E contracts: its legality, issues and remedies


Technology advancement has changed the mode of business. Market has entered into new era of e-commerce, where exchange of goods and services takes place through internet as intermediate. To protect the interest of producer and consumer both they enter in contract online known as e-contract. There are different types of e-contracts varies in way of the offer made. There are many provisions in India which supports the e-contract. The contract act,1872, the information technology act,2000 and the evidence Act,1872 are the significant legislations which determines the legality of E-contract, but still issues arises in capacity to contract, free consent and decision on the court jurisdiction. Though Indian laws addresses e-contracts adequately, the challenge before them is to keep abreast with the evolving technologies.

Introduction: With the advent of technological era, the methodology of doing businesses are changing. The contacts are the most significant part of all the business dealing from sale of thread to the sale of building. Contracts are the ways through which both the parties feel secure. The advancement in this part is known as E-contracts.

Contacts are the agreement between two or more parties enforceable by law, in this one person accepts the offer made by the another in order to do or to abstain from doing something. There are some essential elements which are necessary to be fulfilled. Whereas the contracts which come into existence through net as a medium are E-contracts. There are judicial provisions available which mention regarding the nature of E-contracts and secured electronic procedures.

E-commerce is buying and selling of goods and services over the internet. This include commercial transactions which are related to both individual and organization. E-commerce websites are one of the examples in which dealing takes through E-contracts takes place.

E-contracts: E-contracts are the agreement among the parties through the use of the electronic mean, the interface between the offerer and the offeree has been changed. It holds the similar essential elements of the contracts; they negotiate for the lawful consideration. In physical contracts people meet face to face and there are comparatively less chances of mistakes than in if they are far away and contracting with each other through net as medium. The digital contracts can be concluded within seconds. The E-contracts are regulated by various laws Information Technology Act, 2000 and the Indian Evidence Act, 1872.

E-contracts are based on the principle of uberrimaifidie (utmost good faith) in which there is no physical meeting of the parties but one party relies on the information supplied by another party and signifies his willingness.

Of traditional contracts: In earlier times, like-minded people join together and form groups and societies on the basis of contracts. Hindus were having Hindu law of contract and Muslims were having Muslim’s law of contract. When the Britishers came to India they prepared contract of law for Indians in order to prevent conflicts among different countries. The draft committee under the leadership of sir John Romilly presented the draft contract law (1866) for India. This was enacted as The Act 9 of 1872 on 25 April 1872 and the Indian Contract Act, 1872 came into force with effect from 1 September 1872.

Of e-contracts: with the advent of technological revolution, the legislatures felt need to have provisions to regulate the contracts which are concluded on the electronic media. Justice Faizal Ali went on survey, submitted the report and refused to make any changes in the existing law of contract in order to include electronic devices under its jurisdiction. As in traditional contracts, e-contracts also requires following essential elements:

Offer- when a person offers to perform, their respective promises and based on this terms and conditions if the offeree accepts it then it becomes a legal binding. In various dealings (conventional or online) face to face offers are not made. The consumer chooses the products from vendor’s website. The contract’s mode may vary from deal to deal.

Acceptance: when the offeree signifies his interest in the offer made by offerer and accepts it unconditionally. In some online contracts the consumer just clicks on “I Agree” icon in order to communicate the acceptance of the terms of the vendor. In some cases, the consumer selects the item from the website and when he purchases it, it is concluded that the offer is accepted and virtually contracts came into existence.

Lawful consideration: In every contract which is enforceable by law both parties give and take something is known as consideration. This consideration should not be illegal. For example- in India, person could not provide bitcoins in consideration of purchasing an MP3.

Intention to create legal relations: there should be intention to create legal relation without it the contract is void. For example: if the makeshift website only shows the products, no purchasing information is given, the “download” button is given, the consumer assumes that it is free and comes into contract unintentionally while clicking on it. Ideally proper information should be provided to the customer.

Competency of the Parties: the parties with whom the contract is to be concluded must lawfully competent to enter into the contract. Any agreement with minor, unsound mind, insolvents is void.

Free consent: when there is absence of coercion, misrepresentation and fraud then the consent is said to be free. There should not be any agitation of the will of any party to enter into contract. For example- on website the click through process to buy something ensures free consent.

Lawful Object: the objective of the contract must not to perform illegal activities. It should be lawful. For example- an agreement for selling narcotic drugs is void.

Certainty and Possibility of Performance- the contact should be based on certainity, it should not be ambiguous. The contract which is impossible to perform is said to be void.

Kinds of E-contracts:

E-mail contracts: contracts can be established through emails in which both the parties signify their intentions which can be treated as legal binding. The offer sends the offer to the person on his address and the offeree gives his acceptance by communicating it through email. Earlier the English courts have been in favor of postal rule than acceptance rule because both sides will be waiting for confirmation. Postal rules are applied to electronic mails.

First case in history on click wrap contract: First time in history, the case regarding the clip wrap agreement that was presented in the court was of ProCD v. Zeidenberg. ProCD sells the CD-ROM which contain the telephone directory database. Zeidenberg bought the CD-ROM installed the software in his computer and created website which offers visitors information. He later sold this CD at cheaper rates than Pro-CD. But Zeidenberg was unaware of the fact before purchasing it that prohibited the use of product without consent. While installing software license may have appeared on the screen which may continue only while clicking assent in dialog box. The court held that Zeidenberg has accepted the agreement and had an opportunity to read the terms. Thus Zeidenberg could have rejected the terms and returned the software.

Browse wrap contracts: when the parties bind together by use of website this contract comes into force. The user explains its terms on the website. The customer chooses the product from the website and when purchase it the virtual contract comes into being known as browse wrap contract.

Hubbert v. Dell Corp.

Hubbert sued the Dell in court because he brought Pentium 4 microprocessors and plaintiff says that the claimed that this were the fastest, the more powerful processors available but it wasn’t as fast as it mentioned. He says that information was false. The Illinois appellate court gave verdict that everything was available in the terms and conditions of sale. Hyperlinks available on website could see by the reasonable person.

Shrink wrap agreement: On purchase of the software’s wrapped in plastic, the terms and conditions are present in it, which the consumer has to accept before purchasing it. Once the customer open the seal of the packet it contract comes into force. Person cannot refuse to accept the terms after opening the seal. He can reject it before opening it. This case happens while purchasing of software mainly.

For example: on purchase of new sim from Airtel, sim is packed in the plastic packet which includes the small paper with terms on tariff plans and prepaid services. Once we agree to purchase it we come into contract. The seal of this packet cannot be opened before. This type of agreement is known as shrink wrap agreement. Laws regarding this are uncertain, multiple complainants have forced to some companies to either accept the open packet or explain the conditions on website.

There are some essential for contract to come into force such as the offer and acceptance, legality of object, lawful consideration, possibility of purpose and free consent. The acceptance of the offer and communicating the same results in contract. Thus the same applies for electronic contract, the only condition applies is that it should fulfil all the essential elements.

Indian evidence act 1872: the electronic documents are recognized under section 65 of Indian Evidence Act, 1872. The process of preparing these electronic documents as evidence is provided in Section 65-B of the Indian Evidence Act, 1872. Any printed, copied or stored information produced from the computer should be deemed as document, which can be used as evidence in the further proceedings. There are various conditions specified under section 65-b that the document or email produced by a person must have lawful control over the system while producing it, the document should be during ordinary course of period, information was fed into system on daily basis, output producing machine should be in proper condition so that it doesn’t alter the authenticity. Thus email and other computer produced documents are treated as legal evidence.

The Information Technology Act 2002:

Validity of e-contracts: The legal recognition is given to electronic contract under the information technology act 2002. The section 10-A of the act states that the contracts in which there is proper offer is made, acceptance of proposal, proper communication is done then that contract must not be enforceable on the ground of the means used in it.

Digital signature: A signature on a document signifies that the person accepts terms purposed in the document. Section 3 deals with the verification of the electronic records by affixing the digital signature. The electronic signatures used for verification of the electronic documents should be reliable and this is recognized by Indian laws.

Bharat coking coal held and e-tender for coal. P.R. transport companies was given a tender by communication the acceptance of bid through e-mail on 19th July 2005. PRTA deposited 81.12 lakh in favor of BCC. BCC after accepting the cheque didn’t deliver coal and mailed PRTA saying that due to technical error due to which the PRTA was offered this project but there was some another party who bid higher.

Capacity to contract: it is essential to have contract with competent person. Whereas in electronic contract it is limitation that vendor has no idea, the person on the other side who has clicked “I Agree” is competent to do contract or not.

Capacity of contract is major requirement as per section 10,11 and 12 of Indian Contract Act 1872. Contracts entered by incompetent are void. There may be a situation where a minor may enter into contract by clicking on “I Agree” icon.

Free consent: free consent essential requisite of contract without it the contract is void. In the click wrap contracts, the customer has to either accept the agreement or reject it. There is no chance to negotiate. In LIC of India vs Consumer Education and Research Centre the SC held that there are no chances of bargaining in the click wrap contracts for a weaker party. Hence free consent is essential, user should be essential while giving consent.

Applicability of law: there are two ways to apply for personal jurisdiction that is to apply the law where transaction has occurred or to apply law of forum, or the first place where occurrence gave rise to litigation. The judicial system has right to identify the proper law which is more close and have real connection with the transaction.

Court jurisdiction: in e contracts cause of action may arise at different geographical location. This lead to filing of case at different location. For the defending party it is both expensive and frustrating. Hence choice of forum should be explained in every contract. This lead their jurisdiction to one place only. Thus the service provider subjects themselves to one jurisdiction and user has no choice but to accept the terms of the service provider.