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E-Contracts and Its Legality

Written by: Vasudha Tamrakar & Pratibha Pal - Students: NLIU, Bhopal (M.P)
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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. This e-commerce is associated with the buying and selling of information, products and services via computer networks. It is a means of transacting business electronically, usually, over the Internet. It is the tool that leads to ‘enterprise integration’. With the growth of e-commerce, there is a rapid advancement in the use of e-contracts. But deployment of electronic contracts poses a lot of challenges at three levels, namely conceptual, logical and implementation. In our article we have discussed the scope, nature and legality and various other issues related to e-contracts.

Definition: E-contract is a contract modeled, specified, executed and deployed by a software system. E-contracts are conceptually very similar to traditional (paper based) commercial contracts. Vendors present their products, prices and terms to prospective buyers. Buyers consider their options, negotiate prices and terms (where possible), place orders and make payments. Then, the vendors deliver the purchased products. Nevertheless, because of the ways in which it differs from traditional commerce, electronic commerce raises some new and interesting technical and legal challenges.

For recognition of e-contracts following questions are needed to be considered:

# Whether e-contract is a valid contract?
# Would a supplier making details of goods and services with prices available on a website be deemed to have made an offer?
# Whether e-contracts satisfy the legal requirements of reduction of agreements to signed documents.
# Whether e-contracts interpret, adopt and compile the other existing legal standards in the context of electronic transactions?

Recognition E-contracts

Offer: The law already recognizes contracts formed using facsimile, telex and other similar technology. An agreement between parties is legally valid if it satisfies the requirements of the law regarding its formation, i.e. that the parties intended to create a contract primarily. This intention is evidenced by their compliance with 3 classical cornerstones i.e. offer, acceptance and consideration. One of the early steps in the formation of a contract lies in arriving at an agreement between the contracting parties by means of an offer and acceptance. Advertisement on website may or may not constitute an offer as offer and invitation to treat are two distinct concepts. Being an offer to unspecified person, it is probably an invitation to treat, unless a contrary intention is clearly expressed. The test is of intention whether by supplying the information, the person intends to be legally bound or not. When consumers respond through an e-mail or by filling in an online form, built into the web page, they make an Offer. The seller can accept this offer either by express confirmation or by conduct.


Unequivocal unconditional communication of acceptance is required to be made in terms of the offer, to create a valid e-contract. The critical issue is when acceptance takes effect, to determine where and when the contract comes into existence. The general receipt rule is that acceptance is effective when received. For contracting no conclusive rule is settled. The applicable rule of communication depends upon reasonable certainty of the message being received. When parties connect directly, without a server, they will be aware of failure or partial receipt of a message. Such party realizing the fault must request re-transmission, as acceptance is only effective when received. When there is a common server, the actual point of receipt of the acceptance is crucial in deciding the jurisdiction in which the e-contract is concluded. If the server is trusted, the postal rule may apply, if however, the server is not trusted or there is uncertainty concerning the e-mail’s route, it is best not to apply the postal rule. When arrival at the server is presumed insufficient, the ‘receipt at the mail box’ rule is preferred.

Consideration and Performance:

Contracts result only when one promise is made in exchange for something in return. This something in return is called ‘consideration’. The present rules of consideration apply to e-contracts. There is concern among consumers regarding Transitional Security over the Internet. The e-directive on Distance Selling tries to generate confidence by minimizing abuse by purchasers and suppliers. It specifies---
# A list of key points, must be supplied to the consumer in ‘a clear and comprehensible manner.’
# Written confirmation, or confirmation in another durable medium available and accessible to the consumer, of the principle points.
# The right of withdrawal enabling consumers to avoid deals entered into inadvertently or without sufficient knowledge, providing for seven-day cooling-off period free from penalty or reason to return the goods or reimburse the cost of services.
# Performance should be delivered within thirty days of order unless otherwise expressly agreed.
# Reimbursement of sums lost to fraudulent use of credit cards. It places the risk of fraud on the credit card Company, requiring them to take steps to protect their position.
# On the other hand, there is also need to protect sellers from rogue purchasers. For this, the provision of ‘charge-back clauses’ and encouragement of pre-payment by buyers is recommended.
# Thus, this Directive adequately protects rights of consumers against unknown sellers and sellers against unknown buyers.

Liability And Damages:

A party that commits breach of an agreement may face various types of liability under contract law. Due to the nature of the systems and the networks that business employ to conduct e-commerce, parties may find themselves liable for contracts which technically originated with them but, due to programming error, employee mistake or deliberate misconduct were executed, released without the actual intent or authority of the party. Sound policies dictate that parties receiving messages be able to rely on the legal expressions of the authority from the sender’s computer and this legally be able to attribute these messages to the sender.

In addition to employing information security mechanisms and other controls, techniques for limiting exposure to liability include:
1. Trading partner and legal technical arguments
2. Compliance with recognized procedures, guidelines and practices
3. Audit and control programmers and reviews
4. Technical competence and accreditation
5. Proper human resource management
6. Insurance
7. Enhance notice and disclosure mechanisms and
8. Legislation and regulation addressing relevant secure electronic commerce issuing.

Digital Signatures: Section 2(p) of The Information Technology Act, 2000 defines digital signatures as authentication of any electronic record by a subscriber by means of an electronic method or procedure. A digital signature functions for electronic documents like a handwritten signature does for printed documents. The signature is an unforgeable piece of data that asserts that a named person wrote or otherwise agreed to the document to which the signature is attached. A digital signature actually provides a greater degree of security than a handwritten signature. The recipient of a digitally signed message can verify both that the message originated from the person whose signature is attached and that the message has not been altered either intentionally or accidentally since it was signed. Furthermore, secure digital signatures cannot be repudiated; the signer of a document cannot later disown it by claiming the signature was forged. In other words, digital signatures enable "authentication" of digital messages, assuring the recipient of a digital message of both the identity of the sender and the integrity of the message. The fundamental drawback of online contracts is that if there is no alternate means of identifying a person on the other side than digital signatures or a public key, it is possible to misrepresent one’s identity and try to pass of as somebody else.

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. 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. On the other hand, since in electronic contract, the proposal focuses not on humans who make decisions on specific transactions, but on how risk should be structured in an automated environment. Therefore the object is to create default rules for attributing a message to a party so as to avoid any fraud and discrepancy in the contract.

1. Bakshi P.M & Suri R.K, Cyber and E-commerce Laws, Bharat Publishing House, edn 1, 2002.
2. Ryder D.Rodney, Guide to Cyber Laws, Wadhwa & Co. Publishers, edn.1, 2001.

More Articles
Government Contracts
Standard Form Contracts
Evidentiary Value of E-Contracts
Virtual Cheques - A Distant Reality
The Contractual Validity of E-Contracts
E-contracts and issues involved in its formation

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