UNIT III

INTRODUCTION TO E-CONTRACTS
 INTRODUCTION

• Electronic Commerce means the production , distribution, marketing, sale or delivery

of goods and services by electronic means.
• It encompasses all kinds of commercial transactions that are concluded over an
electronic medium or network, essentially, the internet.
• E commerce covers three main types of transactions i.e. business to consumer,
business to business and business to government.
• Hence E-commerce can be used as a synonym with the e-contracts.
 E-CONTRACTS

• The term “e-contract” is denoted as any agreement created on an electronic platform

establishing a binding effect between the parties. These contracts form an essential
part of today’s commercial ecosystem because of the positive augment in e-
commerce activities. In this era of digital marketing, any viewer in the world could
decide to enter into a contract to buy the online advertised product.
• An electronic contract, or e-contract, is essentially a contract created, signed, and
stored in a digital form.
• A customer drawing money from an ATM machine is an example of electronic
contract. Another instance of e-contract is when a person orders some product from
an online shopping website.
• Why e-contracts are becoming increasingly popular. E-contracts offer speed,
convenience, and efficiency. With the rise of e-commerce and online transactions,
businesses and individuals find it more practical to engage in agreements digitally.
• 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.
• To constitute a valid contract
(1) there must be two or more separate and definite parties to the contract; [in case of e-
contract you, a person, may contract with a pre-programmed Server, a machine]
(2) those parties must be in- agreement, that is there must be a consensus ad idem; [the
principle of meeting of minds may never take place in e-contract]
(3) those parties must intend to create legal relations in the sense that the promises of each
side are to be enforceable simply because they are contractual promises;
(4) the promises of each party must be supported by consideration [because in e- Contract
the payment is mostly done electronically, through Bank transfer or use of credit cards,
most e-contract have multiple contractual formations, first contract is between the
customer and the service provider, the second is between the Bank and the two parties
to the e-contract).
Unless all four of these criteria are met, by conventional wisdom no contract is formed.
 POINTS TO CONSIDER

• The first question is who or what is capable, at law, of being a party to a contract? It is
generally accepted that both natural persons and legal persons are capable of
entering contracts. Computers are clearly not natural Persons and neither American
nor English contract law. Both the buyer and the seller are natural persons, and
consequently, are capable of being parties to the transaction. The autonomous
computer, however, clearly cannot be a contractual party as the law now stands.
• Let us next turn to the issue of agreement. An agreement is a consensus ad idem a
meeting of minds. According to our definition, the minds in question have to be the minds
of the parties to the agreement. In our scenario, can it be said that there is a meeting of the
parties' minds in any meaningful sense? In both American and English contract law, the
normal analytical tool used to test for such a meeting of minds is that of offer and
acceptance. To be precise, the key question that the court must answer is, "what was the
mechanism for offer and acceptance?" What, therefore, constitutes an offer? It is a
communication by an offeror addressed to an offeree where: (1) the words or conduct
used are detailed and certain enough to be capable of forming an agreement by the mere
fact of acceptance; and (2) the words or conduct, when objectively interpreted, an
intention to be bound by mere acceptance.
• The court will conclude that the buyer's order is the offer What, then, constitutes an
acceptance? It is a communication by an offeree addressed to the offer or where: (1) that
which is accepted is what offered; and (2) the words or conduct used, objectively
interpreted, constitute an intention to accept an offer previously made to that offeree.
• Navigating the intricacies of proving parties' intention in digital transactions also
reveals challenges. Whether the intention is solely that of the seller's computer, the
seller alone (which is problematic if the seller is unaware of the transaction), or the
seller's intention embodied in the computer's stored program.
• This issue should be resolved by considering the Computer/programming/Server as
being owned and prepared by a natural person on his behalf. Thus though the
contract is unilateral in terms of parties to the contract, the acceptance of the offer is
made by the computer so designed and authorised by the Owner of the computer.
Hence the Server may be considered as an instrument which makes the contract and
makes an acceptance on behalf of the Owner.
 KINDS OF E-CONTRACTS

• Click Wrap Contracts - Are those whereby a party after going through the terms and
conditions provided in the website or program has to typically indicate his assent to the
same, by way of clicking on an "I Agree" icon or decline the same by clicking "I
Disagree". These types of contracts are extensively used on the Internet, whether it be
granting of a permission to access a site or downloading of software or selling something
by way of a website.
Scenario:You are purchasing a new software subscription online.
Process: After selecting your desired plan and entering payment details, a pop-up box
appears on the screen containing the terms and conditions of the software usage. To
proceed with the purchase, you must click on the "I agree" button.
Legal implication: By clicking "I agree," you are entering into a Click Wrap Contract,
signaling your acceptance of the terms and conditions associated with the software usage.
• There are certain kinds of check which ensures that the terms of the agreement are binding upon the
contracting parties. These are as follows:

1.The user agreement or the terms of service must be specifically conveyed to the party. By simply
inserting a link to the terms on the website without drawing any attention of the user shall not be
considered as the intimation to user. Therefore, if the user continues to use the website after the
intimation of the terms shall be considered as the acceptance of the contract.

2.The terms of the agreement should not be changed if the user has given his assent for the particular
action.

3.The changes made to the terms of the agreement must be specifically intimated to the user which
providers a user to give a fresh consent for the modifications in the terms. In case the user does not
agree to the changes then he has the option to leave the website at that very moment
• The question of the validity of Click-wrap agreements came for consideration for the
first time in 1998 in the famous case of Hotmail Corporation v. Van $ Money Pie Inc, et
al, C98-20064 (N.D. Ca, April 20, 1998 where the court for northern district of
California indirectly upheld the validity of such licenses where it said "that the
defendant is bound by the terms of the license as he clicked on the box containing "I
agree" thereby indicating his assent to be bound".
• In Bremen v Zapata Off Shore Co. 407 US 1.10 it was held that 'contractual provisions
limiting the place or court where potential actions between the parties may be
brought are prima facie valid and should be enforced unless the party contesting the
forum prove that the provisions are unfair and unreasonable or are affect by fraud' or
'unequal bargaining power'.
• Shrink- wrap Contract- Is a license agreement where the terms and conditions of the
contract are enforced upon the consumer as soon as he opens the package. Such
contracts can be generally observed in the case of buying of software products.
Scenario:You've purchased a new video editing software from a retail store.
Process: Upon opening the box, you find the software CD and a notice stating that by
breaking the seal and installing the software, you agree to the terms and conditions
outlined in the accompanying user manual.
Legal implication: By breaking the seal and using the software, you are entering into a
Shrink Wrap Contract, implying your acceptance of the terms provided within the
packaging.
The validity of the Shrink-wrap agreements first came up for consideration in the famous
case of ProCd, Inc v. Zeidenburg 86 F.3d 1447 (7th Cir. 1996). ProCD had compiled data from
3000 telephone directories into a searchable database at considerable expense. They sold
this database to consumers on CD-ROM disks, and the outside of the box stated that use of
the software was restricted to the terms of the enclosed license. However, the user's manual
contained the license and the license appeared on the user's screen every time the program
was run. Zeidenberg purchased this package and uploaded the database onto the Internet
[so that others can use the information without necessarily paying for it] in contravention of
the license. The Court held "that the very fact that purchaser after reading the terms of the
license featured outside the wrap license opens the cover coupled with the fact that he
accepts the whole terms of the license that appears on the screen by a key stroke,
constitutes an acceptance of the terms by conduct.
ProCd's lead was also followed in a number of judgments like Compuserve Inc v. Paterson
Cases, (89 F.3d 1257 (6th Cir. 1996) subsequent to ProCD Bhave uniformly upheld the
validity of shrink-wrap agreements when there is notice and a right to return, since it was
open to consumers to request a copy of the terms before purchase.
• Neither shrink-wrap, nor click- Wrap licenses prevent consumers from inspecting the
license prior to final assent to the contract and many producers voluntarily place
their product licenses on their website for inspection by consumers. Hence the
general rule is 'let the buyer beware’.
• Generally, buyer is expected to be careful while purchasing the goods and seller is
not liable for any defects in goods sold by him.
• The exception- If the contract is one sided, unfair, unconscionable, or adhesion
contract, the clauses in the contract shall be read against the drafter, thereby
protecting the rights of the consumers.
• Browse Wrap Agreements- This agreement is considered as a browse wrap agreement
which is intended to be binding upon the contracting party by the use of the website.
These include the user policies and terms of service of websites such as Flipkart or E-bay
and are in the form of a “terms of use”, a “user agreement” or “terms of service”, which
can be used as the links at the corner or bottom of website.

Scenario:You regularly use an online platform to sell handmade crafts.

Process: At the bottom of the platform's homepage, there is a link to the terms of service.
Users can access and review these terms by clicking the link. However, there is no explicit
action required to proceed with using the platform.
Legal implication: By continuing to use the platform, you are deemed to have accepted the
terms and conditions outlined in the Browse Wrap Contract, even though you didn't
explicitly click or acknowledge them.
 UNFAIR TERMS IN CONTRACT
• As e-commerce expands, the number of e - transactions with unconscionable terms will follow in its
expansion.Traditionally, adhesion contracts share four elements:
(1) adhesion contracts are drafted to drastically favor one party;
(2) general enough to apply to numerous transactions;
(3) offered with the representation that, except for price, the drafting party will enter into the transaction only
on the terms contained in the document; and
(4) minimize the actionable obligations of the adhering party, predominantly to the payment of the money,
Assent is an important concept of contract formation. It stems from the settled legal principle that the
formation of a contract requires the mutual assent of the parties. Contracts of adhesion, at first glance, do not
conform to the norm of mutual assent. It appears that contracts of adhesion fail to have a legitimate basis for
finding the parties' assent. As a rule, a court will not enforce an unconscionable contract clause. An
unconscionable clause is one whose purpose is contrary to public policy, is overly harsh or has one-sided
results that shock the conscience of the court.
For instance, a clause which purports to release one party for its intentional torts [civil wrong] would be
unconscionable and unenforceable.
 VALIDITY OF E-CONTRACTS

• The recognition and regulation to E-Contracts is provided by various laws such as Information
Technology Act, 2000 and the Indian Evidence Act, 1872. The provisions in the I.T. Act mention about
the attribution, acknowledgement and dispatch of electronic records and secured electronic
procedures.
• The IT Act recognizes the basic features of the contract such as the communication of the proposals,
acceptance of proposals, revocation of proposals and acceptances, as the case may be which could
be expressed either in electronic form or by means of an electronic record.
• Further, the recognition of a contract is accorded under the Indian Evidence Act, by which the term
“document” includes any information contained in an electronic record which is printed on a paper,
stored, recorded or copied in optical or magnetic media produced by a computer. Such information
are in conformity with the conditions of Section 65B of the Act which shall be admissible in any
proceedings, without any further proof or production of the original document before the concerned
authority and shall be regarded as an evidence of any content of the original or any fact stated
therein of which direct evidence would be admissible.
• There are various cases where the Indian Courts have dealt with validity of the e-contracts
such as negotiation of the terms of the contract. In the case of LIC India vs. Consumer
Education and Research Centre, the Supreme Court had held that “If a contract or a clause
in a contract is found unreasonable or unfair or irrational one must look to the relative
bargaining power of the contracting parties. In dotted line contracts there would be no
occasion for a weaker party to bargain as to assume to have equal bargaining power. He
has either to accept or leave the service or goods in terms of the dotted line contract. His
option would be either to accept the unreasonable or unfair terms or forgo the service
forever. With a view to have the services of the goods, the party enters into a contract with
unreasonable or unfair terms contained therein and he would be left with no option but to
sign the contract.”
• Trimex International FZE vs Vedanta Aluminum Limited, India, 2010 (1) SCALE 574
• Thus, if a consumer was to take the defense of an E-Contract being unreasonable and the
existence of disparity in the negotiating power of the parties, he shall also have to prove
that the services or goods sought by him under the E-Contract were of absolute necessity
and also that he had no other means for availing the goods or services.
 INFORMATION TECHNOLOGY ACT, 2000

• The IT Act provides for:

1. Legal Recognition of Electronic Documents
2. Legal recognition of Electronic commerce Transactions
3. Admissibility of Electronic data/evidence in a Court of Law
4. Legal Acceptance of digital signatures
5. Punishment for Cyber obscenity and crimes
6. Establishment of Cyber regulations advisory Committee and the Cyber Regulations Appellate
Tribunal.
7. Facilitation of electronic filing maintenance of electronic records.
Further, the IT Act provides for the authentication of electronic records by affixing a digital signature.
• ITA 2000 has stated under Section 4-
Legal recognition of electronic records- Where any law provides that information or any
other matter shall be in writing or in the typewritten or printed form, then, notwithstanding
anything contained in such law, such requirement shall be deemed to have been satisfied if
such information or matter is--
(a) rendered or made available in an electronic form; and
(b) accessible so as to be usable for a subsequent reference.
When an offer is sent in electronic form by say an e-mail and an acceptance is given by the
addressee by a return e-mail, a contract can be recognized.
However, for a documentary contract there is need for “Signature” for the Offer and
Acceptance.
Such signature on an electronic document can only be given either with a Digital Signature
as per Sec 3 of ITA 2000 or an Electronic Signature under Section 3A of ITA 2000. Any
unsigned electronic document will not constitute a valid documentary digital contract.
• Section 10 A- Validity of contracts formed through electronic means –
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 records, such contract shall
not be deemed to be unenforceable solely on the ground that such electronic form or
means was used for that purpose.
• However, the Act has failed to address some cases where Section 10 A may not be
appropriately applicable-
- If one of either the offer or acceptance is in paper form and the other in electronic
form, would it constitute a valid documentary contract?
- If the offer and acceptance is not digitally signed, would it form a valid documentary
contract?
- If the performance of the contract is a creation of a virtual entity that can only be
verified as an electronic document or when the payment of consideration is in
electronic document, would it constitute a valid contract?
- Are questions which are not easily answered by Section 10A.
• Similarly, if the contract is through electronic offer and acceptance but the
performance is for non digital physical society contract is it right it as a Digital
Contract or should it be treated as a physical society contract?
• Chapter IV of the Information Technology Act, 2000 contains Sections 11, 12 and 13
and is titled Attribution, Acknowledgment and Despatch of E setronic Records.
Attribution of Electronic Records.
• According to section 11 of the IT Act: An electronic record shall be attributed to the
originator if it was sent by the originator himself; by a person who had the authority
to act on behalf of the originator in respect of that electronic record; or by an
information system programmed by or on behalf of the originator to operate
automatically.
• Acknowledgement of Electronic Record-
- Where the originator has stipulated that the electronic record shall be binding only on
receipt of an acknowledgment of such electronic record by him. Then unless
acknowledgment has been so received the electronic record shall be deemed to have been
never sent by the originator.
- Where the originator has not stipulated that the electronic record shall be binding only on
receipt of such acknowledgment, and the acknowledgment has not been received by the
originator within the time specified or agreed or, if no time has been specified or agreed to
within a reasonable time, then the originator may give notice to the addressee stating that
no acknowledgment has been received by him and specifying a reasonable time by which
the acknowledgment must be received by him and if no acknowledgment is received within
the aforesaid time limit he may after giving notice to the addressee, treat the electronic
record as though it has never been sent.
Sec 13- Time and Place of Despatch and Receipt of Electronic Record
Despatch of Electronic Record:
• The despatch of an electronic record occurs when it enters a computer resource outside the control
of the originator, unless agreed otherwise.
• Time of Receipt of Electronic Record:
If the addressee designates a computer resource for receiving electronic records:
• (i) Receipt occurs when the electronic record enters the designated computer resource.
• (ii) If sent to a different computer resource, receipt occurs when the addressee retrieves the
electronic record.
• If no designated resource with specified timings exists, receipt occurs when the electronic record
enters the addressee's computer resource.
• Deemed Despatch and Receipt:
In the absence of an agreement:
• An electronic record is deemed despatched at the originator's place of business.
• An electronic record is deemed received at the addressee's place of business.
If the originator or the addressee has more than one place o business, the principal place of business
shall be the place of business.
• In the case of P.R. Transport Agency vs. Union of India (AIR 2006 All 23, 2006(1) AWC 504),
Bharat Coking Coal Ltd (BCC) conducted an e-auction for coal, and P.R. Transport
Agency's (PRTA) bid was accepted for 4000 metric tons of coal from Dobari Colliery. The
acceptance was conveyed through email, and upon receiving it, PRTA deposited the full
amount. However, BCC later canceled the sale citing technical reasons, as another bid was
slightly higher due to a flaw in the computer system. PRTA challenged this in the
Allahabad High Court, and BCC objected to the jurisdiction of the court, asserting that no
part of the cause of action arose in Uttar Pradesh. PRTA argued that since the
communication of acceptance was received via email in Chandauli (U.P.), where it has a
place of business, the contract was completed there. The court had to determine if, in the
case of email, the contract is complete where the acceptance is received. Considering the
fluid nature of email transmission and receipt, the court relied on Section 13(3) of the
Information Technology Act. This section deems an electronic record to be received at the
place where the addressee has a place of business. As PRTA had places of business in
Varanasi and Chandauli (both in U.P.), the court concluded that it had jurisdiction over the
case.
 EVIDENCE ACT

• Section 65 B of the Indian Evidence Act, 1872, reinforces the validity of Electronic
Contracts. Section 65 B pronounces that, any information that is contained in an
electronic record that is either printed on a paper, stored, recorded, or copied in an
optical or magnetic media produced by a computer is deemed to be a document
when the conditions mentioned in this section are satisfied it shall be admissible as
evidence without further proof or production of the original.
• Rudder v. Microsoft Corporation [1999] OJ No 3778 (Sup Ct J), is an Ontario Superior
Court case that is the leading decision on click wrap licenses. In this case the plaintiffs
commenced a class action lawsuit alleging breach by Microsoft of certain payment
related terms of Microsoft's MSN Member Agreement. The Member Agreement was an
on-line "click-wrap" agreement that required each prospective member to scroll down
through several pages of terms and conditions and then indicate their agreement to the
terms by clicking an "I Agree" button before being provided with access to the services.
Although the plaintiffs wished to rely on several terms of the Member Agreement, in
bringing the action the plaintiff's disputed the choice of law and forum selection clauses
that the defendant Microsoft sought to enforce. The plaintiffs asserted that because not all
of the Member Agreement was visible at one time they did not receive adequate notice of
such provisions and that as a consequence they were not enforceable. The court
determined that the Member Agreement was enforceable stating that scrolling through
several pages was akin to having to turn through several pages of a multi-page paper
contract and to not uphold the agreement "would lead to chaos in the marketplace, render
ineffectual electronic commerce and undermine the integrity of any agreement entered
into through this medium"