Aug 04,2020 | 08 min read

E-Contracts – Is It The New Normal? By Altacit Legal

Contracts permeate every aspect of our lives, whether they are implied contracts such as buying products from a marketplace or explicit contracts such as employment contracts or vendor contracts.  The improvements in telecommunications, software and information technology modes of communication have fundamentally changed the manner of communication, as they are no longer restricted by geography and time. Electronic or e-contracts help in making agreements and transactions electronically in the physical absence of the parties. 

Now with the advent of the global pandemic, the way business is conducted will be completely modified in the days to come. The global governmental requirements of social distancing coupled with the rise of a global economy now make electronic contracts the need of the day. The objective of an E-contract is to enable businesses to enter into legally binding agreements without the requirement of the physical presence of the executors of the said agreement. The process of E-contracts, similar to traditional contracts commences when an initial offer is made, it may be followed by a counteroffer, and eventually acceptance of the offer and execution of a contract that can be electronically signed by the parties involved.

Section 10 A of the Information Technology Act, 2000 (hereinafter referred to as the IT Act) specifically deals with the validity of electronic agreements, it inter alia 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”. 

E-contracts are generally electronically or digitally signed. A digital signature is inter alia defined under Section 2(p) of the IT Act as authentication of any electronic record by a subscriber by means of an electronic method or procedure. Electronic and digital signatures are further valid under the provisions of Section 5 of the IT Act which inter alia provides that where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of an electronic signature affixed in such manner as may be prescribed by the Central Government. The validity of digital and electronic signature is also presumed under Section 65(a) of the Indian Evidence Act.

E-contracts that are currently widely used in the field of E-commerce are in the nature of adhesion or take-it or leave-it contracts, there are primarily of three types: 

  1. Shrink Wrap Agreements

  2. Click Wrap Agreements 

  3. Browse Wrap Agreements 

Shrink Wrap Agreements: 

This type of agreement draws its name from the shrink plastic wrap that covers the product, often software boxes at the time of delivery. These contracts are the license agreements containing the terms and conditions of use of the product and are usually present on the plastic or in manuals accompanying the software products which the consumer buys. They are boilerplate contracts, that is a take-it-or-leave-it contract where the terms and conditions of the contract are set up by one of the parties while the other party has no ability to negotiate more favourable terms. The acceptance of the terms and conditions on the part of the client is implied through the opening of the packaging, or bundlings accompanying the product.

The validity and enforceability of such contracts is currently unclear as the decision of the courts has been divided on the matter. The major drawback with regard to the enforceability of such an agreement is primarily the fact that while the customers' consent might be implied from their opening of the plastic packaging in which either the product is wrapped or the manual and other literature containing the terms and condition are wrapped, the customer is unaware of the exact terms and conditions until they have actually removed the shrink wrap. Thus, there is no informed consent in the said matter per se, leading to the ambiguity about the validity and enforceability of the said agreement.

The validity of the shrink-wrap agreement was first considered in the case of ProCD, Inc Vs. Zeidenberg. The court, in that matter,  had a chance to consider whether a shrink-wrap agreement inter alia dealing with the terms of use of the product was binding upon the customer who has violated the license terms of the product by using the software for commercial purposes. Seeking to enforce the licence agreement the company filed a suit for injunction. The trial court held that an injunction could not be granted as the licence was ineffectual because the terms of the same did not appear on the outside of the package. However, the 7th Circuit court in appeal differed from the view of the trial court and inter alia held that the licence was to be treated as an ordinary contract accompanying the sale of the product. While the terms of the license were included within the package, its terms afforded the purchaser an opportunity to review the product and its terms before being bound. Thus, it is evident that the enforcement of such contracts depends heavily on the facts and circumstances of the case and there is no clear settled law in this regard. 

Click Wrap Agreement

Clickwrap agreements are the most common type of online agreement which has arisen with the rise if the internet and internet-based agreements. Click Wrap agreements are often used during online transactions, such as the use of the term for software licenses and social media.  This type of agreement is also called “click-through” agreements. In this type of agreements, the terms of the agreement are immediately visible on the screen along with an “I Agree” or “I Accept” tab that must be clicked on prior to the user being able to commence the use of the software or social media site. Similar to Shrink-Wrap agreements, click wrap agreements also lays down the terms and condition and does not afford the user an opportunity to negotiate the said terms and conditions. Thus, creating a take it or leave it agreement where the user cannot commence the use of the product until the user has specifically clicked on the “I Accept” or “I Agree” tab. In such contracts one party has a position of power, thus enabling them to dictate the terms of the agreement while the user has no power to negotiate the terms. The only option open to the user is either to accept the terms or decline the terms of the agreement.

We often enter into such agreements without realising the same. For example, we enter into such agreements while opening a bank account, while enrolling for some membership, buying consumer products etc. However, when a problem arises in relation to the terms of the said contract, it is assumed that the terms of the contract will apply and the signatories of the said contract will be held to their respective obligations thereunder. While prima facie it may appear that such a contract would be difficult to enforce, it does often get upheld by the courts of law as it is assumed that the user at the time of clicking the “I Accept”  or “I Agree” would have read the terms and conditions and were therefore aware of the same at the time of clicking on the “I Agree” or “I Accept” tabs. Hence, a person cannot claim that he was never aware of the contract or that he was coerced into signing the contract unless he can specifically prove so.

Globally such contracts have been challenged several times and courts have discussed their validity extensively. In the case of Feldman Vs. Google, Feldman purchased Google Adwords services from Google. However, when a dispute arose between the parties Feldman sued Google before the United States District Court of Pennsylvania. However, Google stated that the contract to which Feldman had agreed, precluded the jurisdiction of the District Court of Pennsylvania and gave exclusive jurisdiction to courts in California. At this juncture, Feldman stated that the terms of the said contract should not bind him as the said agreement was not seen, signed, or negotiated by him or any of his associates. Hence, he submitted there was no “meeting of minds” between him and google. However, Google stated that when Feldman was purchasing the Adwords services from them, he was directed to a webpage displaying the Contract, further, the webpage in bold letters inter alia stated that the terms of the contract should be carefully read and subject to the purchaser consenting to the said terms and conditions, the same should be indicated by clicking on the “I Agree” button. Feldman had indeed clicked on the “I Agree” button thereby indicating that he had not only read the terms and conditions but had also expressed and placed on record his consent to the same. Thus, in this instance, the Court held that since Google had provided reasonable notice of the terms of the contract and since Feldman had clicked on the “I Agree” button, he was deemed to be aware of the contents of the contract and hence the said Click-wrap Agreement was held to be valid and enforceable.

However, in the case of Bragg Vs. Linden Research Inc. the United States District Court of Eastern Pennsylvania upheld the contention of the plaintiff that while he had agreed to the terms of the contract prior to purchasing the game from the defendant, the terms of the said agreement is procedurally and substantively unconscionable the same could not be enforced.

Browse Wrap Agreements:

A browsewrap agreement, in essence, is a license agreement that deals with the access to or use of materials on a website or downloadable product. Unlike a clickwrap agreement, where the user must manifest assent to the terms and conditions by clicking on an "I agree" box, a browse-wrap agreement does not require this type of express manifestation of assent. Rather, a web-site user purportedly gives their consent simply by using the product — such as by entering the website or downloading software. Browse-wrap agreements similar to shrink-wrap agreements contain the terms of the said agreement in such a manner that the same cannot be seen until the product has been purchased.

In browse-wrap agreements, the continued use of the website or the act of downloading the software is interpreted as consent. At this juncture, it is pertinent to mention that courts who have deliberated upon the validity of such agreements primarily opined that the validity of browse-wrap agreements based on whether the consumer had actual or constructive notice of the terms and conditions prior to using the website or downloading the software.

The validity of E-Contracts in India

E-Contracts can be entered into through various electronic modes of communication including emails, faxes and over the internet as is stated above. In order for E-contracts to be enforceable in India, they need to primarily satisfy the pre-requisites as provided under the terms of the Indian Contract Act, 1872 such as:

  • Offer and Unconditional Acceptance – This could be communicated through email or online.

  • Lawful Purpose – For an agreement to be enforceable under the Contract Act, 1872 the same has to be for a lawful purpose Thus, the e-contract must be for a lawful purpose, it must not defeat the provision of any law and it must not be fraudulent.

  • Consideration – An e-contract must be executed for a consideration.

  • The capacity of Parties – The parties to an e-contract must be cable of entering into a physical contract as stipulated in Section 11 and Section 12 of the Indian Contract Act, 1872.

  •  Free Consent – Lastly the consent must be freely given and not under any misunderstanding or duress as provided for under Section 13 of the Indian Contract Act, 1872.

Despite the advent of the internet and technology making it possible to do business across the globe E-contracts are not the norm for most businesses. A possible reason for the same could be that most people are unsure regarding the validity of E-contracts. Particularly since the most common type of e-contracts currently in use, namely shrink-wrap, click-wrap and browse-wrap agreements, have a certain degree of ambiguity with regard to their validity and no settled law regarding the same, particularly in India. The Indian Contract Act, 1872 (hereinafter referred to as “Contract Act”) defines a contract as an agreement enforceable by law. However, the Contract Act does not include within its scope Electronic Agreements. At this juncture, it is pertinent to mention that the Contract Act has not laid out any specific way of communicating or accepting an offer. A valid acceptance of an offer can be communicated verbally, in writing or even through conduct. Thus, an e-contract that satisfies the essential requirements of a contract as stipulated under the Contract Act is as valid as a traditional contract and the validity of an e-contract cannot be simpliciter be challenged on the ground of its formality. Thus, in order to ascertain whether an E-contract is valid or not one as to ascertain whether the contracting parties are at consensus-ad-idem then formal execution of the contract becomes secondary. 

As a rule, agreements, where there is a huge disparity in the bargaining powers of the parties involved, has been held by the Courts as void. However, with the changing economy, it would be detrimental to the economy and business environment, in general, to treat all electronic agreements as prima facie void. The Supreme Court of India in Trimex International FZE vs Vedanta Aluminum Limited, India, inter alia held that if the terms of a Contract had been discussed over the email, such emails constituted to be a valid contract and hence were enforceable. Thus, in the present instance, the Supreme Court of India gave legitimacy to electronic agreements or electronic contracts even if the same were not electronically signed and registered.

However, the Supreme Court in the case of LIC India vs. Consumer Education and Research Centre inter alia opined that when a contract is in the nature of an adhesion contract and when the parties to the said contract did not have equal bargaining power than under the provisions of Article 14 of the Constitution, guaranteeing equal protection before the law, the Court has the right to strike the said agreement down as being unfair or unreasonable.

In the case of Mumbai vs Gujrat Pipavav Port Ltd the Income Tax Appellate Tribunal expressed doubts with regard to the enforceability of clickwrap or adhesion e-contracts. The Tribunal inter alia opined that where the terms of the contract are numerous and highly detailed, where the user often doesn’t read through the entirety of the contract prior to accepting the terms of the said contract, the same does not have a negative effect upon the validity of the said contract unless the terms of the same are unconscionable.

Conclusion

It can thus be observed that the Indian Courts have accepted the validity of electronic contracts however this is not a blanket acceptance. In order for E-contracts to be valid, much like regular agreements under the Indian Contract Act, 1872, e-contracts must satisfy the requirements that the said contracts are not in contravention with the law of the land and that the terms of the said contract are not unreasonable or overly burdensome on one party.

Various types of e-contracts


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ALTACIT GLOBAL

Patent Law · Corporate Law · Family Law · IT Law · Property Law · Legal Consulting · Intellectual Property Law · Business Law · Trademark Law · Startup Law. Also, Recoganized as one of the 100 Legal Luminaries of India and Top 100 IP Leaders of India.

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