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This article has been written by Tanisha Das, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.This article has been edited by Anahita Arya (Senior Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).

Introduction

E-contracts are the most sought-after way of entering into an agreement simply because of their attribute to connect parties who are miles away from each other. Since it is quick and cheap when compared to traditional contracting methods it is, therefore, enticing more and more people to become a part of the e-contracting world. Moreover, with the invention of the internet, businesses are not restricted to small geographical regions. Any important information such as personal details, services, etc. can be exchanged electronically. We are now entering the world of cyber contracts where the already established parameters of the standard form of contracts do not hold well. As the size and number of cyber contracts are increasing, the legal issues associated with these contracts are also growing as a menace. Clicking on the “I Agree” button unconsciously can bring obligations under it which a user is unaware of. It is now extremely important to understand the basics of e-contracts and how consumers must be protected. The electronic form of contract exhibits a huge problem to the consumer whose interests are at stake. It is imperative to know the legal implications of electronic contracts.

Electronic contracts : nature and characteristic

An electronic contract is a type of agreement that is created and signed in an electronic form where no paper is used. An e-contract can be in the form of a “Click to Agree” contract which is known as a “click-wrap agreement” generally associated with the downloaded software. Another format of an e-contract is the “shrink-wrap agreement.” In this type of contract, the terms and conditions come along with the packaged product. Let us understand better with an example. When you buy a CD Rom and remove the outer package containing the terms and conditions mentioned the contract is set to have concluded and you are bound by the terms and conditions of the same.

While buying software from a store with a fixed price, it appears to be a sale of the computer program. However, the software developers do not sell you their computer program as a whole rather they sell a non-exclusive, non-transferable right to use the software. They grant users the right to use the software based on certain terms and conditions. The intended consequence of this condition is there is no transfer of ownership and the product remains in the hands of the developer. Therefore, the nature of an e-contract is a license agreement and not an agreement of sale. 

Validity of e-contracts in India

In India, the prime legislation that governs contracts is the Indian Contract Act 1872. E –contracts have derived their validity from the Information Technology Act of 2000. Section 4 of the said Act gives recognition to electronic records wherein the contract has been proposed, communicated, and accepted in electronic form or by means of the electronic record. Section 10 of the said Act also states that the validity of e-contracts is not to be questioned on enforceability only because of the usage of electric means for information. However, it also puts a bar on transactions of certain documents like negotiable instruments, power of attorney, trust deed, will, and sale deed of immovable property. The IT Act 2000 is in force for 2 decades but it is silent on the requirement of signature and stamping. 

Under the Indian Evidence Act, 1872 e-contracts are recognized legally as a standard form of contract would be. The admissibility of an e-contract as a piece of evidence was established in the case of State of Delhi v. Mohd. Afzal and Others where the court ruled that in the event someone challenges the accuracy of computer evidence, then the person challenging it must prove the same beyond a reasonable doubt. It is pretty evident that neither the Contract Act nor the IT Act was enacted with keeping in view the glaring expansion of the electronic format of contracts. Under the present scenario, when the world is undergoing primary transitions every day there is a need for a separate legislative framework that will govern e-contracts exclusively and any disputes arising thereto.

Shrink-wrap agreement

Before the advent of advanced technology, terms of a software license agreement were written or placed beneath the cellophane packing at the time of selling software. In actual practice, it was assumed that one would go through the agreement before opening the package. The clauses of the Licenses were worded in such a way that by purchasing and opening the package the user would be automatically bound by the terms of the agreement. These agreements later came to be known as shrink-wrap licenses. Certain elements are common to a product purchased under a shrink-wrap license. Though it is not a hard and fast rule, the typicality remains the same. For example, the products in a shrink-wrap agreement are categorized as “off-the-shelf” meaning it is not open to modification. Every purchaser has to buy the same version of the product as every other purchase. All the products often are available at a low cost. Essentially all open-source software, for example, Microsoft Word or Acrobat are licensed under shrink-wrap agreements. However, there are many products purchased under a shrink-wrap agreement that require extensive customisation and cost a lot of money. 

The basic contention over a shrink-wrap agreement is whether the consumers should be bound by an agreement? The terms printed on the packaging of the product are inherently an offer made by the owner of the software. Once the user opens the package, it is deemed to be accepted. In this way, the main component of any contract, that is, offer and acceptance are fulfilled in a shrink-wrap license agreement and hence it becomes valid and enforceable. These types of agreements usually contain a number of legal terms that relate to how the software may be used. A typical shrink-wrap agreement lays restrictions on who can use the software. 

Click-wrap agreement

More recently software developers have begun including the license agreement as part of the installation of the program. A pop-up appears which asks the user to accept the terms and conditions before allowing the installation of the program. All those agreements that show the ‘I Accept’ button before actually using the software are known as click-wrap agreements. Click-wrap agreements have evolved analogously to shrink-wrap agreements. Click-wrap agreements also face similar controversy with their enforceability. But it is very clear that this form of agreement is made with the intention of entering into a binding contract, with a definite and clear indication of the developer’s intention. Therefore, it fulfills the essential attribute of a valid contract. The validity of these contracts was reaffirmed by the courts in the case of Hotmail Corporation v. Van Money Pie and Groff v. AOL.

Difference between click-wrap and shrink-wrap agreement

Knowledge of terms of contract

Both the agreements are very similar in their approach. 

  • In a shrink-wrap agreement, the contract terms are not read until the buyer un-wraps the software; but in click-wrap agreement the consumer knows the contractual terms before he/she commits herself to buy goods or services. 
  • In a shrink-wrap agreement assertions are established using unsigned permit identifications which can be demonstrated by opening the package; whereas in a click-wrap agreement, assertions are made in consideration of different programming license requirements to which the client must consent before using it. 
  • The click-wrap agreement is a type of take-it-or-leave-it contract which does give any bargaining power to the user. The terms of the contract get displayed while installing software, the user would be suggested to click on either “I Agree” or “Ok” and after selection, he/she can avail that service or use the product. Hence, click-wrap assertions are broader than shrink-wrap assertions. 

Negotiability

Another stark difference between these two forms of contract is customisation. A shrink-wrap agreement is attributable to being non-negotiable and always very minimal, offering little or no substantive warranties and indemnities. A click-wrap agreement can be made according to the different contractual needs of the user. Several examples or types of click-wrap agreements can be website agreements, under which a website shall be accessible to the user according to terms set forth. Such an agreement will include clauses such as a liability clause of the site owner. The second type of agreement can be a contract for the sale of goods through a website. A classic example of this would be an online shopping website and their agreement with the customers concerning shipping, return of products. 

Services

A click-wrap agreement can also be in the form of a contract providing services like software maintenance and required training and software support. All of the above forms do not exist in a shrink-wrap agreement. A product under a shrink-wrap agreement generally requires very little implementation effort. There is hardly any need for the professional help from a vendor or any third party for the installation of such a product. The product under shrink-wrap agreement is available for trial whereas it is not in the case of click-wrap agreement. A shrink-wrap committed product comes with the added risk that can increase dramatically if the purpose is very critical.   

Conclusion

With the advent of new technology, the forms of execution of a contract have evolved significantly. The IT laws of India have become insufficient to cater to the needs of, or govern such new forms of contracts. Many aspects of an online contract, in particular, the requirements of signature and stamping, remain uncertain. The current trend of demonetisation and digitalisation 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. The IT Act has tried to sufficiently take care of the requirement of e-contracts. However, some of the legal challenges are yet to be resolved and the law is yet to address and plug certain glaring loopholes pertaining to e-contracts.


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