Contracts in the Infotech
World
Every e-commerce transaction is in essence a
contract.
Electronic commerce is defined as the buying
and selling of goods or the rendering of services
using the internet.
Modes of doing business have been redefined
by the internet:
◦ Costs are low
◦ Speed of business
There are broadly four types of e-commerce
transactions:
◦ Information access
◦ Interpersonal communication
◦ Shopping services
◦ Virtual enterprises
Business arrangements where trading partners who are
separated by geography and expertise are able to engage in
joint business activities.
Every e-commerce transaction – contractual
relationship between the transacting parties
Law of Contracts – Indian Contract Act 1872
Law pertaining to the sale of goods – Sale of
Goods Act 1930
Click-wrap and Shrink-wrap contracts: Status
under the Indian Contract Act, 1872
The formation of a contract is a game of offer
and acceptance.
The legal process for giving birth to a contract
usually begins with an offer/proposal.
Offer in some cases may be preceded by an
invitation to offer.
Sections 3 to 9 of the Indian Contract Act, 1872 are
concerned with communication of proposal/offer,
acceptance and revocation.
Where a proposal or acceptance of any promise is
made in words, the promise is said to be express.
If it is made otherwise than in words, the promise is
said to be implied (suggested but not directly
expressed).
In order to convert a proposal into promise, the
acceptance must
1. Be absolute
1. if an acceptance with variation is made – counter
proposal
2. It has to be accepted by the proposer before
contract is made.
2. Be expressed in some usual and reasonable
manner, or the format which is prescribed by
the proposer.
1. Has to be accepted within a specified time and the
prescribed format
Section 6 provides that a proposal is revoked
(officially cancelled):
◦ By communication of notice of revocation proposer to party
◦ By the lapse of the time prescribed in such proposal for its
acceptance
◦ By the failure of the acceptor to fulfill a condition
◦ By the death or insanity of the proposer – but before the
acceptance
Click-wrap contract
Clicking as a form of communication is legally
permissible.
Parties do not physically come face-to-face –
substitute in the online environment
The mechanism of a click-wrap contract is quite
simple:
1. ‘I agree’/’I accept’
2. Clicking a ‘send’ or similar button
Click-wrap agreements must be properly
structured so as to enhance their credibility
◦ User has to be notified of all terms and conditions
◦ The click options of ‘I agree’ have to be placed at
the end
◦ To avoid a mistake – ‘I accept’ or ‘I confirm’
Shrink-wrap Contract
‘by opening this package you agree that you
have read and understood….’
The main argument against the validity of a
shrink-wrap agreement
◦ Does not know terms till he tears open the shrink-
wrap
◦ But opportunity to return the product for a refund if
these terms are not acceptable.
Contract formation under the Indian
Contract Act, 1872
Section 2 of the Indian Contract Act, 1872
◦ When one person signifies to another his willingness to
do, with a view to obtaining the assent of that person to
such an act – Proposal
◦ A proposal when accepted becomes a Promise
◦ Promisor and promisee
◦ When at the desire of the promisor, the promisee has
done an act - Consideration for the promise
◦ Every promise and every set of promises, forming
the consideration for each other, is an Agreement
◦ An agreement not enforceable by law is said to be
void.
◦ An agreement enforceable by law is a contract.
Section 4
Communication when complete
◦ Communication of a proposal is complete when it
comes to the knowledge of the person to whom it is
made
◦ Communication of an acceptance is complete, as
against the proposer, when it is put in a course of
transmission to him so as to be out of the power of
the acceptor; as against the acceptor, when it
comes to the knowledge of the proposer.
Communication of a revocation is complete as
against the person who makes it, when it is put into
course of transmission to the person to whom it is
made, so as to be out of the power of the person who
makes it;
As against the person to whom it is made, when it
comes to his knowledge.
Section 5
Revocation of proposals and acceptance –
A proposal may be revoked at any time before
the communication of its acceptance is
complete as against the proposer, but not
afterwards.
An acceptance may be revoked at any time
before the communication of the acceptance is
complete as against the acceptor, but not
afterwards.
Example:
1.10.2015: A posts a letter to B proposing to
sell a house to him (B) at a certain price.
10.10.2015: The aforesaid proposal letter is
received by B
14.10.2015: B posts the letter of acceptance
to A
23.10.2015: A receives the letter of
acceptance from B
The place of contract:
◦ By post – acceptance is complete as soon as the
letter is put into the post box and that is the place
where the contract is made.
◦ By telephone – still no clear rule.
Communications by these means are virtually
instantaneous an stand on a different footing.
Contract formation on the internet
All communications between individuals and
entities takes place in time and from one
place or point to another.
For the cyber world, section 11 of the IT Act,
2000 provides that an e-record would be
attributed to the originator, if it was sent by:
◦ The originator himself
◦ A person who had authority
◦ An information system programmed
Section 13 lays down a more objective
criterion, i.e the place of business of the
parties as the place of dispatch and receipt of
e-records, as the case may be.
Subsections (3), (4) and (5) of section 13
(3) save as otherwise agreed to between the
originator and the addressee, an electronic
record is deemed to be dispatched at the
place where the originator has his place of
business, and is deemed to be received at the
place where the addressee has his place of
business.
What if the originator has more than one
place of business?
What is the originator does not have a place
of business?
Sub-sections (1) and (2) of the section 13
prescribe certain important rules of
communication over the internet through the
transmission of e-records.
(1) save as otherwise agreed to between the
originator and the addressee, the dispatch of
an e-record occurs when it enters a computer
resource outside the control of the originator.
Sub-section (2)of section 13 speaks of the
time of receipt of an e-record:
(2) save as otherwise agreed between the
originator and the addressee, the time of
receipt of an e-record shall be determined as
follows: -
a) if the addressee has designated a
computer resources for the purpose of
receiving e-record –
◦ (i) receipt occurs at the time when the e-record
enters the designated computer resource; or
◦ (ii) if the e-record is sent to a computer resource of
the addressee that is not the designated computer
resource, receipt occurs at the time when the e-
record is retrieved by the addressee;
(b) if the addressee has not designated a
computer resource along with specified
timings, if any, receipt occurs when the e-
record enters the computer resource of the
addressee
The SENT confirmation to the originator is an
evidence of despatch of an e-record.
For the addressee, the receipt of the e-record
in the Inbox or any other computer resource
by whatever name called, is an evidence of
receipt of the e-record.
Sub-section (1) of section 12 of the IT ACT
2000 states as follows:
(1) where the originator has not agreed with
the addressee that the acknowledgement of
receipt of e-record be given in a particular
form or by a particular method, an
acknowledgement may be given by –
◦ (a) any communication by the addressee,
automated or otherwise; or
◦ (b) any conduct of the addressee, sufficient to
indicate to the originator that the e-record has
been received.
Sub-section (2) of section 12 of the IT Act
2000 is the most important provision in cyber
law, which also has a significant impact upon
contract formation. It says:
◦ (2) Where the originator has stipulated that the e-
record shall be binding only on receipt of an
acknowledgment of such e-record by him, then
unless acknowledgement has been so received, the
e-record shall be deemed to have been never sent
by the originator.
Only when the acknowledgement is received
a contract comes into existence.
Sub-section (3) of section 12 is in the following
terms:
(3) Where the originator has not stipulated that
the electronic record shall be binding only on
receipt of such acknowledgement
acknowledgement has not been received by the
originator within the time specified or agreed or if
no time has been specified
may give notice
Reasonable time
Treat the e-record as though it was never sent
Terms and Conditions of Contracts
Indian contract Act, 1872
◦ Grants freedom to transacting parties to stipulate
the terms and conditions
◦ Must ensure that the terms are not void.
Agreements declared void under the act are summarized as follows:
1. Where the consideration or object of an agreement forbidden by
law
2. it is of such a nature that, if permitted, it would defeat the
provisions of any law; or is fraudulent;
3. it involves or implies, injury to the person or property of another;
or the court regards it as immoral, or opposed to the public policy.
2. agreement by which any one is restrained from exercising a lawful
profession, trade and business of any kind
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