This article is written by Fazmila Fareed
“Adam and Eve are the first people who did not read the terms and conditions of Apple Contract”
Contracts have a long history from primitive societies. People often make contracts with each other orally or in writing, in small and big things. Globalization connected the world as a village, and people made professional and legal relationships to expand and facilitate trade. Contracts play a vital role in making these sorts of relationships.
Contracts are voluntary, deliberate and legally binding agreements between two or more competent parties. Contracts are usually written but may be spoken or implied and generally involve employment, sale or lease, or tenancy.
The law will consider a contract to be valid if the agreement contains
(1) an offer and acceptance;
(2) an intention between parties to create binding relations;
(3) consideration which has to be paid;
(4) legal capacity of the parties to act;
(5) genuine consent of the parties; and
(6) legality of the agreement.
Even if one of these elements is lacking, the contract will be considered invalid.
With the development of Information and Communication Technology, contracts are made even in electronic forms, as electronic contracts. They are effective and time-saving. An electronic contract can be said as any type of contract formed in the course of e-commerce by the interaction of two or more individuals using electronic means, such as e-mail, the interaction of an individual with an electronic agent, such as a computer program or the interaction of at least two electronic agents are programmed to recognize the existence of a contract.
Tradition versus Technology
Traditional contract principles can also be applied to electronic contracts, but some are inadequate to deal with electronic contracts. This paper would be analyzing those insufficiencies in e-contracts.
Offer is an essential element in the formation of the contract. In Stover v. Manchester City Council case, an offer has been defined as an expression of willingness to contract on a specific term with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed. Offer may be expressed (verbally or written) or implied. It must be definitive and must be communicated to the offeree. It should be noted that advertisements and goods displayed in shops are not offered but an invitation to treat.
Acceptance is the other important element in a contract. It can be defined as an unconditional agreement communicated by the offeree to the offeror to all terms of the offer made to accept. It has no legal effect until it is communicated to the offeror. The general rule is that a postal acceptance takes effect when the letter of acceptance is posted, even if the letter may be lost, delayed or destroyed.
This is known as the ‘postal rule’. It can be understood that the acceptance is complete immediately when the letter is posted. That is what the postal rule is. However, if an offer requires acceptance to be communicated in a specified way, it can be the only way to acceptance. These are exceptions to the ‘postal rule’ It should be noted that an offeror cannot stipulate that the offeree’s silence amounts to acceptance. Once an offer has been accepted, the parties have an agreement. That is the basis for a contract.
Offer and acceptance are not sufficient to create legal obligations. Consideration is ‘something of value’ given for a promise and is required to make the promise enforceable as a contract. This is traditionally either some detriment to the promisee (in that he may give value) and/or some benefit to the promisor (in that he may receive value). Monetary value is most appreciated as consideration.
A person who intends to enter into a contract should have the capacity to contract. General law acknowledges that every person is competent to contract, who is of the age of majority according to the law to which he is subjected; and who is of sound mind; and who is not disqualified from contracting by any law to which he is subject (such as minor, the person who is in unsound mind and the person who is disqualified from contracting by courts).
Further, an agreement, even if supported by consideration, is not binding as a contract if it was made without an intention to create legal intentions. The parties must intend their agreement to be legally binding. In the case of ordinary commercial transactions, there is a presumption that the parties intended to create legal relations. These are the main elements of making a contract.
A contract can be terminated even after signing it in some instances. For instance, when it is discovered that the contract is illegal, a contract which had been signed under duress, and when there is a mistake and misrepresentation in the contract.
Likewise, traditional contact concepts and principles are there. These are common to electronic contracts as well. However, the thing is that e-contracts are not physical, and they are regulated by computers. Thus, it is impossible to adopt the same traditional contract principles in e-contracts in some instances. It is necessary to modify some of them.
The contracts have to be in a document form. The term ‘document’ is interpreted in the Evidence Ordinance of Sri Lanka as any matter expressed or described upon any substance using letters, figures, or marks or by more than one of those means intended to be used, or which may be used, to record that matter. This is not clearly interpreting what a legally valid document is.
However, it is recognized that written form and authenticity are enough to make a legally valid document. The prevention of the Frauds Ordinance of Sri Lanka requires signatures on the document for its reliability. Nowadays, these are available in electronic devices as well. For authenticity, it requires a signature. It can be placed electronically, and that is valid. Article 5 of European Commission Derivative 1999/93 recognizes that electronic signatures are admissible before courts, just like hand-written signatures.
Sri Lanka adopted United Nations Commission on International Trade Law (UNICITRAL) Modal Law which has been enacted to maintain equal status on e-transactions in the world with some modifications. That is Electronic Transactions Act. It recognizes electronic signatures in section 7. However, countries worldwide consider the admissibility of electronic documents and electronic signatures at different levels. Thus the validity of these is not equal in all countries.
Further, ‘offer’ and ‘acceptance’ are recognized in section 11 of the Electronic Transactions Act. It says, “In the context of contract formation unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed in electronic form. A contract shall not be denied legal validity or enforceability on the sole ground that it is in electronic form.” It indicates that the expression of an offer and acceptance in electronic form cannot be the only ground to deny the validity of contracts.
The parties who entered into a contract can agree to confirm the way of receiving correspondence among each other under a normal contract. If there is no such way of correspondence agreed upon, the ‘postal rule’ and ‘receipt rule’ is applicable. According to that, it can be presumed that the receiver received the same letter by posting a letter that will be handed over to a third party, a postal department. Lord Brandon has applied the same rule for electronic messages in Brinkibon Ltd v. Stahag Stahl. Most countries accept that when the Service Provider of the receiver receives the message, it is presumed that the receiver received the message.
However, it must be noted that the nature of travelling via e-mail differs from the normal post. When we send an e-mail, that will convert into several message packets and travel in several directions, and finally, they will reassemble at the receiving point of the message. This is different from the normal way of posting a letter. If all the message packets are not reassembled at the receiver’s point (these instances are rare), the e-massage cannot be viewed, or some lines of the message will be missing. Thus, applying postal rules on e-messages is inadequate and would also affect the e-message of offer or acceptance.
According to the ‘receipt rule’, it is presumed that the message has not been delivered until we get confirmation from the receiver to whom an offer or acceptance is made in normal contracts. However, if the e-messages receipt rule is applied, the question arises: which time has to be presumed as the receiving time? Is it when the service provider of the receiver received the e-mail or when the receiver retrieved that e-mail? Section 14 of the Electronic Transactions Act recognizes the time and place of dispatch and receipt of electronic records.
According to that, it is presumed that when the originator’s service provider loses control over the message, the addressee receives the e-mail. Thus, applying the receipt rule in e-messages is inadequate.
The buyer has to give a monetary consideration (under common law) to the seller when he accepts the offer. In normal contracts, the buyer would physically present to the seller’s shop or place where the sale is made. And then, the buyer will take the goods and offer to purchase them.
The seller will accept the buyer’s payment and hand over the goods. In online transactions, the buyer will pay by digital cash, credit card, debit card, or e-cheque (this method is not in Sri Lanka). When we feed the PIN of the credit card to the computer screen to make a payment, the agreement will be complete. However, high-security measures have to be taken by credit card holders in order to protect them from intrusions by hackers and crackers.
There are remedies provided in the Payment Device Frauds Act and Computer Crimes Act against credit card fraud. When compared with physical payment in which currency or negotiable instruments were given to the seller by the buyer, e-payments are safe and confidential.
Unlike normal contracts, online transactions are different because the purchaser would not physically attend. In e-tailer advertising, if a person wishes to purchase a good, they only need to see the image of the good and purchase it by just clicking the ‘I Agree’ button. It is known as clickwrap, and it would create a valid contract. Here the buyer decides the quality of the goods and services offered only on the ‘look and feel’ of the web page. The terms and conditions of the contract here are only decided by the seller, unlike in normal contracts.
Thus, the question arises if the quality of goods which has obtained by e-transaction is contrary to the terms and conditions already displayed on the computer screen, what is the position of the buyer? Moreover, how to decide whether the statements added in the advertisement were misrepresentations? In Sri Lanka, there is no way to cancel to make the payment after accepting the goods or services, unlike in the UK (by Distant Selling Regulation).
The Australian Guidelines for Electronic Commerce 2006 has recognized the identification of businesses. It indicates that businesses engaged in electronic commerce should provide enough clear, accurate and easily accessible information about the term, conditions and costs of a transaction for consumers to take decisions. Thus, adding traditional principles to e-contacts is not sufficient.
In addition, in e-contracts, cryptographic documents that carry the transaction details are shared between the parties. This is more reliable in the authentication. The sender of the message will encrypt the message, and only the receiver or the key holders can decrypt if both know the way encryption method of the message, unlike the traditional contracts. However, one party can modify the message and re-encrypt it, refusing his action since it is hard to identify whether the document is in state of encrypted. Hence, the documents will be subjected to misrepresentation and mistakes in electronic contracts.
In forming traditional contracts, the parties’ details, such as personal information and place of business, must be included. Thus, while one party is sending a letter to the other party, the address of him or his place of business has to be added. Nevertheless, in e-contracts, it cannot be presumed from where the message is come from. It means an e-message could be sent from any place as the transactions are done electronically. Thus, applying physical addresses in e-contracts is not sufficient. Instead, the IP address of the parties has to be recognized in contracts.
The contract must be legal. Illegal contracts would not be valid. For instance, a contract which agrees to sell illegal goods such as drugs would be illegal. However, the legality of goods will vary from one country to another. For example, the sale of cannabis is legal in Italy, but in Sri Lanka, it is illegal. In normal contracts, the parties who enter a contract will be subject to their domestic laws, and it can be clearly identified whether the contract is legal. In electronic contracts also, this concept will be applied.
However, the problem is that when an electronic message is sent from one party to another, it will travel through various internet towers of various countries with different jurisdictions and reassemble at the receiver’s points. Hence, the contents of the e-message have to be legal in the countries where the message is coming through. However, this is impossible. This is known as ‘internet cooperation’.
Part 3 of the Computer Crimes Act of Sri Lanka deals with such jurisdictions. Thus, the question of legality in e-contracts is complicated when compared with other traditional contracts.
Considering the concept of capacity to contract, it can be easily identified whether the person entering the contract is eligible to make contracts in normal contracts. Moreover, because of physical appearance, it can be observed whether the person has a sound mind and could make sure whether s/he is major or minor.
However, in the case of making electronic contracts, these cannot be easily recognized as the person who makes contracts is not physically present. Thus, it is necessary to adopt a method to verify these things in electronic contracts. Moreover, the traditional contract law procedures for making such verifications cannot be applied to online contracts.
Therefore, when analyzing these principles, it can be recognized that traditional contract law principles are inadequate to facilitate electronic contracts.
