This article is written by Anuradha Goel, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here she discusses “Whether the Terms of Use and Service are Enforceable as a Contract?”.

Introduction

Terms of service/terms of use are generally used by organizations/websites offering their products or services to the people. The terms can either be found in the form of a disclaimer or a link. The most common scenarios where one can find them are websites operating in domains related to e-commerce, online streaming websites, software, etc. The user does not have any capacity to negotiate these terms and has to either accept them or leave the webpage.

Through these terms, the service provider intends to create a legally binding relationship with the user through one of the following ways-

1. The user by browsing/navigating through the website, the user automatically agrees to their terms and conditions.
2. The user might be asked to click on the “I agree” button.

In other words, the service provider intends to create an e-contract with the user. The Indian Contract Act, 1872 is the governing law for contracts in India. As per Sec.2(h) of the Act, a contract is an agreement enforceable by law.

Additionally, sec.10 of the Information Technology act, 2000 recognizes the legal validity of e-contracts in India. The Honorable Supreme Court in Trimex International FZE vs Vedanta Aluminum Limited has held e-contracts as valid in India even when the parties have not attested their signatures to it.

However, certain essential elements must be incorporated in the agreement to make it valid and enforceable as per the Indian Contract Act, 1872.

What characteristics make an agreement valid and enforceable?

The Indian Contract Act, 1872 (“Act”) states that every agreement is a contract if it has the following attributes-

• Offer and acceptance.
• Parties are competent to contract.

Sec. 11 of the Act lays down three conditions must be fulfilled by parties to ensure their competency to contract-

1. The parties must be of the age of majority as per the law;
2. The parties must be of sound mind; and
3. Parties must not be disqualified by the governing law from entering into a contract.

• Parties should give their free consent.

Sec. 14 of the Act defines free consent. A party is said to have given free consent when its consent is free from the following attributes-

1. coercion
2. undue influence
3. fraud
4. misrepresentation
5. mistake

All agreements without free consent are voidable in nature. The part who has not given its free consent can choose to walk away from the contract.

• The object and consideration of the agreement must be lawful.

An unlawful consideration shall render an agreement void. As per Sec. 23 of the Act, all agreements are deemed to have lawful consideration unless-

1. It is expressly forbidden by law;
2. If enforced, would defeat the provisions of law;
3. Fraud;
4. Involves injury to the person or property of another person; or
5. Immoral or is opposed to public policy.

• The agreement must not be expressly declared void by law.

How do e-commerce companies incorporate these characteristics?

1. OFFER and ACCEPTANCE– The terms and conditions are displayed on the website and the user is asked to agree with them.
2. COMPETENCY and FREE CONSENT– The terms and conditions contain a declaration that the user is competent to contract as per the law and has given his consent freely.
3. LAWFUL CONSIDERATION– The website shall store/process the data provided by the user in exchange for services opted by the user, including browsing the website.

What are the contents of a term and condition document?

The terms and conditions usually are a set of rules and regulations framed by the service provider for the users visiting its website. These terms generally contain the following-

1. Confirmation regarding the competency of the user to enter into a contract.
2. The way users are expected to interact with each other and conduct themselves while using the website. [consideration]
3. Privacy policy, i.e. Manner in which the data of the user shall be stored and processed by the provider.
4. Return policies, shipping charges, and other details relevant to the product.
5. Intellectual property rights.
6. Provisions relating to liability, indemnity, warranty, limitation of damages, applicable laws, and dispute resolution.
7. Grievance officers, contact details of the service provider.

When can the document be declared as unenforceable?

Following situations might make the terms and conditions unenforceable in a court of law-

1. A declaration that the user has automatically agreed to the terms and conditions of the service provider through browsing the website without being given an opportunity to read them can render the contract unenforceable if challenged in the court of law.
2. A provision stating that the user has agreed to any modifications which might be made in the terms and conditions in the future. A user cannot be made to accept the provisions which do not exist.
3. Provisions which are unreasonably in favor of the service provider to shock the conscience of the court.
4. Provisions which are expressly void as per the Indian Contract Act, 1872.
5. Provisions that are against public policy.

What are the popular case laws on the subject?

• Feldman vs. Google

Facts

1. The Plaintiff’s firm had purchased advertising from Google and whenever a user clicked on its ad, the Defendant would charge the Plaintiff on the number of clicks.
2. The Plaintiff was made to enter into a contract with the Defendant before he placed any ads and was charged for it.
3. The Plaintiff had argued that the agreement was not valid because he/his firm did not know the terms and conditions of the agreement. The Plaintiff averred that he never personally signed the contract.
4. The Plaintiff also argued that he/his firm did not get an opportunity to negotiate the terms and conditions of the contract.

Judgment

The court upheld the validity of the agreement entered into between the parties on the following ground-

Reasonable notice and mutual assent: The notice entailing bold words “Carefully read the following terms and conditions. If you agree with these terms, indicate your assent below” indicate the plaintiff was allowed to read the terms and conditions. The terms and conditions were then expressly stated which contained that a binding relationship with Google will be formed. The plaintiff was required to give his assent in the end by clicking on the “I agree” button to proceed to the next step. The plaintiff was also offered a link to print the contract.

• Specht vs. Netscape

Facts

1. The Plaintiff had filed a class action suit stating that when they used the Defendant’s software program, their private information was shared with the Defendant company. This violated their privacy.
2. The Defendant argued that the Plaintiff had agreed to the terms and conditions while downloading the particular software. However, the terms and conditions regarding the software were written at the bottom of the page, nowhere near the download button.
3. The Plaintiff stated that he was not made aware of the terms and conditions while downloading the software from the defendant’s website.

Judgment

1. The court upheld the judgment in favor of the Plaintiffs and said that the user cannot be made liable for terms and conditions which were not adequately visible.
2. The download button was not related to the terms of the agreement which the Defendant intended to bound the Plaintiffs by.

How to ensure that terms of service are enforceable?

A service provider can incorporate the following practices to render the terms and conditions enforceable in a court of law-

1. The terms of service can be displayed on the first page of the website and the user must be allowed to either agree/disagree with it.
2. The terms and conditions must be legible and written in a simple, lucid, and easy language so that the user can understand it. Additionally, if the website is available in different languages, do ensure the terms and services are also available in the same language.
3. The terms and services can be sent to the registered email id of the user who has purchased a product/availed a service. This will ensure the user has a copy of the terms and conditions agreed upon by him.
4. The terms and services must be conveniently placed to be easily accessible by the user on the website.

In the event of a change in the terms and conditions, a prior intimation along with a grace period must be given to the user.

Conclusion

To conclude, the terms and conditions of an e-commerce company are enforceable in the court of law if they fulfill the basic requirements as per the Indian Contract Act, 1872.

However, for any agreement to be enforceable and to be admitted as a piece of evidence in the court, one needs to pay appropriate stamp duty. The Indian Stamp Act, 1899 does not mention any stamp duty on e-contracts. Additionally, many states have their stamp acts. 

Currently, neither the buyer nor the seller is paying stamp duties when they enter into such an agreement. In the event of a dispute, this question might be of relevance.

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