E Contract | Law of Contracts - CLAT PG PDF Download

Introduction

•  The emergence of transformative technologies has significantly bolstered e-commerce in India. 
•  However, the application of technology without a proper legal framework can lead to societal chaos and may hinder business operations. 
•  Key legislations such as the Indian Contract Act of 1872, the Information Technology Act of 2000, and the Indian Evidence Act of 1872 play a crucial role in determining the validity of e-contracts. 
•  E-contracts are typically formed through the exchange of emails and various online agreements, including browse-wrap, shrink-wrap, and click-wrap agreements. 
•  These forms of e-contracts are valid under Indian law as long as they meet the prerequisites of a valid contract. 
•  Common issues that arise with e-contracts include capacity to contract, free consent, applicable law, and court jurisdiction. 
•  While the Indian legal system adequately addresses e-contracts, lawmakers face the challenge of keeping pace with evolving technologies and addressing emerging issues. 
•  Electronic contracts differ from traditional contracts as they are executed and enacted through software systems. 
•  The internet seamlessly integrates traditional advertising, catalogues, shop displays, and physical shopping into a single platform. 
•  A viewer from anywhere in the world can enter into a contract to purchase a product as advertised online. 
•  In such transactions, concerns arise regarding execution and consumer protection. 
•  Fundamental principles of contract law continue to apply to contracts made on the internet. 
•  However, not all principles apply in the same way as they do to traditional paper-based and oral contracts. 
•  In India, the recognition of electronic contracts is primarily supported by the Information Technology Act of 2000. 
•  This paper explores various aspects of e-contracts, including conceptual analysis, standard forms, methods of conclusion, governing laws in India, and consumer protection in e-contracts. 

Definition 

•  An e-contract is a type of contract formed through electronic means between two or more parties, such as via email, interactions with electronic agents (like computer programs), or between two electronic agents recognizing the existence of a contract. 
•  E-contracts fall under the umbrella of e-commerce or e-business, similar to traditional contracts where goods and services are exchanged for consideration, but with the key difference of being conducted through digital communication channels like the internet. 
•  E-contracts allow sellers to directly reach consumers without the need for intermediaries. 

Key Principles of E-Contracts 

•  E-contracts operate under the principles of  Uberrimae fidei  , where the parties are not dealing at arm's length, and one party relies heavily on the information provided by the other to enter into the contract. 
•  This doctrine is crucial in e-contracts due to the higher risk of misrepresentation or suppression of material facts in electronic transactions. 
•  Legal capacity in e-contracts is generally assumed, as per the Information Technology Act, meaning both parties are presumed competent to enter into the contract once it is concluded. 
•  Neither party can later claim the contract is unenforceable due to lack of competence. 
•  The principle of  Uberrimae fidei  is strictly applied in e-contracts to protect parties acting on the representation of the other party regarding their competence. 

Types of Electronic Contracts

 E-contracts can be broadly classified into three types: Click-wrap Agreements, Shrink-wrap Agreements, and Browse-wrap/Web-wrap Contracts.

 Click-Wrap Agreements 

•  Definition:  Click-wrap agreements involve a party agreeing to the terms and conditions presented on a website or program by clicking an "I Agree" button. This acceptance usually occurs before receiving the merchandise. 
•  Usage:  These contracts are commonly used for granting access to websites, downloading software, or making purchases online. The act of clicking signifies acceptance or rejection of the terms. 
•  Types of Click-Wrap Agreements: 
  •  Type and Click:  Users must type a specific phrase (e.g., "I accept") and click a button to demonstrate acceptance.  Example:  Users cannot proceed without clicking "Submit". 
  •  Icon Clicking:  Users click an "I agree" icon on a dialog box to accept the terms.  Example:  Users can reject by clicking "Cancel" or closing the window. 

 Shrink-Wrap Agreements 

•  Definition:  Shrink-wrap agreements are licensing contracts associated with the purchase of software, often seen in retail stores, online, or through mail orders. 
•  Packaging:  Software is typically packaged in a box or container, sealed with clear plastic wrap. The wrap includes a notice indicating that the software's use is governed by a license agreement enclosed inside the package. 
•  Acceptance:  Buyers agree to the terms by opening the package. If they do not wish to accept the contract, they must return the unopened package for a refund. 
•  Example:  A buyer sees a warning on the plastic wrap about the license agreement inside the package. If they choose not to agree, they must return the sealed package before opening it. 

 Browse-Wrap/Web-Wrap Contracts 

•  Definition:  Browse-wrap contracts involve terms and conditions presented on a website, where users are considered to accept the terms by using the site. 
•  Acceptance:  Agreement is implied through the use of the website, such as making a purchase or accessing services. 
•  Examples:  User Policies and terms of service links at the bottom of web pages. 
•  Characteristics:  Binding agreements based on website usage, often found in "terms of use" or "terms of service." 

 Enforceability of E-Contract 

• E-contracts are agreements made electronically, often through websites or apps.
• In India, e-contracts are recognized as valid and enforceable by law, thanks to the Information Technology Act, 2000.
• For an e-contract to be valid, it must meet the same criteria as traditional contracts outlined in the Indian Contract Act, 1872.
• The Supreme Court of India has upheld the validity of e-contracts based on email communications, even without a formal signed agreement.

 Key Legal Aspects of E-Contracts in India 

•  Information Technology Act, 2000:  This act provides the legal framework for electronic transactions and recognizes e-contracts as valid if they meet the essential criteria of a traditional contract.
•  Section 10-A:  This provision in the IT Act affirms the enforceability of e- contracts if they fulfill the requirements of offer, acceptance, capacity, and free consent as per the Indian Contract Act.
•  Judicial Precedents:  Cases like  Trimer International FZE v. Vedanta Aluminium Ltd.  demonstrate that contracts formed through electronic means, such as emails, are legally binding.

 Types of E-Contracts and Their Enforceability 

•  Clickwrap Contracts:  These contracts, where users agree to terms by clicking a button, have been upheld in court, as seen in  Feldman v. Google, Inc. 
  • The court ruled that Feldman had sufficient notice of the terms and conditions, making the contract valid.
•  Browsewrap Contracts: The enforceability of browsewrap contracts, where users agree to terms by using a website, is more contentious.
  • Courts require parties to have notice of the terms for the contract to be valid.
•  Shrinkwrap Contracts: These contracts, where users agree to terms by opening a package, have also been recognized by courts.
  • In  ProCD, Inc v. Zeidenburg  , the court ruled that Zeidenburg was bound by the shrinkwrap agreement because he did not return the product.

Challenges and Developments in India 

•  Lack of Precedents:  The Indian judiciary has not yet established clear guidelines for the enforceability of various types of e-contracts.
•  Recognition of Dotted Contracts:  The court has acknowledged the concept of dotted contracts, where one party has significantly less bargaining power.
•  Need for Legislative Framework:  As the Indian economy shifts towards paperless transactions, there is a strong need for a comprehensive legal framework to govern e- contracts.

Issues Faced by E-Contracts 

• The concept of the virtual world has significantly impacted the commerce of various countries, including India.
• The easy access to the internet, fax, computer programs, and smart phones has acted as a lifeblood for the e-commerce industry in India.
• The enforcement of the Information Technology Act of 2000 has provided a legislative framework and governance for e-commerce.
• However, the Act has certain shortcomings and raises issues regarding e-contracts.

 Jurisdictional Issues 

• E-contracts are borderless, making it challenging to determine jurisdiction in case of a breach.
• Section 13(3) of the Information Technology Act of 2000 states that the place of business of the originator is where the information was dispatched, and the place of business of the addressee is where the information was received.
• This can conflict with Section 20 of the Code of Civil Procedure, 1908, which allows a suit to be filed where the cause of action arose.
• The case of P.R. Transport Agency vs. Union of India highlighted these jurisdictional issues in e-contracts.
• Existing laws do not adequately address jurisdictional questions in cross-border e-contracts.

 Parties to Contract 

• E-contracts are often between parties who are strangers to each other, raising concerns about the competency of the parties.
• Under the Indian Contract Act of 1872, parties must not be minors, lunatics, or disqualified by law.
• Websites must ensure that contracting parties are competent, especially since minors can easily enter into e-contracts.
• Online platforms use various methods to verify the competency of parties, but the enforceability of e-contracts remains uncertain due to lack of stringent legislation.

 Signature Authentication 

• The Indian Contract Act of 1872 recognizes both oral and written contracts, and does not require signatures for validity.
• E-contracts require electronic or digital signatures as per the Information Technology Act.
• However, electronic signatures are not valid for all documents, such as negotiable instruments (except cheques), powers of attorney, trust deeds, and real estate documents.
• The Information Technology Act does not apply to these documents requiring physical signatures.

 Loss Due to Technical Errors 

• E-contracts are entered into electronically and stored in the digital realm, but like paper transactions, they are not immune to technical errors.
• There are no clear administrative, legal, or judicial guidelines for scenarios where information is lost due to technology failures.
• Despite the belief that digital information always exists, there are risks involved in storing and transmitting data electronically.

Laws Governing E-Contracts in India 

 Indian Contract Act, 1872 

• The Indian Contract Act, 1872, regulates how contracts are formed and executed in India, ensuring that all contracts comply with its provisions to be legally enforceable.
• The Act's provisions are broad enough to encompass electronic contracts.
• When forming a contract electronically, offers and acceptances can be expressed through data messages or electronic records unless otherwise agreed by the parties.
• The validity and enforceability of a contract should not be denied simply because data messages were used in its formation.
• Declarations of will or statements between the originator and addressee of the electronic record are valid and enforceable even in database form.

 Information Technology Act, 2000 

• Under the Information Technology Act, 2000, electronic contracts are considered valid.
• Section 4 of the Act provides legal recognition to electronic records, stating that information in written or printed form made available electronically is deemed to satisfy legal requirements.
• The 2008 amendment (Section 10A) clarifies that contracts formed electronically are enforceable, regardless of the electronic means used for communication of proposals and acceptances.
• However, the Act does not apply to certain instruments, including negotiable instruments, power of attorney, trust deeds, wills, and contracts for the sale or transfer of immovable property.

 Indian Evidence Act, 1872 

• The Indian Evidence Act, 1872, recognizes electronic evidence recorded or stored using electronic devices as having evidentiary status.
• This includes evidence recorded by digital voice recorders, digital cameras, digital video cameras, and video conferencing.
• The Act has elevated the status of electronically recorded evidence from secondary to primary evidential status due to advancements in information and communication technology.
• The evidentiary value of e-contracts is supported by various sections of the Indian Evidence Act, such as Sections 85A, 85B, 88A, 90A, and 85C, which deal with presumptions regarding electronic records.
• Section 65B specifically addresses the admissibility of electronic records in legal proceedings.