E-Contracts are modelled, specified and executed by a software system and were born out of convenience, the need for speed and efficiency. This article titled ‘E-Commerce and E-Contracts: Overview’ understands the world of e-commerce and questions the validity of e-contracts in an entirely online world.
I. E-Commerce in India
E-commerce in simple terms refers to the buying and selling of both products and services through the internet. This essentially includes all commercial transactions that are based on electronic processing and transmission of data including sound, text and images.
Additionally, e-commerce also refers to the effects that electronic exchange of commercial information may have on institutions and processes that support and govern commercial activities.
Types of Online Transactions
There are three fundamental ways in which an online transaction may be recognized.
- Business to Customer transactions [B2C]
In this form of an online transaction, a business entity and an individual customer conduct business together. The term ‘B2C’ has been commonly used to represent a sale by a business enterprise or retailer to a person or consumer on the internet.
For example, Amazon is a portal that provides facilities for customers to buy goods from their website. Therefore, the website itself serves the purpose of a physical shop. Business to Customer transactions, however, may be further divided into intangible and tangible products based on what the retailer is selling on the online website.
- Business to Business [B2B]
This type of e-commerce refers to two business organizations who conduct commercial transactions with each other using the internet.
- Customer to Customer [C2C]
In this type of e-transaction, two or more customers have a sale with a business entity that provides a web-based interface so as to facilitate a transaction between two consumers. The term ‘C2C’ thus refers to the sale of a product that travels from one consumer to another consumer either directly or through an intermediary who is exclusively dedicated to this activity.
An example of this is eBay, where any person can buy and sell, exchange goods and articles, and freely interact and transact with each other as consumer to consumer.
II. E-Contracts in India
An e-contract refers to the computerized facilitation of a contract in a cross-organizational business progression. It is an incredibly new mechanism in India and facilitates electronic trading relationships between parties. In essence, it is modelled, executed, specified, controlled, enacted, monitored and either fully or partially deployed by a software system.
Apart from being on an electronic, online portal, e-contracts are in essence, similar to a paper-based contract. Vendors present their prices, products and required terms to prospective buyers while vendees negotiate prices and terms when possible, place orders and make payments. The vendors then deliver the purchased products and services to the vendees.
All fundamental principles that apply to contract law also apply to all contracts formed electronically or orally. A problem does arise as people question how traditional and conventional contract law principles apply to modern and unique forms of technology.
However, as of today, the essentials and elements of e-contracts remain the same as those provided for paper-based contracts.
An offer is required to be made so as to form the basis of an e-contract. The offer need not be made on a one-to-one basis. The consumer browses through the available goods and services displayed on the retailer’s website and then chooses what he would like to purchase.
The offer produced needs to be accepted. Acceptance is usually undertaken by the vendor after the offer is made by the consumer in response to the invitation. The offer also stands revocable at any point before the acceptance is made.
- Lawful Consideration
Any agreement that is formed electronically must have lawful consideration to be enforceable by law.
- Intention to Create Legal Relations
If there is no intention on part of the parties to create a legal relationship, then it is likely that no contract will take effect between them. Thus, agreements that are of a social or domestic nature usually are not enforceable as contracts.
- Competency of Parties
The parties to the contract must be lawfully competent to enter into it. Agreements made by minors, lunatics, insolvents et cetera, are void.
- Free Consent
There must not exit any subversion of the will of any involved party to enter into such contract. It must be free and void of coercion, misrepresentation, undue influence or fraud.
- Lawful Object
The object of the contract must be lawful for it to be valid. An agreement selling any kind of pornography or narcotic drugs would, therefore, be void.
- Certainty and Possibility of Legal Performance
A valid contract must not have vague, uncertain or ambiguous terms. Further, there must exist a possibility to perform the contract. A contract that is impossible to perform is void. Similarly, an agreement that is not certain in its meaning is also void.
Conclusion of E-Contracts
While the fundamental essentials of a paper-based contract apply to the e-contracts, the methods to conclude the e-contract are also borrowed from the Indian Contract Law and are similar to the paper-based contracts.
- Contract Formation through Electronic Communications
Contracts formed over e-mails et cetera are concluded by the exchange of text documents via e-communications such as e-mail. This way, both offers and acceptances can be easily exchanged and settled.
- By Acceptance of Orders Placed on E-Commerce Websites
When these products on e-commerce websites are purchased, the vendor offers the goods through the website. The consumer places an order by completing and transmitting the order form on the website. The merchandise may either be physically delivered (like clothes et cetera) or delivered electronically (like e-tickets et cetera).
- Online Agreements
Users may sometime be required to accept an online agreement in order to get the services while installing or signing up on a website.
- Electronic Data Interchange
This refers to contracts used in trade transactions which enable the transfer of data from one computer to another so as to make each transaction a trading cycle processed with no paperwork at all. The data here is formatted and implemented directly by the receiving computer. EDI is used to transmit standard purchase orders, acceptances, invoices and other records. As a consequence, it reduces paperwork and reduces the possibilities of human error. In this type of contract, the exchange of information and completion of the contract is between two computers as opposed to a computer and an individual.
- Through Electronic Agents
Computer users can now instruct their computers to carry out transactions robotically. Electronic agents are programmed with the authority of both the purchaser and the supplier. These electronic agents usually exhibit characteristics which are very close to human characteristics and can assist human beings with routine tasks.
III. Types of E-Contracts
E-contracts can broadly be classified into three different types. Shrink-wrap transactions have been the most common and have been around for a while now while the other two types of e-contracts are rather novel and unique to e-commerce.
1. Click-Wrap Agreements
In a click-wrap agreement, the user indicates his consent by clicking on either ‘I Agree’ or ‘I Disagree’ on the website. Essentially, a party goes through the terms and conditions provided in a particular website or programme and has to resort to a click-wrap agreement so as to move forward with consent.
This type of acceptance is usually seen before receiving any merchandise purchased. These contracts are seen exclusively on the internet and are also known as click-through agreements.
Click-through agreements are predominantly found as part of the installation process of various software packages. Upon installation, a pop window with the terms of license opens up for the user to read. The user can then either agree or disagree with the terms and conditions provided. If he chooses to disagree with the terms, the process of installation is terminated. These click-wrap agreements may either be ‘type and click’ or ‘icon clicking’ based on the website.
2. Shrink-Wrap Agreements
These type of agreements derive their name from the shrink-wrap packaging that usually covers the goods to be purchased. This is usually seen in the case of CDs. The required terms and conditions of accessing the particular software are printed on the shrink-wrap cover of the CD and vendee essentially tears the wrap to gain access to the CD.
The packaging thus contains a notice that by tearing open the shrink-wrap, the user assents to the software terms that are enclosed.
A shrink-wrap agreement usually is a software license that elucidates a seller’s terms to the buyer, includes a notice of the agreement, title retention in the seller, restrictions on transfer and modification, the prohibition of reverse engineering and limited copying provisions.
3. Browse-Wrap Agreements
Browse-wrap contracts essentially have a terms and conditions hyperlink somewhere on the web page that proposes to sell goods or services. According to these terms, using the site to buy the goods or services is enough to constitute acceptance of the conditions laid within. Thus, these agreements are usually found only when the user bothers to look around and search for a small asterisk or hyperlink.
As a result of this, critics do contend that browse-wrap terms are not enforceable because they don’t satisfy the basic elements of a contract.
Fundamentally, there exists no real problem as to whether or not any of the general contractual principles apply to e-contracts as they apply to paper-based ones. These principles of contract law continue to prevail even in contracts made on the internet. However, not all of the principles apply in the same manner to e-contracts as they do to traditional paper-based and oral contracts.
Website advertisement plays a crucial role in the functioning of e-commerce. A viewer from any part of the world can get into a contract to purchase a product as advertised online. Websites thus will frequently provide a service wherein online purchases can be made. Thus, for ease of use, the internet conveniently integrates traditional advertising, catalogues, shop displays and shopping tabs into a single screen.
Just like with regular contracts, the internet merchants too have to be cautious as to how they present an advertisement since this determines whether the advertisement will be construed as an invitation to treat or a unilateral contract. Thus, an ambiguous language may result in unintentionally establishing contractual liability to a wide range of purchases than what resources may permit.
Availability of stock is an important distinguishing factor between physical sales and an internet transaction. Further, in an internet sale, a prospective purchase is unable to view the real and physical stock available. Another pertinent issue is the varying rules that may apply to e-mail transactions and to transactions over the internet.
While the ease inconvenience is high with regards to e-contracts, the occurrence of mistakes due to human error or programming of software errors is inevitable. The question lies as to who bears the risk of such mistakes. This is crucial in understanding an issue since errors may be magnified or may be harder to detect and eventually have substantial financial consequences. Thus, the Court needs to adopt a judicious and pragmatic stance in resolving issues that require them to allocate risk to parties involved.
- Information Technology Act, No. 21 of 2000, Acts of Parliament, 2000, India
- Cyber Laws in India, IT Security of IIBF, TaxMann Publishers
- Shubhada Gholap, Electronic Contracts in India: An Overview, International Journal of Research in Humanities, Arts and Literature, 2018
- Sankalp Jain, Electronic Contracts: Nature, Types and Legal Challenges, 2016
- Vijay Dalmia, Electronic Contracts, Vaish Associates Advocates, 2015
- Daisy Roy, All that you must know about E-Contracts, IPleaders Blog, 2019