Formation of Contract by Click-Wrap, Shrink-Wrap & via Exchange of Emails

By | December 12, 2019

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The formation of a contract by Click- Wrap, Shrink- Wrap and by the exchange of emails is the game of the new era. In this digital fast tech world, the transactions happen between two corners of globe instantaneously. Thus, the contract so entered into would have legal ramifications. The same is studied here.

Keyword

Shrink- Wrap, Click Wrap, Email, Contract, Consent, Agreement

Introduction

In this digital world, it is said that the world has become small. From marriages to loans, everything appears to just a click away. The popular usage of the internet in this age has given birth to a huge electronic data interchange.[1] All good-byes to paper! Now, it is the age of e- signatures.

With increasing transactions across the globe, there are cross border arrangements as well. The importance of agreements formed on electronic fora, thus, has gained importance. It is evident from the sheer fact that UNCITRAL works towards a common commercial background.[2] India, not behind, has one of the largest internet user bases.[3]

In this article, we will explore the nuances of how an agreement is formed online. The prime method is that through Click- Wrap, Shrink- Wrap and through E-mails.

Agreements through an electronic medium

A plain definition of an e-contract is a contract formed through the electronic medium. It is a legally enforceable promise or set of promises that are concluded using an electronic medium.[4] The law recognises the validity of contracts through electronic means.[5] The essentials of a valid contract have to be emulated in this e-contract also.

Meaning

An electronic contract is an agreement created and “signed” in electronic form – in other words, no paper or other hard copies are used.[6] Electronic contracts facilitate transactions and agreements electronically without the parties meeting each other.[7]

Validity

In France[8], electronic contracts are explicitly recognised. Article 1316- 1 of the French Civil Code recognizes the electronic contracts. It is because the writing in electronic form is considered admissible as proof.

An agreement becomes contract on the combination of free consent, competent parties, lawful consideration, lawful object and no express declaration of being void.[9] An agreement is a promise and every set of promises, forming consideration for each other.[10] A proposal when accepted becomes a promise.[11]

  • 2 (a) of the Indian Contract Act defines Proposal-

2 (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;

  • 2 (b) of the Indian Contract Act defines Acceptance-

2 (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;

The declaration of intention to be bound by an obligation[12] is necessary. This offer or proposal is the expression of willingness.[13] It has to be clubbed with the signifying of assent to make a valid agreement.[14] The acceptance has to be clear and unambiguous.[15]

Application of Postal Rule

Same conditions would apply for an electronic contract as well. Only thing is that certain nuances change. As in the case of telephonic conversation, the strict postal rule of conveyance of acceptance is not applied.[16]

Allahabad High Court in its landmark judgment[17] has held that contracts made by telephone, telex or fax are complete when and where the acceptance is received. This has the direct bearing on the formation of the e-contracts.

The changed nuances with regards to Indian law for electronic contracts are explained in the way the contract unfolds. The same is explained through the three mechanisms.

  • Click Wrap Agreement

The word is enamouring since wrapping by a click sounds different. But, the meaning is hidden in that. You open a site, before entering it asks for a click. On what? The well-known button of “I AGREE”! You click and move ahead. And later get wrapped in the legal eventualities.

Problems

This shows that such contracts are merely a standard form of contract.[18] Such contracts are considered beneficial to both vendors and consumers since it is convenient.[19] Legally, clickwrap agreements are binding.

Usually, consumers agree without even seeing or verifying the contents of the agreement. Hence, merely clicking and moving ahead can be costly in future.[20] The problem is that consumers even form their opinion after clicking on “I agree”.[21]

Buyer Beware

The action of the buyer is the crucial key. Since the acceptance of the terms of the contract would be deciphered from this single act of click. Thus, the principle of caveat emptor always stares the legal position of the buyer in its face. The courts also require active or constructive knowledge of the contents of such click-wrap terms, before enforcing them.[22]

Recognition

The American jurisprudence throws considerable light on the subject as to the formation of agreements through Click Wrap. It is held that it ‘requires a user to affirmatively click a box on the website acknowledging awareness of an agreement to the terms of service before he or she is allowed to proceed with further utilization of the website’.[23] This shows how similar it is to sign a paper standard form and be bound by it in future.[24]

Case- Laws

The best example of a Click-Wrap agreement is the Hotmail case.[25] The Clickwrap license terms were clearly being violated by the defendants. And, spam and pornographic messages were being sent. Thus the court granted an interim injunction.

But, in the other cases, the US District Court for the Southern District of New York, the contract was not found enforceable since it was not agreed to by the plaintiffs. Thus, the plaintiffs did not need to arbitrate their claims any more.[26]

It is simply because; only the button “Register” is insufficient. Even if otherwise a clickwrap agreement, the agreement is not understood to be concluded. The reason is that the buyer cannot be expected to get to know and read the agreement.[27]

In the recent case involving Uber,[28] In the US Circuit court again, the Terms and Service were produced at the time of the app registration process in a faded grey colour. The court found the same to not conspicuous enough for the buyer to be aware of the same. The court also stressed on the need of having a rectangular box where the buyers can tick and signify their assent to the agreement.

Hence, the dispute resolution clause in the terms and conditions could not be applied upon the plaintiff since the plaintiffs were not reasonably notified of the contents of the terms. It was also the ruling that clicking of download button does not show assent to the license terms of those terms which are not conspicuous.[29]

  • Shrink Wrap Agreement

It is like a physical version of the Click Wrap Agreement. The terms and the conditions would come along with the package of the product itself. Take the example of a CD- Rom. As soon as the buyer opens the pack or unveils the CD, the contract is said to be concluded.

Meaning

The packaging is done in a “shrinkwrap” plastic, where contents are snugly made to fit.[30] Such forms of agreements are wrapped around a box or product by heat shrinking or by using a sticker. Hence, the consumer has to physically break through the barrier to get to the software.[31]

Basically, the word “shrinkwrap” takes its origin from the shrink wrapping that is provided to a software.[32] The Tribunal has also explained that “the typical ‘shrink wrap’ agreement is a single piece of paper describing the licence terms, contained inside the box and wrapped in the transparent paper along with the computer software installation and diskettes or the owner’s manual.”[33]

Recognition

To such agreements as well, the legal validity and recognition are being granted by the courts.[34] These agreements have a number of legal terms that relate to how the software has to be used and operated upon.[35]

Though there is no “OK” button to be clicked, here, again the act of the buyer proved to be the essence. The buyer, as a consumer, must get to read the terms clearly to form an honest opinion. It has been authoritatively laid down in the case of Pro CD Inc. v. Zeidenburg,[36] by the US Circuit Court. It was held that, once the user checks the product, uses it, reviews the license and doesn’t reject the product, the shrink-wrap license becomes valid.  Meaning thereby, the agreement concludes and the purpose terminates.

Case- Laws

Hon’ble Madras High Court to rule upon the copyright of the software relied upon the Shrink Wrap nature of software packaging. It showed how a special DVD/ CD is manufactured capable of being used in more than one hardware. It also shows how it is tough and difficult to disburse physical copies of paper licenses where there are multiple users.[37]

Justice Raveendran in the case of Interglobe Aviation[38]authoritatively confirmed that a user may not have read the terms is not ground for ignoring the importance of the rules. In that case, the High Court did not consider the terms of the Indigo Carriage only because the people when purchase ticket are not expected to read the terms. But the Supreme Court overruled that reasoning. The buyer, is thus, expected to read the terms in cases of shrink wraps as well.

Agreement through Email

Due to the increased online transactions, the importance of agreements reached through email has increased. The effect is so prominent that the exchanges of emails lead to a modification in written contracts.

Case- Law

In one such case in the US[39], the written executive agreement got modified through the subsequent mail interchange with the Chairman. The exchange highlighted a completely new role and thus was held to be capable of modifying the written agreement.

Intention behind acceptance

But the aspect of intention has also been harped upon by the courts. In one such case of Chwee Kin Keong[40], the court did not decipher the intent to accept the answer from an automated mail response.

In this particular case, the defendant company ran an online business of selling information technology products. When the plaintiffs placed the product, they quoted a lower price. This technically becomes an error and the defendant company can very well reject this.

But, an automated email response was generated from the side of the defendant company mentioning the successful receipt of the order. The plaintiffs thus claimed the goods at that lower quoted price. The Court simply rejected this since the acceptance was faulty.

Postal Rule

The court also held that the strict criteria of the postal rule should be applied flexibly to minimise unjustness. The reason was that transactions over the Internet are much different from the ones in the real world. Due to the interactive and instantaneous nature of such transactions, the logical default rule must be the receipt rule. Thus, the communication of acceptance has to be unequivocal.

Waiver of Right

The communications over the email among the parties may also lead to a waiver of contractual or statutory rights. In the case of, through the second email communication, a changed criterion was communicated for the procurement of electricity. But the court did not find any unequivocal relinquishment of the right earlier vested. The earlier right was through the contract entered primarily.

Recognition

Hon’ble Supreme Court has already accorded validity to the contracts concluded through the medium of mails. In the landmark case of Trimex,[41] the court observed that the mutual obligations required to be fulfilled in a usual contract are fulfilled. It is because; there is an exchange between the parties for an electronic transaction.

Conclusion

The increasing online presence of individuals and increasing e-commerce invites increased attention to e-contracts. E-Bay, Amazon, Flipkart, Myntra and so on, you name a commodity and you will find it across these diverse platforms.

It shows that each moment one is becoming a part of a contract. Whether it is your Netflix account or the Amazon profile, every brand has its terms. We have grown so habitual so clicking incessantly on the button “I agree”, that the legal consequences become much more complex.

In India, cyber law itself has not matured yet. Thus, there is no enough literature or any competent jurisprudence to substantiate the claims. But the American and European jurisprudence becomes the guiding light to showcase the various types and ways of e-contracts.

Whether it is clickwrap, shrink wrap or mail, the buyer has to be beware. Browse wrap is another type which is closer to Clickwrap. All it demands is to be a little vigilant. Rest, the world of the internet is all yours.


[1] John D. Greg, The Proposed UNCITRAL Convention on Electronic Contracts The Business Lawyer, Vol. 59, No. 1 (November 2003), pp. 313-343, American Bar Association, https://www.jstor.org/stable/40688198.

[2] Legal Aspects of Automatic Data Processing: Report of the Secretary-General, UNCITRAL, 17th Sess., U.N. Doc. A/CN.9/254 (1984), reprinted in [1984] 15 Y.B. UNCITRAL 328, U.N. Doc. A/CN.9/ SER.A/1984, available at http://www.uncitral.org/english/yearbooks/yb-1984-e/voll5-p328-33; Article 11 of UNICITRAL.

[3] Neeta Ghadge, A Study of Formation and Challenges of Electronic Contract in Cyberspace, Legal Services India (December 12, 2015) athttp://www.legalservicesindia.com/article/article/a-study-of-formation-and- challenges-of-electronic-contract-in-cyberspace-1943-1.html.

[4] L. Kidd, Donnie, Jr. & H. Daughtery, Jr, “Adapting Contract Law to Accommodate Electronic Contracts: Overview and Suggestions” 12 Rutgers Computer and Tech L.J., 225 (2000).

[5] §10A, Information Technology Act, 2000.

[6] Legal Issues in Electronic Contracts, (2008) 4 LW (JS) 90.

[7] Id.

[8] Article 1316- 1, French Civil Code.

[9] § 10, Indian Contract Act, 1872.

[10] § 2(e), Indian Contract Act, 1872.

[11] § 2(b), Indian Contract Act, 1872.

[12] Deep Chandra v. Ruknuddaula Shamsher Jang Nawab Mohd. Sajid Ali Khan, AIR 1951 All 93.

[13] Storer v. Manchester C.C., (1974) A WLR 1403; Halsbury Laws on England, 4th Edn, ¶ 227, p. 98.

[14] Ma Pwa Kywev. Maung Hmat Gyi, AIR 1939 Rang 86; Dhonbhat Narbhai v. Atmaram Moreshwar, (1889) 13 Bom 669.

[15] Chitty on Contracts, 28th edn, Vol. 1, ¶ 2.023, p. 100.

[16] Entores Ltd. v. Miles Far East Corp., 1955-2 All ER 493; Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co.,  AIR 1966 SC 543.

[17] P.R. Transport Agency v. Union of India, 2005 SCC OnLine All 880: AIR 2006 All 23.

[18] Bhanu Srivastava, Balendu Bhushan, Legal Issues Involved in E-Contracts, Academike (Jan. 30, 2015), http://www.lawctopus.com/academike/legal-issues-involved-e-contracts/.

[19] Kavha Mathur, Position of Electronic Contracts in India, Racolb Legal (Apr. 16, 2016), http://racolblegal.com/position-of-electronic-contracts-in-india/.

[20] Hotmail Corporation v. Van Money Pie Inc 1998 WL 388389; Groff v. AOL 1998 WL 307001.

[21] Jerez v. JD Closeouts LLC, 943 NYS2d 392 (D.Ct. Nassau Co. 2012); Tres Jeanee, Inc. v. Brolin Retail Systems Midwest, Inc., 2007 WL 3118482 (WD Ky 2007); Person v. Google, Inc., 456 F Supp 2d 488 (SDNY 2006); Hotels.com, LP v. Canales, 195 SW3d 147 (Tex. Ct. App. 2006).

[22] Nguyen v. Barnes & Noble, Inc., 763 F3d 1171, 1176 (9th Cir 2014).

[23] Berkson v. Gogo LLC, 97 F Supp 3d 359, 397 (EDNY 2015).

[24] Barnett v. Network Solutions, Inc., 38 SW3d 200, 204 (Tex. Ct. App. 2001); Caspi v. Microsoft Network LLC, 732 A2d 528, 532 (N.J. Super. Ct. App. Div. 1999).

[25] Hotmail Corporation v. Van Money Pie Inc, 47 U.S.P.Q. 2d (BNA) 1020 (N.D. Cal. 1998).

[26] Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585 (2d Cir. 2001), http://cyber.law.harvard.edu/stjohns/Specht_v_Netscape.pdf (last visited Dec. 10, 2019).

[27] Meyer v. Kalanick, 2016 WL 4073012, at p. 6 (SDNY 2016).

[28] Rachel Cullinane and Ors. v.  Uber Technologies, Inc., 2018 SCC OnLine US-CA 1C 25.

[29] Specht v. Netscape, 306 F.3d 17 (2d Cir. 2002).

[30] Microsoft Corporation v. Mr I. Sadiq Batcha & Ors., 2009 SCC OnLine Del 1714; Kay Pan Sugandh Pvt. Ltd. v.  Commissioner of C. Ex., Raipur, 2014 SCC OnLine CESTAT 4757 : (2014) 308 ELT 726.

[31] Jason Wacha, ‘Taking the Case: Is the GPL Enforceable?’, (18 December 2004), available at http://www.open-bar.org/docs/GPL-enforceability.pdf (last visited 10 December 2019).

[32] Capgemini Business Services (India) Ltd. v. CIT, 2016 SCC OnLine ITAT 948.

[33] Id.

[34] Am Eyewear v. Peeper s Sunglasses and Accessories, Inc., 106 F. Supp. 2d 895 (N.D. Tex. 2000); CIT v. Samsung Electronics Co., ITA No 2808/2005.

[35] E. Paavai, Legal Issues in Electronic Contracts, (2008) 4 LW (JS) 90.

[36] Pro CD Inc. v. Zeidenburg, 86 F 3d 1447 (7th Circuit Court 1996).

[37] Infotech Software Dealers Association v. Union of India, 2010 SCC OnLine Mad 4503 : (2010) 236 CTR 58 :(2010) 2 CWC 796.

[38] InterGlobe Aviation Ltd. v. N. Satchidanand, (2011) 7 SCC 463 : (2011) 3 SCC (Civ) 747.

[39] Stevens v. Publicis S.A., 50 A.D.3d 253 (2008).

[40] Chwee Kin Keong v. Digilandmall.com Pte Ltd, [2004] 2 SLR 594.

[41] Trimex International FZE Ltd. v. Vedanta Aluminum Ltd., (2010) 3 SCC 1.