Legal Issues Involved In E-Contracts

                                                                                                   Bhanu Srivastava

Balendu Bhushan

                                                                                                           RMLNLU, Lucknow

Editor’s Note: The paper deals with the legal issues involved in E-Contracts in light of the Information Technology Act, 2000.”

INTRODUCTION

What Are Contracts?

The term “contract “is defined in sec 2(h) of the Indian contract act ,1872 as AN AGREEMENT ENFORCEABLE BY LAW IS A CONTRACT; thus for the formation of a contract there must be –

  1. An agreement, and
  2. The agreement should be enforceable by law.[i]

What are e-contracts?

E-Contract is an aid to drafting and negotiating successful contracts for consumer and business e-commerce and related services. It is designed to assist people in formulating and implementing commercial contracts policies within e-businesses. It contains model contracts for the sale of products and supply of digital products and services to both consumers and businesses.

An e-contract is a contract modeled, executed and enacted by a software system. Computer programs are used to automate business processes that govern e-contracts. E-contracts can be mapped to inter-related programs, which have to be specified carefully to satisfy the contract requirements. These programs do not have the capabilities to handle complex relationships between parties to an e-contract

An electronic or digital contract is an agreement “drafted” and “signed” in an electronic form. An electronic agreement can be drafted in the similar manner in which a normal hard copy agreement is drafted. For example, an agreement is drafted on our computer and was sent to a business associate via e-mail. The business associate, in turn, e-mails it back to us with an electronic signature indicating acceptance. An e-contract can also be in the form of a “Click to Agree” contract, commonly used with downloaded software: The user clicks an “I Agree” button on a page containing the terms of the software license before the transaction can be completed. Since a traditional ink signature isn’t possible on an electronic contract, people use several different ways to indicate their electronic signatures, like typing the signer’s name into the signature area, pasting in a scanned version of the signer’s signature or clicking an “I Accept” button and many more.

E-Contracts can be categorized into two types i.e. web-wrap agreements and shrink-wrap agreements. A person witnesses these e-contracts everyday but is unaware of the legal intricacies connected to it. Web-wrap agreements are basically web based agreements which requires assent of the party by way of clicking the “I agree” or “I accept” button e.g. E-bay user agreement, Citibank terms and conditions, etc. Whereas Shrink-wrap agreements are those which are accepted by a user when a software is installed from a CD-ROM e.g. Nokia pc-suite software

Law governing e-contract :-

Section (11) of information technology Act, 2000[ii]

An electronic record shall be attributed to the originator—

(a) if it was sent by the originator himself;

(b) by a person who had the authority to act on behalf of the originator in respect of that electronic record; or

(c) by an information system programmed by or on behalf of the originator to operate automatically.

Section(12) of information technology Act, 2000[iii]

Acknowledgement of receipt-

(1) Where the originator has not agreed with the addressee that the acknowledgment of receipt of electronic record be given in a particular form or by a particular method, an acknowledgment 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 electronic record has been received.

(2) Where the originator has stipulated that the electronic record shall be binding only on receipt of an acknowledgment of such electronic record by him, then unless acknowledgment has been so received, the electronic record shall be deemed to have been never sent by the originator.

(3) Where the originator has not stipulated that the electronic record shall be binding only on receipt of such acknowledgment, and the acknowledgment has not been received by the originator within the time specified or agreed or, if no time has been specified or agreed to within a reasonable time, then the originator may give notice to the addressee stating that no acknowledgment has been received by him and specifying a reasonable time by which the acknowledgment must be received by him and if no acknowledgment is received within the aforesaid time limit he may after giving notice to the addressee, treat the electronic record as though it has never been sent.

Section (13) of the information technology act[iv] :-

 Time and place of despatch and receipt of electronic record.-

(1) Save as otherwise agreed to between the originator and the addressee, the dispatch of an electronic record occurs when it enters a computer resource outside the control of the originator.

(2) Save as otherwise agreed between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows, namely :—

(a) if the addressee has designated a computer resource for the purpose of receiving electronic records,—

(i) Receipt occurs at the time when the electronic, record enters the designated Computer resource; or

(ii) If the electronic record is sent to a computer resource of the addressee that is not the designated computer resource, receipt occurs at the time when the electronic 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 electronic record enters the computer resource of the addressee.

(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.

(4) The provisions of sub-section (2) shall apply notwithstanding that the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received under sub-section (3).

(5) For the purposes of this section, —

(a) If the originator or the addressee has more than one place of business, the principal place of business, shall be the place of business;

(b) If the originator or the addressee does not have a place of business, his usual place of residence shall be deemed to be the place of business;

(c) “usual place of residence”, in relation to a body corporate, means the place where it is registered.[v]

Digital signature:- when a contract is entered into through the mode of computer internet, it is necessary for the enforcement of such contract to establish the genuineness of the transaction to prove that the proposal emanated from the originator and acceptance was signified by the acceptor from the appropriate persons. The signature of the parties is taken into consideration. It is a personalised thumb print and it is the encryption of an electronic document using a private key .It performs three different functions in order to ensure the security of the system and genuineness of the transaction[vi] :-

  1. Data integrity-A digital signature discloses if there have been any data tampering of the file or the message.
  2. Data authentication-A digital signature helps in verifying the initials of the person signing the message.
  3. No chance of disown-No message signed and sent could be disowned by the receiver.[vii]

Case:- Mehta v J Pereira Fernandes S.A [viii]

Facts of the case:-

There was an appeal against a District Court judgment which awarded the plaintiff company JPF a sum of nearly £25,000. The amount was awarded on the grounds that the defendant Mehta had personally guaranteed the amount. Mehta appealed on the grounds that the alleged guarantee was not enforceable since it did not comply with the requirements of the Statute of Frauds.

The alleged guarantee arose from an email sent by Mehta to JPF’s solicitors. The email was in the following terms:

“I would be grateful if you could kindly consider the following. If the hearing of the Petition can be adjourned for a period of 7 days subject to the following:

 A Personal Guarantee to be given in the amount of £25,000 in favour of your client – together with a list of my personal assets provided to you by my solicitor.”

The email was unsigned but the headers indicated that it was from [email protected] This email address also appeared on other, signed, emails sent to JPF’s solicitors. Mehta acknowledged that the email had been sent, with his authority, by an employee.

JPF’s solicitors telephoned Mr Mehta and accepted the proposal. Although they also sent him a written agreement, this was never signed by Mr Mehta.

Judgement:-

The court of chancery held that the offer sent through an unsigned e-mail communication is not sufficient and the e-mail address of the defendant cannot be deemed as his signature.

Legal issues involved in e-contracts

  1. How can an electronic record be attributed to the originator?

Solution:-

 According to sec (11) the electronic record can be attributed to the originator where:

  • It could be determined that the electronic record or electronic data is sent by the originator himself.
  • It could be determined that the electronic record has been sent by a person who has the authority to act on behalf of the originator.
  • An electronic record has been sent by an information system programmed by or on behalf of the originator.
  1. How to determine the acknowledgement of an electronic record when the originator has not agreed with addressee regarding acknowledgement of receipt?

Solution:-

According to sec (12)(i) the acknowledgement of the electronic record  when the originator has not agreed with the addressee  regarding acknowledgement of receipt in particular form can be done in the following manner:

  • Any communication by the addressee to the originator either electronically or otherwise. OR
  • Through any conduct sufficient to communicate to the originator that the electronic record has been received by the addressee.

Case law: The United States case Corinthian Pharmaceutical Systems Inc. v. Lederle Laboratories[ix] serves as a guide. In that case, an “order tracking number” issued by an automated telephone ordering system was found to be merely an acknowledgment of the order, rather than an acceptance which formed a binding contract. Applying the same reasoning to common electronic commerce practices, this could mean that a computer-generated message acknowledging receipt of an electronic order may not be sufficient to create a binding contract. The purpose of the message may be solely to confirm receipt of the order. It does not necessarily signify acceptance.

  1. How to determine time and place of dispatch of an electronic record?

Solution :- section 13 deals with the time and place of despatch of electronic records as if the originator or addressee has or has not agreed ,the the dispatch of an electronic record is complete when it enters the computer resource of  the addressee as to outside the control of the originator.

  • According to section 13 (2) the time of receipt of an electronic record can be determined in the following ways :-

            (a) if the addressee has designated a computer resource for the purpose of receiving electronic records.

(i) Receipt occurs at the time when the electronic, record enters the designated Computer resource.

(ii) If the electronic record is sent to a computer resource of the addressee that is not the designated computer resource, receipt occurs at the time when the electronic 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 electronic record enters the computer resource of the addressee.

  • According to section 13(4) :-
  • the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received under sub-section (3).
  • According to section 13(5) :-

(a) If the originator or the addressee has more than one place of business, the principal place of business, shall be the place of business.

(b) If the originator or the addressee does not have a place of business, his usual place of residence shall be deemed to be the place of business.

(c) “usual place of residence”, in relation to a body corporate, means the place where it is registered.

CASE: – P.R. Transport Agency vs. Union of India & others[x]

Background of the case

Bharat Coking Coal Ltd (BCC) held an e-auction for coal in different lots. P.R. Transport Agency’s (PRTA) bid was accepted for 4000 metric tons of coal from Dobari Colliery The acceptance letter was issued on 19th July 2005 by e-mail to PRTA’s e-mail address. Acting upon this acceptance, PRTA deposited the full amount of Rs. 81.12 lakh through a cheque in favour of BCC. This cheque was accepted and encashed by BCC. BCC did not deliver the coal to PRTA. Instead it e-mailed PRTA saying that the sale as well as the e-auction in favour of PRTA stood cancelled “due to some technical and unavoidable reasons”. The only reason for this cancellation was that there was some other person whose bid for the same coal was slightly higher than that of PRTA. Due to some flaw in the computer or its programme or feeding of data the higher bid had not been considered earlier. This communication was challenged by PRTA in the High Court of Allahabad.

Issues raised by PRTA :-

  1. The communication of the acceptance of the tender was received by the petitioner by e-mail at Chandauli (U.P.). Hence, the contract (from which the dispute arose) was completed at Chandauli (U.P). The completion of the contract is a part of the “cause of action”.
  2. The place where the contract was completed by receipt of communication of acceptance is a place where ‘part of cause of action’ arises.

Points considered by the court

  1. With reference to contracts made by telephone, telex or fax, the contract is complete when and where the acceptance is received. However, this principle can apply only where the transmitting terminal and the receiving terminal are at fixed points.
  2. In case of e-mail, the data (in this case acceptance) can be transmitted from anywhere by the e-mail account holder. It goes to the memory of a ‘server’ which may be located anywhere and can be retrieved by the addressee account holder from anywhere in the world. Therefore, there is no fixed point either of transmission or of receipt.
  3. Section 13(3) of the Information Technology Act has covered this difficulty of “no fixed point either of transmission or of receipt”. According to this section “…an electronic record is deemed to be received at the place where the addressee has his place of business.”
  4. The acceptance of the tender will be deemed to be received by PRTA at the places where it has place of business. In this case it is Varanasi and Chandauli (both in U.P.)

Decision of the court

  1. The acceptance was received by PRTA at Chandauli /Varanasi. The contract became complete by receipt of such acceptance.
  2. Both these places were within the territorial jurisdiction of the High Court of Allahabad. Therefore, a part of the cause of action had arisen in U.P. and the court had territorial jurisdiction.
  3. What in case the acceptance is not communicated to the offerer?

Solution:

According to Section(12) :-

Acknowledgement of receipt-

(1) Where the originator has not agreed with the addressee that the acknowledgment of receipt of electronic record be given in a particular form or by a particular method, an acknowledgment 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 electronic record has been received.

(2) Where the originator has stipulated that the electronic record shall be binding only on receipt of an acknowledgment of such electronic record by him, then unless acknowledgment has been so received, the electronic record shall be deemed to have been never sent by the originator.

(3) Where the originator has not stipulated that the electronic record shall be binding only on receipt of such acknowledgment, and the acknowledgment has not been received by the originator within the time specified or agreed or, if no time has been specified or agreed to within a reasonable time, then the originator may give notice to the addressee stating that no acknowledgment has been received by him and specifying a reasonable time by which the acknowledgment must be received by him and if no acknowledgment is received within the aforesaid time limit he may after giving notice to the addressee, treat the electronic record as though it has never been sent.

Case: – J.K. Enterprises V. State of Madhya Pradesh and Ors.[xi]

According to the plaintiff he made an offer to the defendant, for the purchase of Tendu Leave of lot No. 1095 at the rate of Rs. 30/- per standard bag. It is the stand of the plaintiff that he was never informed that his offer has been accepted.

 He made the offer on 11-1-1993 and when he did not get the acceptance till 3-3-1993, and thus by a fax message sent on 3-3-1993 he withdrew his offer.

In the return filed on behalf of defendant it has been stated that the offer of the plaintiff dt. 11-1-1993 was accepted and communication under registered cover on the address disclosed by the plaintiff itself, was sent by letter dt. 12-2-1993, which was returned as the address was incomplete.

Defendant further stated in their return that the alleged fax message dt. 3-3-1993 withdrawing the offer was not received by the defendant as it was sent on the wrong fax no.

Thus, according to the above mentioned facts the court held that as the communication of acceptance of the offer made by the plaintiff was never made by the defendant and as the defendant failed to communicate his acceptance within the given time period the offeror   can withdraw his offer.

  1. Is e-contract a valid contract?

Contract law does not, as a general rule, set any requirements for the form of a contract in order for a contract to be valid. Both oral and written contracts are legally valid. Only certain types of contract are required to be made in writing. In contract law, entering into an electronic contract is considered equivalent to entering into a written contract. This means that even an offer sent by e-mail and an approval received in response are considered a legally valid contract that binds the parties. The terms of such a contract are based on the e-mail correspondence between the parties and on the laws applicable to the type of transaction.

Clickwrap :-

The term “clickwrap” refers to agreements that obtain a user’s affirmative acceptance electronically. You see clickwrap contracting virtually every time you install a piece of software. During the installation, you are usually presented with check boxes to either “accept the terms of the License Agreement” or “not accept the terms of the License Agreement” along with a link to view the text of the end-user license agreement.

But, the use of clickwraps is not limited to software. They are often used for acknowledgements of assent to contracts for online services, too. In those cases, the text usually invites the user to click to accept the terms of a service agreement covering the online offering.

Courts have treated clickwrap agreements as valid and enforceable contracts.

 Case: – Rudder v. Microsoft Corporation:-

The plaintiffs commenced a class action lawsuit alleging breach by Microsoft of certain payment related terms of Microsoft’s MSN Member Agreement. The Member Agreement was an on-line “click-wrap” agreement that required each prospective member to scroll down through several pages of terms and conditions and then indicate their agreement to the terms by clicking an “I Agree” button before being provided with access to the services. Although the plaintiffs wished to rely on several terms of the Member Agreement, in bringing the action the plaintiff’s disputed the choice of law and forum selection clauses that the defendant Microsoft sought to enforce.  The plaintiffs asserted that because not all of the Member Agreement was visible at one time they did not receive adequate notice of such provisions and that as a consequence they were not enforceable.  The court determined that the Member Agreement was enforceable stating that scrolling through several pages was akin to having to turn through several pages of a multi-page paper contract and to not uphold the agreement “would lead to chaos in the marketplace, render ineffectual electronic commerce and undermine the integrity of any agreement entered into through this medium”

CONCLUSION

Today with the recent advancement in the areas of computer technology, telecommunications technology, software and information technology have resulted in changing the standard of living of people in an unimaginable way. The communication is no more restricted due to the constraints of geography and time. Information is transmitted and received widely and more rapidly than ever before. And this is where the electronic commerce offers the flexibility to business environment in terms of place, time, space, distance, and payment. With the growth of e-commerce, there is a rapid advancement in the use of e-contracts.

E-contracts are well suited to facilitate the re-engineering of business processes occurring at many firms involving a composite of technologies, processes, and business strategies that aids the instant exchange of information. The e-contracts have their own merits and demerits. On the one hand they reduce costs, saves time, fasten customer response and improve service quality by reducing paper work, thus increasing automation. And on the other hand the law governing e-contract lacks certain provisions like -There is nothing to determine the intention of the parties to enter into a legally enforceable contract.

With this, E-commerce is expected to improve the productivity and competitiveness of participating businesses by providing unprecedented access to an on-line global market place with millions of customers and thousands of products and services.

Edited By Amoolya Khurana

[i] Singh Avtar,”law of contract &specific relief”,10th ed, pg no.3

[ii] Information technology act,2000

[iii] id

[iv] id

[v] Information technology act,2000

[vi] T.S.Venketesh Iyyer’s “law of contract and specific relief with special chapter on e-contract”, ed 1

[vii] [2006] EWHC 813 (Ch) (07 April 2006)

[viii] Id.

[ix] 5 (1989) 724 F. Supp. 605 (S.D. Ind.)

[x] AIR2006All23, 2006(1)AWC504

[xi] AIR1997MP68

3 Replies to “Legal Issues Involved In E-Contracts”

  1. This article is real helpful but can you pls refer to more e commerce cases relating to breach of contract

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