This article has been written by Chaitali Bagai 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).
- Did you know that even without you realising you might have signed a contract with a big company like Amazon while sitting on your recliner?
- Have you ever accepted the terms and conditions before using an app?
- Have you clicked on “I agree” without knowing what the contract is all about?
- Pandemic has led to many innovations in the tech world and new business models have also been developed during this period. Everything is now just a click away, you want to order food- Zomato, order electronics- Amazon, order groceries- Grofers. Have you ever wondered how they sign contracts with you? Signing contracts is also a click away these days.
Let us read further to understand what these various kinds of contracts are and the differences between them.
E-contracts are the cousins of traditional contracts who went abroad and came back with the new electronics and a fancy name. Electronic contracts are contracts in the digital version and are in demand these days. E-contracts are very similar to regular contracts, the only difference is that they take place through a digital mode of communication that is online. E-contracts have eaten the job of the middlemen, now sellers reach out to the customers directly. The middlemen now are the computer programs that connect the seller with an electronic agent i.e. the app and the buyer also with an electronic agent. Basically, it creates a platform for the buyer and seller to meet.
Are E-contracts binding and valid?
In India, The Indian Contract Act, 1872, Section 10 states that “All agreements are contracts if they are made with free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”
Also, Section 10(A) of The Information Technology Act 2000 states 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, that such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”
According to the Indian Evidence Act, 1882, Electronic signatures are also treated as proof of signature and Digital Signature Certificates are generated when a document is electronically signed and this certificate is also legally valid and binding according to the IT Act, 2000.
In India, contracts are governed by The Indian Contract Act, 1872, and electronic contracts must be valid within the interpretation of the law. The essentials of the Electronic Contracts are-
- Lawful consideration
- Lawful object
- Competent parties to contract
- Free consent
- Certainty of terms
E-contracts are a substitute for expensive and inefficient on paper documentation and are preferred to avoid a lengthy process. On the other hand, electronic contracts are efficient to use and the turnaround time is much higher than lengthy paperwork. In fact, E-signatures also save a lot of time and effort. So, E-contracts are enforceable by law and legally valid even if they are digitally signed and executed. However, it is different in the case of Click-wrap contracts.
Types of E-contracts
There are different types of Electronic Contracts to name a few Shrink-wrap contracts, Click-wrap contracts, Browse-wrap contracts, Source-code Escrow contracts, Software development and licensing agreements, and many more. Here are three different types of contracts-
1. Shrink Wrap Contracts-
The name of this contract came from the shrink wrap packaging of the CD-ROMs in which software used to be distributed. Shrink-wrap contracts are the licensing agreements for different software. These contacts are the license agreements or boilerplate or terms and conditions which are wrapped with the product itself. When a customer uses the product, it means that he has accepted the contract. Shrinkwrap is basically the plastic wrapping done on the cover of the product. Shrink wrap is mostly used by IT companies. The most interesting feature of this contract is that acceptance of this contract can be reversed by returning the product. Also, these days licensing agreements are not delivered with the product instead it shows up before installing the software.
2. Click Wrap Contracts-
Have you seen the long texts, detailed terms and conditions for using an app or software that nobody reads? Yes, those are the Click Wrap Contracts. As the name suggests, the party is just a click away from signing this contract. They just need to click a button or check a box to accept the contract. Basically, the user is forced to sign up the contract otherwise he would not be able to proceed and therefore they are not negotiable at all. There are some legal issues related that will be covered later.
3. Browse Wrap Contract-
Browse Wrap contracts are seen at the bottom of the webpage and the acceptance is assumed if the customer is using the application. These contracts are commonly seen in websites and even in some mobile apps or software applications. They can also be seen through a hyperlink.
Now let’s talk about the enforceability of these contracts with the help of a few US case laws. In general, the validity of Click Wrap contracts is more than the validity of the Browse Wrap Agreements in the courts.
In the case of Long V. Pride Commerce Inc, the court held that the Browse Wrap contract will only be enforceable if the consumer has read and is aware of all the terms mentioned in the contracts. The conclusion of this case was that these contracts are only enforceable if a reasonably prudent man would know the terms of the contract which will depend on the placement and the design of the links.
In another case of Nguyen V. Barnes and Noble Inc., the court ruled that the contract would be enforceable on the basis of proximity and conspicuousness of the link. In the case of Re Zappos.com Inc., the court held that these contracts cannot be enforced because the font, color and design of the links of these contracts is similar to the other links. Therefore, consumers were not able to distinguish.
There are some guidelines to design Browse Wrap Contract links established by the court;
- The visibility of the links should be on the first page not on the sub-pages and should be placed at such a place where it is immediately visible.
- Link should have a larger font with different font style and color. This should be done to differentiate it from other links.
- An additional notice should pop-up as the link is not enough
Understanding the difference between the three
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