e Contract

Contract Law in Cyber Space

Neeraj Aarora Advocate

FICWA, LLB, MBA (IT), CFE (USA)Empanelled Legal Expert with CCA, DoIT, Govt. of India

What is E-Contract? An E-Contract is the computerized facilitation or

automation of a contract in a cross-organizational business progression.

It is a most recent mechanism to govern electronic trading relationships between business parties and is modeled, specified, executed, enacted, controlled, monitored and deployed (fully or partially) by a software system.

In an e-contract, all the activities are carried out by electronic means. Thus one of the advantages of an e-contract is that it overcomes the delays involved in the manual system and personal biases.

04/17/23 2Neeraj Aarora

Validity of E-Contract UNCITRAL Model Law, Article 11 specifically sets about the

formation and validity of E-Contract.

Article 11 states that in the context of the contract formation unless otherwise agreed by the parties, on offer and the acceptance of an offer may be expressed by means of data message. Where data message is used in the formation of a contract that contact shall not be denied validity or enforceability on the sole ground that a data message was used for that purpose

Simultaneously, Article 12 states that as between the originator and the addressee of a data message, a declaration of will or other statement shall not be denied legal effect, validity or enforceability solely on the ground that it is in form of a data message.


Formation of an E-Contract

The law has already recognized contract formation using facsimile, telex and other similar technology. An agreement between the parties is legally valid if it satisfies the requirements of the law regarding its formation. This is evidenced by their compliance to the requirements of the contract law.

In India, it is section 10 of the Indian contract act, 1872 which deals with the requirement of law regarding its formation


Ways in which an online contract can be concluded (A)

1. By exchange of e-mail

The parties can conclude a valid contract by making offers and acceptances entirely through e-mails or by combinations of e-mail with paper documents, faxes, oral discussions etc

2. By acceptance of orders entered on e-commerce websites

This type of contract is concluded where a website operator offers goods or services for sale, which the customer orders by completing and transmitting an order form displayed on screen.


Ways in which ……….

3. Click-wrap agreementsIn click wrap agreements, a party after going through the terms and conditions provided in the website or programme has to normally indicate his assent to the same, by way of clicking on an “I agree” icon or decline the same by clicking “I disagree”. This type of acceptance is usually done before receiving the merchandise.

4. Shrink-wrap agreement Shrink-wrap agreements have derived their name from the “shrink-wrap” packing that usually contains CD Rom of software’s. The term and conditions of accessing the particular software are printed on the shrink-wrap cover of the CD and the vendee after going through the same tears the cover to access the CD Rom. Thus, the user always has the option of returning the software if the new terms are not to his liking for a full refund.


Ways in which ………. 5. Electronic data interchange (EDI)

It is the inter-process of communication of business information in a standardized electronic form. That is to say, they are contracts used in trade transactions which enable the transfer of data from one computer to another in such a way that each transaction in the trading cycle can be processed with virtually no paperwork.

6. Through electronic agents According to Rusell and Noving, “an agent is anything that can be viewed as perceiving its environment through sensors and acting upon that environment through effectors. A human agent has eyes, ears and other organs for sensors and hands, legs, mouth and other body parts for effectors”.According to Jennings, “ an electronic agent as, a hardware or software-based computer system that enjoys the following properties: autonomy capacity to interact with agents or humans, the capacity to perceive their external environment and to respond to changes that are coming from it and the capacity to exhibit goal-directed behavior by taking the initiative”


Section 10 of the Indian contract act, 1872

It says that “All agreements are contract if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void”.

The parties entering into a contract must have an intention to create a legal relationship. But if there is no intention to create a legal relationship that agreement cannot be treated as a valid contract.


Requirements of a Valid Contract

There should be an offer.

It must be accepted by the offeree.

The agreement must be made by the free consent of the parties.

The parties to it must be competent.

Consideration should be lawful.

Consideration should be with a lawful object.

The agreement should not be expressly declared to be void


FORMATION OF AN AGREEMENT


A. Offer or Proposal

1. In order to have an agreement, there must first be an offer.

2. The “offer” can be an offer for a good or a service or almost anything else for that matter.

3. The general principal that “THE OFFEROR IS MASTER OF HIS/HER OFFER” i.e. the person making the offer can frame the contours of the offer and in particular can specify the method of acceptance by the offeree.

4. The invitation to offer is a particular action or statement which is intended to provoke an offer from another party.


Online Offer or Proposals Vendors doing business via. the internet generally:-

a) Provides the detail of goods and services with the prices .

b) Provides the detail of goods and services with the prices and also include some procedure by which the customer may accept the offer for example, “I agree” or “I accept” the terms of this offer etc.


B. Acceptance

1. The next step in agreement formation is called “an acceptance”.

2. Acceptance results in the formation of a contract, both parties are bound and neither can withdraw from the bargain without incurring liability to the other.

3. Acceptance must be expressed or communicated by the offeree to the offeror, in order to manifest mutual assent.

4. The general principal that “SILENCE CANNOT CONSTITUTE ACCEPTANCE OF AN OFFER”.


Online Acceptance

Everyday people express their assent to some terms. In case of surfing

the internet, it is generally done by clicking on some icon like “I

agree” and in cases of installing any software, assent is generally made

known by the conduct of tearing the CD package and using it. These

actions may appear to be very casual and informal but are of immense

legal importance because they lead to a valid and enforceable contract

and those terms that people hardly even bother to read can be strictly

enforced against them


C. Consideration

1. The third aspect of agreement formation is called consideration.

2. Consideration means that something of value must be exchanged.

3. It is anything of value promised to another when making a contract. It can take the form of money, physical objects, services, promised action, abstinence from a future action and much more.

4. Consideration in a contract must be mutual that is both parties must receive something of value but the value need not be equal or necessarily fair.


Postal rule vs. instantaneous communication rule

Postal rule Instantaneous communication rule

Contract through post/correspondence is complete when the acceptor puts his acceptance/assent into transmission so as to be out of the power of the said acceptor and the contract is made at the place where acceptance is made.

Contract through telephone/telex/fax is complete when the acceptance is received by the offeror and the contract is made at the place where the acceptance is received.


Entores Ltd. vs. Miles Far Eastern Corporation

1. The plaintiffs in London made an offer by telex to the agents of the defendant corporation in Holland.

2. This was accepted by a telex which was received on the plaintiff’s telex machine in London.

3. But the contract was made in England. For that purpose the plaintiffs to serve a writ on the defendant corporation outside of the jurisdiction.

4. The court held that the contract was made in London:“When a contract is made by post it is clear law throughout the common-law countries that the acceptance is complete as soon as the letter is put into the post box and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by telex. Communication by these means is virtually instantaneous and stands on a different footing”.


Bhagwandas Goverdhandas Kedia vs. Girdharilal Parshottamdas and Co The plaintiffs commenced an action in the City Civil Court at

Ahmedabad against the Kedia Ginning Factory & Oil Mills of Khamgaon (defendants) for a decree of Rs. 31,150 on a plea that the defendant had failed to supply cotton seed cake, which they had agreed to supply under an oral contract dated July 22, 1959 negotiated between the parties by conversation on long distance telephone.

The plaintiffs submitted that the cause of action for the suit arose at Ahmedabad because the defendants had offered to sell cotton seed cake which offer was accepted by the plaintiffs at Ahmedabad.

Therefore, the decision by majority view was that: “Telephone is an instantaneous mode of communication just as

if the parties were in presence of each other. The exception to the general rule, as applied to post would not apply here. So in this case, the contract would be made at the place where acceptance is received i.e. Ahmedabad”.


The Information Technology Act, 2000

Imp. Provisions


Definition (section 2 of the IT Act)

1. Originator

The IT Act in sec 2 (1) (za) defines “originator “as a,” person who sends, generates, stores or transmits any electronic message or causes any electronic message to be sent, generated, stored or transmitted to any other person but does not include an intermediary”.

The importance of this definition which excludes an intermediary is that it delineates the person who is attributable for a message from the system that sends the message. Thus, the law will focus on the person responsible for the message and not on the physical location of electronic equipment.


2. Addressee

The definition of “addressee” found in section 2 (1) (b) of

the IT Act, is inspired from the UNCITRAL Model Law

on Electronic Commerce. It means a person who is

intended by the originator to receive the electronic record

but does not include any intermediary because it is acting

as mere conduit, in the delivery of the message..


3. Intermediary

The definition of “intermediary” under section 2 (w)

inserted by the IT Act, with respect to any particular

electronic records means any person who on behalf of

another person receives, stores or transmits that record or

provides any service with respect to that record and

includes telecom service providers, network service

providers, internet service providers, web-hosting service

providers, search engines, online payment sites, online-

auction sites, online-market places and cyber cafes.


Validity of contracts formed through electronic means- Section 10A ITA

Section 10A applies when the contract formation such as the communication of the proposals, the acceptance of proposals, the revocation of proposals and acceptances is carried on electronically.

The provision states that such a contract will not be termed invalid merely because, these steps of contract formation were carried on-line. Hence, a need was felt that the steps of such contract formation when carried online should be given legal recognition.


Trimex International vs. Vedanta Aluminum

SATHASIVAM J. after analyzing a voluminous record

of email between the parties held that the parties had

concluded a contract through such minute to minute

correspondence. This precedent also flows from the

settled contractual principles that the intentions of the

parties or the consensus-ad-idem are the material

considerations with the form of the agreement, being only

secondary in contract formation and determination


Attribution of electronic record- Sec. 11 ITA

The aforesaid section lays down conditions as and when an electronic record shall be attributed to the originator [section 2 (1) (za)

A. If it was sent by the originator himself.

B. By a person who had the authority to act on behalf of the originator in respect of that electro.nic record

C. By an information system programmed by or on behalf of the originator to operate automatically.


Acknowledgment of receipt- Sec. 12 ITA

1) Where the originator has not stipulated that the acknowledgment of receipt of electronic record be given in a particular form or by a particular method, an acknowledgment may be given by-

(a) any communication by the addressee, automated or otherwise; or(b) any conduct of the addressee, sufficient to indicate to the originator that the electronic record has been received.

2) 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


Acknowledgment of receipt- Sec. 12 ITA contd.(3) 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.


Time and place of despatch and receipt of electronic record- Sec. 13 ITA

1. According to section 13(1) the dispatch of an electronic record occurs when it enters a computer resource outside the control of the originator. The process of “dispatch” involves “sending off” (electronic transmission) of the electronic record to a destination.

2. The aforesaid sub-section(2) lays down condition for the time of receipt of an electronic record for:a) a designated computer resource: it states a situation where the

addressee has already designated a computer resource for the purpose of receiving electronic records.

b) a non-designated computer resource: it states a situation where the addressee has neither designated a computer resource nor any timing for the purpose of receiving electronic records. The receipt occurs when the electronic record enters the computer resource of the addressee


Sec. 13 ITA contd…

3. The aforesaid sub-section (3) sets forth a more objective criterion namely, the place of business of the parties (both the originator as well as the addressee) an electronic record is deemed to be dispatched from the place where the originator has his place of business and is deemed to be received at the place where the addressee has his place of business.


Presumption as to Telegraphic messages Sec. 88 IEA

A. Under section 88 there is a presumption only that the message received by the addressee corresponds with the message delivered for transmission at the office of origin. There is no provision as to the person who delivered that message of transmission. The proof authorship of the message need not be direct and may be circumstantial.

B. No presumption can be made as to the person by whom the telegraphic by whom the telegraphic message was sent. In the absence of evidence to show that it was sent by the person by whom it was purported to be sent and he specifically denied having sent it, held that the message was not proved.


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