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E-contract legality : an introduction

September 14, 2021
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This article is written by Geetanjali Shastri , pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction to E-contract legality

An electronic contract is one that is created through the interaction of two or more individuals by electronic means, such as e-mail, or by the interaction of two or more individuals with an electronic agent, such as a computer virus. Section 2(h) of the Contract Act, 1872 (the Contract Act) defines a contract as a legally binding agreement. The Contract Act does not explicitly include electronic contracts (e-contracts), but it does not place any limitations on them either. One of the most important aspects of e-business is the e-contract. It entails the sale of goods and services.

One of the most essential components of it is the e-contract. It involves the sale of goods and services in exchange for a particular amount of money. The fact that the transaction takes place through the internet, or e-commerce, is crucial. The electric mode of communication allows sellers to connect directly with end consumers without the use of mediators.

E-contract validity

With the growth of internet commerce and the emerging demand of conducting business over the internet, electronic contract execution is becoming quite widespread.

Legal framework relating to E-contract

With the expanding importance and value of e-contracts in India and across the world, various parties are constantly discovering and assessing the legal complexities surrounding them. The involvement of various service providers in an e-contract transaction, such as a payment gateway, the main website, the bank, or card verification. They are as follows:

Specific Exclusions

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

Is it essential to use electronic contracts?

After going over the many sorts of electronic contracts, the question of whether they’re right for your business or not, stays. Electronic contracts are primarily a response to many firms’ expensive and inefficient paper-based documentation methods. You’re likely familiar with how slow and unpleasant paper contracts and wet signatures can be. Electronic contracts, on the other hand, are completely digital and have been shown to enhance employee productivity by more than 20% and reduce turnaround time by almost 100%! Businesses can save a lot of effort while using e-signatures. As a result, the answer is conscience — Yes! Electronic contracts must be used.

Jurisdiction of Courts under E-Contracts 

 Given the nature of e-contracts, one question that comes up often is, which court would have territorial jurisdiction to try e-contract disputes? The Code of Civil Procedure, 1908 (“CPC”) defines how civil courts in India establish jurisdiction, based on two key principles: 

While the parties maintain their liberty to choose which courts will adjudicate their issues, they can only choose courts which are not barred from exercising jurisdiction, i.e., parties cannot bestow jurisdiction on a court that does not have jurisdiction to hear their case.

Contract terms contain a specific clause specifying the place of execution, and the courts of that location would have territorial jurisdiction to accept and try disputes arising from such contracts if they had been drafted in accordance with the CPC.

However, since e-contracts are not physically signed/executed and are concluded in a virtual domain, application of the jurisdictional rules that apply to physical contracts to such transactions might be difficult.

International recognition of E-Contracts: With special reference to the European Union

The European Commission

The European Union is a market with a wide range of members, each with its own collection of national legislation. The EC adopts Directives that member states must incorporate into their domestic legislation to ensure uniformity in certain areas. If a member state fails to do so, the EC can take immediate action against it and award damages to an individual who has been harmed as a result of the recalcitrant member.

One of EC’s objectives is to make the EU the world’s most competitive and dynamic knowledge-based economy. The E-Commerce Directive 2000/31/EC was adopted by the European Commission to provide the legal framework for electronic commerce in the internal market. The Directive needs to tackle the obstacles that exist between people of member nations when using cross-border online services. It also aims to offer participants in the EU with legal certainty.

E-Commerce Directive by the European Commission

The internal market concept of screening the construction of a zone with no internal borders to ensure free movement of products, services, and establishment between members. As a corollary, the Directive seeks to ensure that both the existing and the new member states establish and apply the legal framework for electronic commerce. The legal certainty and clarity given by the Directive’s internal market clause, according to the EC, is the Directive’s cornerstone.

The directive means that people who enter into online contracts inside the EU are aware of the legal consequences of their conduct, and it promotes confidence between citizens from different EU countries. This will, once again, ensure the growth of online commerce and contribute to the member nations’ income. Consumers would be exposed to risks if there’s no certainty, which could have a negative effect on the economy.

There is consumer protection legislation as well as a requirement that documents be in writing, as well as a directive that such contracts are legitimate if they are made on the internet. The Consumer Credit Act of 1974, which protects consumers, and The Requirements of Writing (Scotland) Act 1995 are two examples.

Need for uniformity across the EU

With the need to harmonise the requirements for online contracts, the opportunity to harmonise contract formation regulations arose. The issue here is that there is no uniformity across the EU when it comes to contract creation, and customers are unaware when they have a legally enforceable contract. The lack of consistency in the rules poses a barrier to customer trust.

A partnership is said to be signed when the offeree publishes his or her acceptance of the offer. This rule also determines which court has jurisdiction over the case. This is the proposed contract construction in the United Kingdom, however; not all member countries have enacted this construction. In Spain and Belgium, an offer of products on a website is given a contract to the customer. When the buyer accepts the offer, the contract is formed. The issue here is that it does not account for the circumstance where the offeror does not have enough stock to complete the order.

The ruling in the United Kingdom, France, and Germany is that the advertisement is an invitation to treat, and the purchaser makes the offer, which the offeree can accept or decline. Because of the way the website was set up to deal with online orders in the Kodak circumstance, online orders were immediately accepted.

The European Commission did not go far enough to harmonise the contracting moment, and the Directive’s sections 9 to 11 solely to address the process of contracting online. There will still be differences between civil law and common law systems, and citizens from different member states will be unsure as to when the contract came into force.

Conclusion

The common legislative and judicial intent appears to be clear: any legally valid act that is ordinarily performed would continue to be valid even if performed electronically or digitally, as long as such electronic/digital performance includes all of the attributes of a legally valid contract, as prescribed by the applicable laws.

However, in the absence of geographical or national boundaries for the execution and implementation of such contracts, establishing territorial jurisdiction for e-contracts becomes more difficult. While the IT Act and judicial interpretations of contracts in general have clarified the jurisdictional aspect of e-contracts to some extent, in view of the aforementioned discussions, it is generally advisable to clearly specify both jurisdictional and governing law provisions in e-contracts in order to avoid future conflicts on jurisdictional or choice of law issues.

References

Books

Cases

Legislation


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