not possible for the parties to meet face to face. Here we try to analyze and examine various aspects of a conventional online contract.

Offer and Acceptance

The concept of offer and acceptance is the fundamental concept of effective communication in contract formation. In relation to this question, e-commerce poses a major problem. The offer and acceptance should be identified as they determine the exact time and place of the agreement, and thus which jurisdiction applies.

Often in e-commerce transactions between parties, they never meet. The issue is immediate and the traditional form of contract is challenged, as it makes it difficult to ensure that the parties act legally and that the transaction itself is legal and has taken the necessary steps to respect the Contract. With regard to bilateral contracts, an offer is a clear declaration of the terms and conditions in which a person (the offeror) pledges to be bound; the other party (the offeree) accepts the offer. It’s difficult to determine, on the internet, whether a website is a deal or an invitation to treat.

The words used in an online offer can frequently be considered misleading, and different legal systems can deal with these issues differently. An acceptation is an unqualified final agreement to the terms and conditions of the offer. Generally, it must be communicated to the offeror and the parties are free to vary by agreement.  E-mail is a common method of acceptance in an e-commerce environment. Acceptance of an offer becomes effective at the moment the indication of assent by the offeree reaches the offeror. E-mail is a common acceptance method in the field of e-commerce, but it is problematic. The ‘Postal Acceptance Rule’ states that if a Party agreed to enter into a deal by post the contract shall be deemed to have been concluded when the Offeror sends the letter of acceptance, whether the Offeree receives it or not. This rule does not apply to e-commerce.

Jurisdiction and Place of Execution of a Contract

Jurisdiction is a territory or sphere of activity within which a court or other institution’s legal authority is extended. In the broader sense, it refers to the country or country whose legislation applies during the period of interpretation of any contractual terms or in the event of a dispute. The pace of execution of the contract normally determines this. A traditional contract shall be concluded when contracting parties meet and execute the contract, usually at a predetermined place and time, by placing the signatures on the document. This is not the case in e-contracts in which the parties meet online and can be located at different places. Consequently, a strict determination of the jurisdiction is lacking in the “place of execution”. The parties may however voluntarily submit themselves to a particular jurisdiction which might be the location for the business of one of the contracting parties, or a completely different jurisdiction agreed by all of the contracting parties.

Signature Requirement

In general, signature means signing a document with one’s own name. The principal function of signing a document is to confirm the identity of the contracting parties and to give consents to the contractual terms and to refuse repudiation, i.e. when a person appends his signature, he cannot subsequently refuse that he was not a contracting party. A signature is not essential in accordance with the Indian Contract Act, which states that a valid contract may also be an oral agreement between parties. For it to be valid, therefore, a contract must not be signed physically. However, certain statutes have specified requirements for signature, for example, a transfer certificate on an immovable property cannot be valid if the signature and/or thumb impression has not been attested to by the seller to the same. In another case, the Indian Copyright Act of 1957 calls for the customer to sign. The IT Act is thus a physical signature for electronic signature. Competent authorities have to sign electronically in accordance with the IT Act, but electronic signatures have not been notified by the central government.

Requirement as per The Indian Stamp Act

The Indian Stamp Act and different State legislation mandate that documents in which rights are established or transferred must be stamped. A document not properly stamped shall not be permitted as proof in a court of law, or even a competent authority unless it was imposed (a fine of 10 times the amount of the required stamping duty).However, documents cannot be stamped for an online contract until this date.

Standard Form Contracts

A majority of online contracts belong to the type ‘Click-Wrap,’ a standard contract form in which all conditions are stated on the software webpage or installation page and all parties are required to use a click on the button appropriate for the terms and conditions. In standard form contracts, there is no scope for negotiation. In some cases, the courts (except India) found certain specific contractual terms to be unconscionable and abolished. With regard to India’s position, Article 15(3) of the Indian Contract Act states that where a party holds a domination position and enters into a contract with another party, and the transaction appears unreasonable on its face or on evidence supplied, it must burden a person in the dominant position to demonstrate that that contract has not been concluded under pressure.

Enforceability

However, the enforceability of internet contracts is questionable, 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.

Often, 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 site. The agreements entered into in this way are referred to as the clickwrap agreements, as the user normally specifies his agreement to the terms and conditions by clicking the button or the hyperlink marked “I agree”.

Clickwrap agreements are usually implementable and browsewrap agreements are very difficult to implement subject to traditional contractual principles. There are somewhere between shrinkwrap agreements, although recent cases support their enforceability.

Specific Exclusions

In particular, the IT Act 2000 excludes from electronic transactions the following documents:

  • Negotiable Instruments
  • Power of Attorney
  • Trust Deed
  • Will
  • Sale Deed or Conveyance deed with respect to the immovable property of any documents relating to any interest in an immovable property.

Conclusion

The IT 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 and stamping, remain uncertain and confused. The current trend of demonetizing and digitalization seems a necessity, and we sincerely hope that the government would take appropriate action in that regard, to eradicate all uncertainties in relation to the validity of e-contracts.


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…

LEAVE A REPLY