All About Electronic Contract

Author: Eshita Gupta, Rajiv Gandhi National University of Law, Patiala 

1.     INTRODUCTION:

Contracts form a vital part of our lives. It includes examples from our daily life, like buying airline tickets, playing at the toll plaza in return for using the road, etc.

With the advent of technology in recent times, the internet has become a necessity of life. It has made our lives very comfortable. Contracts are done in day-to-day life with just one click, one can do shopping, book tickets, watch movies, attend online classes, etc. It saves our time and increases our efficiency. Almost all forms of contracts and transactions take place through electronic mediums. One of the common examples is to book railway or airline tickets on our phones with just one click.

Electronic contracts or e-contracts are contracts that are formed on an electronic medium. They are also known as cyber or digital contracts. The term ’contract’ is defined under Section 2(h) of the Contract Act, 1872 as an agreement enforceable by law.  E-contracts are based on the principle of uberrimae fide which means The Principle of Utmost Good Faith. The basic difference between an e-contract and a traditional contract is the mode of formation. An electronic contract is primarily governed by the Indian Contract Act, 1872.

2.     ESSENTIAL ELEMENTS OF ELECTRONIC CONTRACT :

     2.1 There should be Offer

     2.2 There must be acceptance of the offer and acknowledgment of the same

     2.3 There must be a Lawful object

         2.4   Lawful consideration is a must

     2.5.Parties must be competent to contract to enter into a contract

     2.6 .Free consent of parties is needed

     2.7.There must be intention of the parties to create a legal relationship

     2.8.Not expressly declared to be void, it will meet the test as a valid and binding contract

     2.9.There must be a possibility of performance

3.    NATURE OF ELECTRONIC CONTRACT: 

  3.1 There is no need to be physically present in most the cases

3.2. No physical borders exist and it can be done from any part of the world

3.3. Digital signatures are used

3.4. The risk factor is higher than the physical contract

3.5. There is a threat of protection of data as the data might be sold or leaked by the companies. 

4.    ADVANTAGES OF E-CONTRACT:

4.1. Saves Time and Money

Electronic contracts have eased the process of mode of formation. As e-contracts can be done at any place, it saves travel time and money. It reduces the shipping time as the contract can be done in no time.

4.2. Ensures Fast Business

The documents are circulated at a rapid pace as compared to a traditional contract. Moreover, the time gap between offer and acceptance reduces which results in fast businesses and gain for businesses houses.

4.3. Reduces Paper documentation

E-contract involves an electronic medium so lengthy contracts can be typed at a fast pace, thereby reducing tedious paperwork. There is a risk of the paperwork being lost in transit and damaged.

4.4. More accurate documentation

In the traditional contract, there may be a risk of the contract being manipulated whereas in an e-contract the contract is sent to the concerned party. This reduces the chances of manipulation of the contract.  

4.5. Enhanced customer service

Technology helps to stay connected with customers. With the help of technology, the service provider can solve the grievances of the customers thereby increasing the reputation of a service provider. Also, he can take routine feedback from the customers. A Traditional contract does not provide this advantage.

4.6. Wider network

Under traditional contracts, it was restricted to certain areas whereas in e-contracts the physical boundaries have been reduced. The network area of the service provider has increased resulting in increased sales and ultimately benefiting the whole country and society. 

5.    DISADVANTAGES OF E-CONTRACT : 

5.1. Threat to data protection

In an e-contract, there might be a risk of the data being sold or leaked to some other companies by the service provider. Moreover, some websites ask for permission for storage which endangers customers' data and privacy. It increases mistrust among people.

5.2. Compliance with the law

Sometimes, it becomes a tedious process to fulfill formalities under an electronic medium. For example, the digital signatures have to be of a certain format. This technical know-how creates a hurdle for illiterate people or people who do not know.

5.3. Security Threat

One of the major disadvantages of e-contracts is the security threat. As e-contracts can be done from anywhere, it poses a danger to differentiate between genuine and imposter sites. Nowadays, there have been a lot of instances of the device being hacked through a site or an app. This reduces the trust of people and increases skepticism in the minds of the people.

5.4. Technical knowledge

It involves technical know-how about the electronic medium and its working. This creates a digital divide and as a result, poor people or illiterate people are not able to reap the benefit of electronic media. It may also be possible that terms and conditions are given in the language that the person is unable to understand which again puts the consumer in a disadvantaged position. They are more prone to cybercrimes.

6. TYPES OF E-CONTRACTS  

There are different kinds of e-contracts based on their mode of formation.  The following are types of e-contracts:

6.1.     Electronic mail-

This is one of the most commonly used mediums to enter into a contract. E-mail can be used to send an offer and also to send the acceptance. E-mail is similar to any other form of contract and is therefore governed by the provisions of the Indian Contract Act.

In the case of Trimex International FZE Ltd. Dubai v. Vedanta Aluminium Ltd (Trimex International FZE Ltd. Dubai v. Vedanta Aluminum Ltd., India, (2010 (1) SCALE 574  https://indiancaselaw.in/trimex-international-fze-limited-v-vedanta-aluminium-limited/ (last accessed at 5:30 pm on 6th June 2022), the petitioner, Trimex International, a Dubai-based company placed an order for mineral ores from the respondent, Vedanta Aluminium. It made a commercial contract offer by email and following an exchange of emails, subsequently, the petitioner sent a formal contract with an arbitration clause. The defendant rejected the contract and argued that there was no written contract containing an arbitration clause. The judges pronounced that the parties did enter into a binding contract which included an arbitration clause by exchange of emails, even though no formal contract was signed between them.

6.2.     The Click Wrap or Web wrap contract-

 Click Wrap agreements are the agreements whereby a party puts forward its terms and conditions and the other party has the option to either accept the conditions or decline them. It asks the party to click on either 'I agree' or 'I don't agree. It is the most common type of contract ranging from permission to access a site or download it. Click Wrap contracts are used to establish the terms for the download and the use of software over the internet. It is also used to establish the terms for the sale of goods and services online  

 In the case Rudder vs. Microsoft Corporation,  (The United States v. Microsoft Corp. - 346 U.S. App. D.C. 330, 253 F.3d 34 (2001) https://www.lexisnexis.com/community/casebrief/p/casebrief-united-states-v-microsoft-corp (last accessed at 6:00 pm on 6th June 2022) )the defendant brought a suit against Microsoft demanding a break by Microsoft. He argued that the particular term was not valid as it was not specially brought to the attention of the defendant. The legal issue was about the validity of clickwrap licenses. The judges held that the clause was valid. They held that the sign-up procedure in e-contract requires to press 'I agree' twice as whole terms and conditions cannot be displayed at once, whereby in the second time it was mentioned that the user will be bound by the terms. From this case, we can infer that click-wrap is considered a valid contract.

6.3. Shrinkwrap contract

The agreements that involve terms and conditions on the plastic or the outer covering are known as the Shrinkwrap contract. It is also known as a Plastic Contract. The user has the right to return the license if he does not comply with the conditions. Terms and conditions are mentioned clearly. It is done to prevent the misuse of licenses. These are used to absolve the manufacturers from violation of any IP rights. Shrink wrap contracts can include the terms like fees and payments, warranties, or any limitation of liabilities.The validity of these agreements has been questioned as there is no scope for bargaining. 

7. LAWS GOVERNING ELECTRONIC CONTRACT  

7.1 The Indian Contract Act, 1872

 An electronic contract is mainly governed by the Indian contract act, of 1872. All the provisions of ICA are applicable provided that the essentials of the contract are fulfilled. These contracts are as valid as a paper contract. Although the Indian Contract Act does not explicitly mention e-contracts, still the principles remain the same.

7.2 The Information and technology act, 2000

   The authority of transactions in digital mode was laid out in the information and technology act, 2000. (IT Act, 2000) to deal with transactions taking place through different electronic mediums like mobile phones, email, etc. The purpose of the Information Technology act, 2000 is to safeguard consumers and curb cybercrime and regulate the internet. Amendments have been made to cater to the present situation. Some of the provisions that govern the IT act are as follows:

·    Section 4 provides legal recognition to electronic records and states that where any law provides that information needs to be written in printed or electronic mode, the requirement would be fulfilled provided that the info. or matter is made available in an electronic mode and accessible for further use.

·    Section 10A of the IT Act validates e-contracts.

·    Section 11 talks about the origination of the electronic record. In the case of e-contracts, digital signatures are a necessity.

·    Section 12 deals with acknowledging the receipt.

·    Section 13 includes provisions dealing with the time and place of dispatch and receipt of the electronic record.

 7.3 Indian evidence acts, 1872

The Indian evidence act, 1872 was amended following the execution of the e-contract. Section 65A of the Indian Evidence Act, 1872, recognizes the validity of electronic records as evidence. Section 65B recognizes the acceptance of electronic evidence and any information stored in electronic mode which can be printed will be termed as evidence in the eyes of law.

In case State of Delhi v Mohd Afzal & Others ( State of Delhi v Mohd Afzal & Others, 2003(3) 11 JCC 1669) , It was pronounced that electronic records are admissible as evidence. In case the authenticity of the electronic evidence is questioned on the grounds of system failure or misuse of the system, then the person challenging it must prove the same beyond a reasonable doubt. Mere apprehension will not make clear evidence defective and admissible.

7.4 Indian stamp act, 1899

The contracts are required to be stamped by the authorities and it is governed by the Indian stamp act, 1899. Even e-contracts are not spared from being stamped. The enforceable contracts which are duly electronically signed and are in accordance with IT Act, 2000 must attract payment of stamp duty. Although stamp duty differs from state to state, the basic idea remains the same.

7.5 Electronic commerce act, 1998

 The Electronic commerce act, 1998 is an act that was passed in parliament to establish a law about electronic commerce.  It included acts from different nations like Singapore, Malaysia, etc, and modified as per the needs of the Indian state. It reduced the distance between buyers and sellers. Electronic commerce act, 1998 lists down the requirement of e-contracts. It should follow conditions according to ICA. Some of the conditions are as follows:

1. There must be an electronic record is retained in its original form

2. All records must be kept safe

 

8.  LEGAL ISSUES INVOLVED IN ELECTRONIC CONTRACT

8.1 Free consent

Free consent is an essential condition for being a valid contract. Consent is said to be free when it is not caused by coercion, misrepresentation, fraud, undue influence, or mistake(Avtar Singh, Law of contract and specific Relief, Section 10 (last accessed at 5 pm on 6th June 2022)). In an electronic medium, there is no scope for negotiation due to the anonymity of the parties.

There is a problem with differentiating between offer and invitation to offer. For example, if the website consists of an offer and the party accepts it, it constitutes a contract. Whereas if a website publishes an invitation or offer, then it will consist of an offer. This results in mistrust among the public.

In the case of, the LIC of India Vs Consumer Education and Research Center  (1995 AIR 1811(last accessed at 5:30 pm on 6th June 2022)), the honorable supreme court ruled in an insurance policy that the Life insurance corporation of India has to bring in certain elements of public purpose. The conditions should be just, reasonable and fair to the beneficiaries. The option left for the party is either to accept the unreasonable or unfair terms or forgo the services forever.

8.2   Competency of Parties

Section 11 of the Indian Contract Act states that Every person who is competent to contract who is of the age of majority according to the law and of sound mind and not disqualified by any law can enter into a contract.

In an electronic medium, it is unclear who is entering into a contract. It is known who is clicking on the 'I agree' option and whether the person is legally qualified to enter into a contract. Section 10,11 and 12 criteria need to be followed. There is no mechanism to ascertain the identity of the person which creates challenges.  

8.3   Problem of Jurisdiction

E-contracts take place at different geographical locations like within a state, country, or even on an international level. Electronic contracts transcend all the physical boundaries. In case of a breach, it is ambiguous which court to go to as different countries have their own set of jurisdictions which creates chaos.

Therefore, the choice of forum is mentioned in terms and conditions to limit themselves to one jurisdiction. Defending multiple lawsuits at a different location can be both cumbersome and expensive. Even though the party may not agree with the place of jurisdiction he still clicks on the 'I agree' option which he is unwilling to or to forgo the services that he requires. This puts the party in an unfavorable position.

8.4 Choice of law

Courts apply the law of the jurisdiction which is known as 'the personal jurisdiction of the court. Personal jurisdiction refers to the power of a judge to make decisions that affect an individual. In case the person is a non-resident, the problem is which laws will be applicable whether to follow the domestic laws or the other laws.

8.5 Electronic authentication

In an e-contract, electronic authentication is done by electronic records and digital signatures. Electronic records include email conveying acceptance, sharing a scanned copy of the wet signed inked contract, etc. Under the IT act, 2000 digital signatures and other electronic techniques are mentioned in Section 2 of the IT act. It is requisite for an e-contract to be electronically authenticated to be enforceable.

The electronic signature is a signature that is technology biased and general. It is unique for every individual. In the Mehta v J Pereira Fernandes S.A case  ( Mehta v J Pereira Fernandes S.A. England and Wales High court (chancery division) (2006) Casemine, available at  https://www.casemine.com/judgement/uk/5a8ff73260d03e7f57ea973f (last accessed at 7 pm on 6th June 2022))s, the defendant had personally been granted to pay the amount and sent to the plaintiff's lawyers. The defendant then refused to pay because the email was unsigned although his employees did send a mail with his approval. Following this, the plaintiff's lawyers called and sent the mail which the defendant didn't sign. The judges ruled out that an offer sent through an unsigned e-mail is insufficient and cannot suffice as digital signatures.

9.  REMEDIES OF BREACH OF ELECTRONIC CONTRACT  

There is no specific rule in case of breach of electronic contract but the rules provided for breach of contract provided under ICA are followed. Contract imposes the obligation to the parties to fulfill the contract. In case of failure to do so, the party has to pay for the damages incurred to the other party. The party who had to lose has a right to sue the other party and ask for compensation. Remedies may consist of either claim compensation for the damage. Specific relief act provides remedies based upon a specific performance of the contract. 

10. CONCLUSION

E-contracts have facilitated the business houses. With e-contracts, people can enter into contracts from any place.  It is cost-efficient, time-saving, and minimizes paperwork. It has enabled people to connect more. There is more flexibility. Like every coin has a head and tail, e-contracts have disadvantages also. There is a threat to data protection. There needs to be a mechanism to check who is entering into the contract. There are problems in e-contract which are gradually being worked upon. There is a rapid advancement of e-contract with the growth of e-commerce. E-commerce is expected to grow further in society as technology reaches sections of people.

Laws change according to the needs of society. When the need to regulate e-contracts came, Parliament made laws like Electronic Commerce Act, 1998 and amended IT act, etc. to accommodate new changes. E-contract holds power from both the IT act  and ICA.