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Contract Law in Changing Global Environment

Codified in colonial India more than a century ago, Contract Law has come a long way to accommodate the multitude of advancements in society and technology over the decades.

Contract law originated from common law and doctrine of precedence, at a time when rapid social and industrial changes were transpiring in England, and it became essential to regulate legal relationships. The Indian Contract Act, enacted on 25th April 1872 had, at its core, the elementary principles pertaining to Sales of Goods and Partnership. It is noteworthy henceforth, that the ICA has since been amended only thrice since its conception, and the Judiciary has instead espoused the expansion of scope and interpretations of the ICA in contemporary judgments.

Quantification of every commodity and money becoming the quintessential mode of exchange brought contract law to the forefront, whereas subsequent liberalization and globalization have facilitated the creation of a 'global village'. Industrialization and internationalism have had a domino effect on contract law.

The economic sphere is rapidly becoming frighteningly complex, and with it the network of capital, goods, services and information. In such an environment, contractual essentials and obligations are hard to formulate and still harder to fulfill. The World Wide Web, software, instant messaging and email as well as the meteoric rise of e-commerce have required elasticity in law to include within its ambit the concept of e-contracts, or digital contracts, which themselves are already in a state of constant flux.


Marshall McLuhan, Father of Communication and Media Studies, astutely remarked in 1967, The global village is a place of very arduous interfaces and very abrasive situations, in an era which had not yet seen the Internet explosion. This view gains ground when seen in the context of Contemporary Contract Law, which is characterized by intercontinental disputes and inherent intricacies. Within the past months themselves, the Coronavirus pandemic, economic recession and skyrocketing proportions of online transactions have modified the contractual landscape yet again.

This paper seeks to evaluate the evolution and adaptation of Indian Contract Law to the changing international environment of cosmopolitan agreements and far-reaching repercussions burgeoning from telecommunication development.

Dimensions of Evolving Global Climate

Proliferation of Technology and Globalization
Over the last two decades, the world has seen the rise of globalization, facilitated by the movement of goods, capital, people, technology and ideas from one corner of the map to another. The most remarkable thing remains the swift and implicit adaptations in the laws of different countries to accommodate this universal character of the economy and society. Rousseau and Kant had even proposed that the foundation of social relationships was the social contract theory, typified by a constant give-and-take, signifying how foundational the concept of contracts is to human existence. From the 1960s, there has been a constant march towards advancements in the field of technology and digitization.

Computers, World Wide Web, Bluetooth, internet, Wi-Fi, smartphones, pen drives, internet banking, mobile payment methods-- the list is endless, each of these have profoundly impacted the economy, conduct of business, growth of companies and methods of contracting. Information Technology enables people to have access to better and newer opportunities in employment, business and prosperity.


The Law of Contracts has kept pace significantly, without many apparent changes. This is a testament to the lawmakers who formulated it centuries ago, and provided for elasticity in its applicability. The most salient modification has been the recognition of e-contracts, which are contracts made using digital technologies. All the essentials to a contract have been incorporated seamlessly into an e-contract, including offer, communication, promise, proposal and acceptance. The processes relating to e-contracts are formulated, automated and enacted by a software system.

A difficult question arises in the case of e-contracts in a globally connected world: with 198 countries each with their autonomous laws on the subject of contracts, how would the parties to an e-contract know the jurisdiction and settle disputes, if any arise? A partial answer to this is the fact that contract law has some internationally recognized provisions, especially with regard to e-contracts. However, beyond the basics, each country-specific law requires its own in-depth study.

Rise of E-Commerce

With the internet allowing common people access to goods and services from all over the world, and connecting them in such a way that cultural influences increase materialism, online buying and selling of goods has dominated daily life. There has been a marked shift from brick-and-mortar stores to online websites which source, deliver and provide end-services all from the ease of one's home.

India has witnessed the fastest growing online retail sector, with an average annual growth rate of 51%. Millions of transactions are made everyday, and in turn millions of contracts are generated. Though this has increased the reach of companies and allowed them to cater to a wider social base at cheaper prices, the process of e-contracting has been riddled with legal questions regarding validity and implementation. There are no specific statutes for contracting through online methods in the Indian Contract Act 1872, and usually the Information Technology Act 2000 is used to enforce the essentials of a contract without any physical documents.

Most e-contracts created are standard form contracts with little room for negotiation or change, and the duty of going through the terms and conditions before trading in such cases lies with the consumer. There are many contentions and loopholes which websites may take advantage of, but on the other hand, the duty always lies on the seller to prove that the contract was not unconscionable or made by undue influence.

Coronavirus Pandemic

As COVID-19 swept across countries, it led to some fundamental changes in the organizational structure of society and economy, especially engendering an astronomical rise in online commerce and digital transactions. It also caused problems in maintenance of contractual relationships, as supply chains were broken drastically and resources diverted to the healthcare industry. Existing business contracts attempted to invoke force majeure or Act of God to escape breach of contract, however it appeared to be an obstacle to do so considering the fact that clauses for Act of God needed to specify the possible events or incidences as well, and the coronavirus was absolutely unprecedented. In the absence of the ability to invoke this, the Doctrine of Frustration as under Section 56 of the Indian Contract Act could be applied in the following circumstances:
  • The supervening event is beyond the control of any party to the contract,
  • The event occurred after the contract came into effect and neither party could have foreseen the same,
  • The event has made it physically or commercially impossible to fulfil the contract.

E-contracts

Definition
Any contract made using digital technology, generated and executed through software, which does not require a physical signature or personal presence to make it enforceable is referred to as an e-contract. It is validated in Indian law by Section 10A of the IT Act, which was amended in 2008 to provide greater legal credibility to the apparatus of online contracts. It reads thus:
'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.'

With no explicit mention of it in any section of the primary legal document for contract law in our country, e-contract is often considered to have an ambiguous status in law by any novice. However, the IT Act, its provisions relating to digital proposals and acceptances, in addition to electronic signatures, taken in concomitance with Section 10 of the Indian Contract Act creates enough admissibility and legislative foreground for their substantiation.

The two parties to an e-contract are Originator and Addressee. The former refers to the party initiating contact and providing details for the e-contract, whereas the latter is the person intended to receive the electronic communication.

In the case of Societe Des Products Nestle S.A. V Essar Industries And Ors, Justice R Khetrapal had explained that under Section 65B of the Indian Evidence Act 1872, electronic evidence was admissible in Court. This clarified the background for the validity of e-contracts thus.

When a series of electronic communications have been employed, the records or documents become very important and need to be maintained well such that they can be furnished in the case of any discrepancy between the parties. Over the years, the courts have held an exchange of emails to be a valid contract if all the requisite essentials have been fulfilled. In the case of Trimex International FZE Limited, Dubai vs. Vendata Aluminum Ltd, the Supreme Court had held that email exchanges entailing details of terms of a contract, and acceptance given to such terms through email can be construed as a valid contract.

This had a profound effect on the precedents taken into consideration so far, since now it came to be established that a formal executed document was not required, and any communication relating to offer or acceptance needed to be carefully worded to avoid ambiguity as to the completion of contract.

Another sphere where e-contracts play a major role is online commerce. The United Nations Convention on International Trade Law, had adopted UNCITRAL Model Law on Electronic Commerce in 1996, which stipulates internationally acceptable rules aimed at increasing legal predictability in the field of electronic commerce. It intends to overcome national statutory barriers and foster efficiency in global trade.

For a B2C transaction on a website, there are different kinds of e-contracts, each with different terms and points of completion through acceptance. The UNCITRAL Model Law on Electronic Commerce does not actually define an e-contract, but simply alludes to it by stating that a contract can be made by exchanging data messages, and in such case, the validity of the contract is undeniable.

Click Wrap Agreement: The party assents to the contract by selecting the option 'I agree' given below the list of terms and conditions. The end-user is bound by the contract once he has given his assent by “signing” the contract through clicking on such an option. This had been laid down in Groff v. America Online where the end-user was held liable for the clauses in the terms of service.

Shrink Wrap Agreement: The name is derived from the packaging used for shipped products, that is, shrink plastic. The contract is completed once the promisee opens this wrapping on the product, which is implied acceptance of all terms given inside. An example of this is licensed software.

Browser Wrap Agreement: Some websites have certain terms for use which are enforced simply by accessing the website or by browsing it. There is no overt acceptance by the user, which is why sometimes these contracts are held to be unenforceable, especially when the clauses are unconscionable. For example, on any shopping website, there are a set of precondition clauses given in 'Terms of Service and Policy', which automatically apply as soon as one accesses it.

Essentials

  1. Offer and Invitation to Offer

    No contract can be created without an offer or proposal, which is the starting point to the agreement. It has been defined in Section 2(a) of the Indian Contract Act, as an expression of willingness to do or abstain from doing something with a view to obtain the assent of another.

    For a traditional contract, the offeror or promisor or proposer intimates the proposee or offeree or promisee of his willingness to enter into a legally binding agreement, however, for the purpose of an electronic contract, the IT Act specifies three parties:
    Originator (the person on whose behalf the message is communicated), the Intermediary (the person who stores, receives or provides other services with regard to the originated message), and the Addressee (the intended recipient of the digital message). These designations have been created on the basis of UN's Model Law relating to E-commerce.

    An electronic offer can be initiated through email, websites, EDI or electronic agents. Browsing on an online shopping website which has a list of available products is an invitation to offer, since there is no clear expression of willingness to enter into a legal contract. Here, it would be prudent to evaluate the development of case law with regard to electronic invitation to treat in different countries over time.

    In 2002, in Germany, an Internet computer vendor mistakenly displayed goods on his website with a listed price which was one-hundredth of the actual price. A customer placed an order at this incorrect price and received an automated confirmation immediately. The next day, the seller realized the mistake and asked if the customer would be willing to pay the actual intended price. This was refused and the customer demanded the goods at the erroneous price.
    The Higher Regional Court of Frankfurt Main held that the seller could not be bound to mistaken pricing since it was simply an invitation to offer, and if the invitation was changed, the customer's offer to buy did not stand.

    Around the same time, in England, Kodak mistakenly listed a £329 camera at £100 on their website and many customers ordered it, receiving a confirmation soon after. In this case, Kodak was forced to fulfil the orders to the tune of millions of dollars of loss, due to a basic difference in the order confirmation message- it did not simply acknowledge, but used the term 'this contract'.
     
  2. Acceptance

    Acceptance has been defined under Section 2 (b) of the Indian Contract Act, as:
    when the person to whom proposal is made signifies his assent thereto, effectively converting proposal into a promise.

    It is important to understand that in the case of e-commerce websites, the consumer is the one making the offer to buy to the seller, who can exercise their discretion to sell or not to sell. Though the formation of an e-contract should be complete upon receiving an order confirmation from the seller, it has been established that automated replies to purchase orders from software do not constitute valid acceptance.

    In Corinthian Pharmaceutical Systems Inc. v Lederle Laboratories, (5 (1989) 724 F. Supp. 605 (S.D. Ind.)) an order tracking number issued by an automated telephone system was held to be merely an acknowledgement of the order instead of a binding acceptance leading to a contract. Applying the same principle to electronic commerce, the contract becomes legally binding only after the seller has explicitly sent the acceptance.

    The issue of consensus ad idem also becomes salient and this has been covered by the Singapore Court in Chwee Kin Keong v Digilandmall.com Pte Ltd. Again, the wrong price had been quoted on the website, and an automated confirmation had been sent. It was adjudged that human errors, system errors and transmission errors could vitiate an electronic contract. It thus becomes apparent that the statutes of UNCITRAL Model Law have been implemented by different countries in their respective cases. The basic premise of adjudication remains the same, and there emerges a convergence in global contract law due to similar rulings
     
  3. Lawful Object and Consideration

    The object of an agreement is the main contracting purpose, as in to what end is the contract being formulated. Consideration refers to the return or quid pro quo in exchange for a promise, or something of value received by the promisor. The stipulations for their lawful status have been given in Section 23 of the Indian Contract Act. Read in conjunction with the IT Act, e-contracts too are subject to the same provisions with regard to lawful object and lawful consideration.

    The following criteria render the contract void:
    • Any act forbidden by law
    • If permitted, would defeat the provisions of law
    • Fraudulent purpose
    • Immoral
    • Against public policy
    • Involves or implies injury to person or property.

      An example for this could be an e-contract to get a subscription to a website for a certain sum of money, but the object is to download pornographic content. This would be void ab initio.
       
  4. Free Consent

    Consent must not be caused by fraud, misrepresentation, coercion, undue influence or mistake of law. In online transactions and contracts, owing to the click point acceptance by the end-user, generally consent is free and genuine. Due to the high possibility for errors due to system glitches and internet and transmission issues, non est factum or mistake as to fact is considered a valid defence.

    Since most times, the identity of the seller is anonymous, or only partially known, there is room for mistake in identity of person and this constitutes valid grounds for vitiation of contract. In Khoury v Tomlinson, it had been established that the sender address or the 'from' section of an email constitutes valid identity as to the party to the contract, in accordance with Article 7 of the Model Law.

    To minimize the repercussions of fraud in e-commerce, several safeguards have been put in place by the Consumer Protection Act 2019, and the subsequent Consumer Protection Rules for E-commerce as notified in 2020. According to these guidelines, the sellers may not refuse to refund money and accept returns for defective, counterfeit or late-delivered products.

    Product prices should also not be manipulated by the platforms to mislead customers and websites must give complete and proper information about the listed item to ensure awareness of the end-user. A provision has also been added allowing consumers to cancel the order once placed without having to be subject to a cancellation fee. It is evident that India is constantly assimilating the technological changes taking place on the global scale, even if not directly into the Indian Contract Act.
     
  5. Competency to Contract

    Only a 'natural person' or 'legal person' is competent to contract, and not an automated software or computer system operating on behalf of either party. This explains why an order confirmation message is not construed as valid acceptance and completion of contract. In order to give validity to such a contract, they must be given the status of agent of the party.

    Section 11 of the Indian Contract Act clearly affirms that minors are not competent to contract and such contracts would be void ab initio. In the case of online contracts, it becomes difficult to ascertain the age of the person sitting at the other end of the computer and this gives rise to complexities.

    A minor may misrepresent his age and deceive the other party, leaving them with no recourse to recover any damages. This is why websites often have selection boxes specifically relating to age as 'This is to certify I am above 18 years of age', enabling them to escape the liability of contracting with a minor.

Jurisdiction
In international contracts, a major contention is the jurisdiction of an e-contract which may be made in two entirely different countries. Many such contracts have an arbitration clause specifying the place where any possible dispute can be settled. To this end, international courts are also available for selection. For example, the recent case of Vodafone acquiring Hutchinson Essar (an Indian company) by buying 100% shares of CGP Investments was taken to the Singapore Arbitration Court when a tax dispute arose.

Ordinarily, civil courts in India have territorial jurisdiction on the basis of two fundamental principles:
  • Place where the cause of action arises
  • Place of residence of the defendant

If these are simply applied, it becomes difficult to keep track in an online contract where the parties conclude it in a virtual space. In this regard, Section 13 of the IT Act attempts to clarify the scope of adjudication by identifying the time and place of dispatch and reception of an electronic message thus:
  1. ...Save as otherwise agreed to between the originator and the addressee, the despatch 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:
    1. if the addressee has designated a computer resource for the purpose of receiving electronic records:
      1. receipt occurs at the time when the electronic record enters the designated computer resource; or
      2. 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;
    2. 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.'

Until it has been otherwise agreed upon, the place of dispatch is the usual place of business (i.e. the place where the business has been registered) of the originator, and the place of receipt is the usual place of business of the addressee. If either parties have more than one place of business, the principal place of business will be taken into consideration, whereas if there is no place of business, the place of residence of the party is deemed to be so.

Jurisdictional issues raise one more risk, that is, of unanticipated foreign law suits. Since the laws regulating e-commerce vary, companies engaged in online activities may have to defend lawsuits in a different jurisdiction if those activities violate the local laws. As for the case of India, Section 20 of the Civil Procedural Code extends to cover the case of non-resident foreigners whose cause of action lies in India.

However, it has been established that the decision given in a different country according to its laws cannot be considered India's legal position on the same. This is illustrative in the case of Bachchan v India Abroad Publications Incorporated, in which the plaintiff received a favourable ruling in the UK, but was unable to get it enforced in New York, since the law applied in the UK was disharmonious with the laws of the US.

In the case of websites which are hosted in one country, but accessible worldwide, jurisdictional laws become even more contentious, since simply hosting a local website should not make a person liable to comply with all existing laws of every single nation. Contrary to this idea, in R v Weddon, the judiciary held the defendant liable for violating the Obscene Publication Act of their country since pornographic content on his website (hosted in California, US) had been downloaded in the UK. At present, there is no concrete legislative foreground to deal with this issue, and it is evaluated on a case-by-case basis.

Indian Position on E-contracts
E-contracts have facilitated faster trade and transactions, easy formulation of terms and conditions, instantaneous exchange of information and improved customer service and response time. Indian companies had been quick to jump on the bandwagon and implement their strategies and technologies in pursuit of e-commerce and digital contracting. At first, e-governance on the same matter struggled to keep pace with the rapid developments in international contract law and decisions given in e-contract disputes. The very essence of laws is to control and regulate society, but with the advent of the internet, an entirely new virtual sphere was created.

Notwithstanding this period, the IT Act was brought into force in 2000, which addressed several issues relating to digital contracting and commerce, drawing inspiration from the UNCITRAL Model Law on E-commerce. Through them electronic data was promulgated to be equivalent to writing on paper in a traditional contract, as in Section 4 of the IT Act, and Article 6 of the Model Law.

The aspect of a signature has also been added by the IT(Amendment) Act, 2008, whereby digital signatures meant to ensure integrity, authenticity and non-repudiation of a message were given legal recognition. Despite this provision, online agreements cannot be created for the sale of immovable property among other contracts since existing laws require a physical signature. The ambit of IT Act does not encompass all contracts homogeneously, which leads to confusion.

Convergence of International Law
Due to globalization with respect to the economies of the world, the regulatory process for international trade has come into the spotlight. Each country has its individual and autonomous legal framework for the same, but there has been a marked attempt to shift to some foundational general principles for e-commerce and e-contracts. The greatest challenge before lawmakers is to balance the astronomical speed of growth of online contracts and business interests, and securing the rights of the consumers through concrete and disambiguous legislation. Scholars and academics of law have proposed a unified theory of contract law.

The first and most substantial step in this direction was the United Nations Convention on International Trade Law (UNCITRAL) Model Law on Electronic Commerce adopted in 1996. It was meant to encourage nations to draft their laws along similar lines to enable ease of international commerce and entrepreneurship. In concurrence with it, the IT Act was enacted in 2000, which among other things, included provisions for e-contracting. There still remain salient differences and jurisdictional issues which create problems since all nations have not fully incorporated all the statutes of the Model Law.

In digital contracts, the issue is not of the substance of the contract but the allocation of risk in an automated environment. No rigid legislation can be created to deal with this, since it is an ever-expanding issue.

There have been efforts to bring about unity in contract law, with the US enforcing adoption of Restatements of Law and the Uniform Commercial Code of the USA, and the European Community attempting to make its nations settle on common principles of contract law by publication of model contracts meant to be used within the Common European Market and harmonization of national legislations by EU Directives and regulations.

Conclusion
As has been demonstrated above, the biggest challenge contract law faces in the contemporary global environment is the use of technology to conduct business and enter into commercial contracts. The hypothesis taken relating to convergence in international law has been proven to be true, as most nations, inclusive of and especially India, have taken big strides to comply with international standards and regulations to minimize arbitrary or complex jurisprudence and rulings on the matter of electronic contracts. Constant evolution is critical to keep up with the advancements in technology and interconnectedness of the economies.

Suggestions
A major issue which needs to be addressed in the near future is that of jurisdiction in international contracts. One method to tackle this could be to make an arbitration clause mandatory for every online contract which clarifies the territorial jurisdiction in case of any dispute. An international court can be instituted for this purpose as well, however it seems unlikely that countries would be willing to give up their sovereign legislative and judicial authority.

In the case of locally hosted websites being accessed, subscribed or downloaded in other jurisdictions, foreign laws should not hold the owner liable since it is impossible to control the dissemination of information on the internet. Instead, the government should regularly vet webpages and restrict access to content which violates their existing laws.

Often, while paying online through netbanking, a message pops up to inform the individual of the privity of contract between the vendor and himself, since the bank payment gateway is only a transaction portal. But these transactions allow the banks to recover up to 4% of the total amount paid, which often leaves a miniscule margin for the vendors themselves. The government should address this issue by regulating the charge on netbanking and creating provisions which protect the sellers as well.

The entire burden of fraudulent charges or chargeback clauses falls upon them with no respite. A helpful measure in this regard would be insurance for sellers covering the risk of online contracting against damages claimed. Sellers should also be availed proper customer details regarding identity verification (eg: through KYC).

In online contracts, the time and place of conclusion of a contract can be contested, which requires a confirmation message upon such conclusion such that both parties have a clear stand regarding the status of the contract.

There's no looking back when it comes to the digital era, and the need of the hour is to synchronize national and international contract law. The integration and globalization processes call for certain compromise between the two legal systems, and the building of common legal terminology and international codifications for the purpose of equalizing contracts and forms of entrepreneurship.

Bibliography
  • -Anson's Law of Contracts (AG Guest ed, 31st edn, OUP 2020
  • Ahmed Farooq, Cyber Law in India (law on internet) (New Era Law Publication 2017).
  • Bachvarova Margarita, 'Development of Contract Law' (2019) January SSRN Journal 5.
  • Beale Hugh, Chitty on Contracts (33rd edn, Sweet and Maxwell 2019).
  • Lal Dalbeer, Changing Dimensions of Contractual Law through E-Contract (July 2020) 2 no. 6 Fastforward Jutice's Law Journal.
  • Pisal V S, 'Advantages of e-contracts over traditional contracts: E-commerce and e-contracts in India' (Bharati Vidyapeeth College 2014). Accessed on 16 December 2020.
  • Singh Avtar, Law of Contract and Specific Relief (11th edn, Eastern Book Company 2013).
  • The Indian Contract Act 1872.
  • The Information Technology Act 2008.
  • UNCITRAL Model Law on Electronic Commerce 1996.

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