E-contracts- A new frontier

By Prajanya Raj Rathore 15 Minutes Read

INTRODUCTION TO E-CONTRACT

With the advent of electronic commerce, the concept of electronic contracts also came into the picture; the world-wide recognition of electronic contracts usually came along with the increase in electronic commerce. Electronic contracts can be defined as the contracts which can be entered into electronically.[1]Electronic business requires extensive usage of an alternative to the paper-based method for the communication and storage of information. Our relatively high usage of electronic commerce has enabled us to use electronic contracts to the fullest extent; it has evolved from being a simple unilateral agreement to being a decentralized type agreement that involves the consensus of both the parties. Since the importance of electronic commerce lies in its ability to improve the efficiency of commercial activities, enhance trade connections and allow new access opportunities for previously remote parties and markets, thus playing a fundamental role in promoting trade and economic development, both domestically and internationally.[2] The introduction of electronic contract has completed the chain of growth, development, and connection; it is commendable that how a few strings of code have enabled us to explore this whole new world of possibilities, the world has indeed come very close because of the e-commerce and e-contract. We have services like a simple grocery shop to the giant Amazon awaiting our orders with just a click of a button; the reason which makes it all happen is an electronic contract. It has come so far that it is now capable of even providing us services like arbitration, land record tracing, peer to peer transactions, and many more. It is still in its evolutionary stage; the pace with which it is moving forward will also determine the flow of legal enforceability since the concept of decentralized e-contracts is being used on an immense scale. The Model Law, along with the U.N. Convention on the use of Electronic Communication in International Contracts 2005, provides for uniform rules to be adopted by member countries communications and the creation of electronic contracts. India in consensus to the protocol described above, inculcated the definition of electronic contracts under section 10A of the Information Technology Act, 2000[3] it states that:

Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”

This definition provides the expansion to the definition of the contract mentioned in the Indian Contract Act, 1872. The Information Technology Act, 2000 merely recognizes the enforceability of contract formation through electronic means and establishes the functional equivalence between e-contracts and paper-based contracts. These provisions in the Information Technology Act, 2000 were introduced to give effect to the corresponding provision under the Model Law.

ESSENTIALS OF A VALID CONTRACT:

An electronic contract follows the norm of a conventional contract, so it is quintessential for it to comply with the provision of Indian Contract Act, 1872 and any other law which is in force at that point of time-

  1. Proper offer and Acceptance– An offer refers to the intimation of one person’s willingness made to another person to do or abstain from doing something. When the offeree signifies his consent to the offer, the offer is said to be accepted.[4]
  2. Intention to create a legal relationship- There must be an intention to create a legal obligation between the parties.[5]
  3. Lawful Consideration- Consideration refers to any act or abstinence or promise of a party at the desire of the other party.[6] The consideration must be lawful, i.e., it must be of some value in the eyes of the law.[7] An agreement without consideration is void.[8]
  4. Free consent- Two or more persons are said to have consented when they agree to the same thing in the same sense.[9] consent is free if it is not caused by coercion, undue influence, fraud, misrepresentation, and/or mistake.[10] An agreement without free consent is voidable.[11]
  5. Capacity to contract- A person who has attained the age of majority, is of a sound mind and has not been disqualified from contracting under any law is competent to contract.[12]
  6. Lawful object- The object of the contract must be lawful, i.e., it should not be forbidden by law, defeat the provision of law, be fraudulent, cause injury to person/property, be immoral, or opposed to public policy. An agreement with the unlawful object will be void[13].
  7. Certainty and possibility of performance- An agreement that has the impossibility of performance is a void contract.[14]
  8. Agreements which are not expressly declared void- The contract should not have explicitly been declared to be void, for example, an agreement in restraint of marriage[15], an agreement in restraint of trade[16], etc

INAPPLICABILITY OF THE STANDARD RULES OF COMMUNICATION-

The rules namely for communication of offer, acceptance, and revocation was included in the Indian Contract Act, 1872 keeping in mind that mode of communication will be non-instantaneous but with the inculcation of an electronic contract under the ambit of Indian Contract Act, 1872 the dimension of the communication clause changed as it has now taken the form of the instantaneous method of communication. The communication can take place instantaneously. In the case of Bhangawan Das Goverdhandas Kedia v.M/S Girdharlal Parshottamdas[17], the rules for instantaneous communication are enunciated as following-

  • Communication acceptance is complete when it is fully heard and understood.
  • If the telephone fails as a machine and the proposer is aware that the proposal is not communicated and the acceptor is cognizant that his acceptance is not communicated, the contract is said to be not formed.
  • Where owing to the fault in the line at the proposer’s end, the acceptance is not heard by him. He does not ask the acceptor to repeat his acceptance, and the acceptor believes that the acceptance has been communicated, there would be a binding contract, as the rule of communication of acceptance laid down under the Contract Act.
  • Where the proposer has not heard the acceptance, and he informs the acceptor about this and asks him to repeat his words, there would be no contract.

The modified rules of telephonic communication can be applied to email since the method of communication is instantaneous, but this is only used to a certain extent since emails are not as immediate as they say. On the other hand, online marketplaces provide us with an instantaneous contractual obligation in the form of payment methods involving the products which are offered on the market. The products are considered for the contract, and the payment gateway provides the platform for the acceptance of the contract. The enforceability of the email as a piece of authentic evidence can always be questioned because of changing the computer clock. It won’t be reliable evidence in the court, whereas on the other hand, the payment received is recorded by the intermediary bank or the payment gateway.

TYPES OF E-CONTRACTS[18]

  1. Contracts entered into through Email: E-contracts may be in the form of a contract that is entered into by way of communication through an electronic medium like emails. This involves the discussion communication of various stages of the formation of the contract, such as the communication of an offer, acceptance, etc. and other negotiations of the various term of the contract through the electronic medium. The contract that is entered in via email is neither instantaneous nor non-instantaneous; it borderlines both the model of communication. It can be instantaneous, or it can be non-instantaneous, depending upon the active channel of communication between offeree and offeror.
  2. Standard Form E-contracts: Alternatively, e-contracts can take the form of non-negotiable and instantaneous contracts of the following types-
  • Clicks wrap Agreements- These are the most common form of e-contracts found online. It consists of terms and conditions of the contract, and in this, a party can agree to the conditions by clicking on the “I agree” button, or they can click the “I disagree” button. It’s unilateral, where the party only has two options. This type of electronic contract is used in software licenses.
  • Browse wrap agreements- Browse-wrap agreements list out their contract/terms and conditions on the website being accessed or the product being downloaded. Unlike a click wrap agreement, where the user must expressly accept the terms and conditions by clicking on an “I agree” box, a browse wrap agreement does not require that here the user of the website if they download the product or browse through the website it amounts to the user’s consent to the contract.
  • Shrinkwrap agreements- Shrink wrap agreement was found inside the sealed packaging of tangible products, where one cannot see the argument until the product has been purchased or used. For example, software CD came packaged in plastic with a notice that by tearing the plastic, the user will be deemed to have consented to the terms and conditions of the contract.

CONCLUSION:

An electronic contract is as per the definition is legal in India, but its evolved form, i.e., Ethereum based smart contracts, still pose a question of legal enforceability in India. It is a type of a smart contract which is developed with counsel of both computer coders and lawyer. So every transaction made under this contract is recorded in the form hash in the blockchain. Still, there are problems pertaining to it; unlike their kin, they are not human-readable, but they have consensus protocols which enables it to come under the ambit of valid e-contracts, the environment in which it is executed is very transparent. Each transaction is recorded in a public ledger, which represents that the transfer took place in the form of hash functions. Smart contracts are not legal in India because they are not human readable, and a third party who is not even an intermediary authenticates and record the transaction in the ledger. These two are the significant issues involved in the legal enforceability of smart contract but its advantages over the conventional electronic contract these are[19]

  • Self-execution the completion of the condition
  • Cost-effective
  • Highly secure
  • Immutable

These are the few advantages of smart contracts over conventional electronic contracts.

 

[1] Articles 11-15, UNCITRAL Model Law, 1996

[2] Preamble to the U.N. Convention on the Use of Electronic Communication, 2005

[3] Information Technology Act, 2000

[4] Section 2(a), Indian Contract Act, 1872

[5] Section 2(b),ibid

[6] Section 2(d),ibid

[7] Section 23,ibid

[8] Section 25,ibid

[9] Section 13,ibid

[10] Section 14ibid

[11] Section 19 ibid

[12] Section 11 ibid

[13] Section 23 ibid

[14] Section 56,ibid

[15] Section 26, ibid

[16] Section 27, ibid

[17] Bhagawan Das Goverdhandas Kedia v.M/S Girdharlal Parshottamdas, 1996, S.R., (1), 456

[18] Anirudh Rastogi, Cyber Law- Law of Information Technology and Internet, Lexis Nexis ed- 1

[19] Ifthikhar Alam, what are Ricardian Contracts? a complete guide, 101 Blockchains, (10/06/2020,4: am), https://101blockchains.com/ricardian-contracts/

 

Prajanya Raj Rathore

Just an average guy, who is here to learn and explore new things. With interest in Technology law, Media law, telecommunications law, Criminal law and Environmental law.

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