Electronic Contracts

Discuss about the Report for Cases and Material in Contract Law.

At the outset it is imperative to note that contract law has played an anomalous role in the commerce field with majority of the agreements made within being defined by the general rules of contract .Due to the precipitous upsurge in internet activities the commerce field has now shifted to online trading where people transact and sale their products and services online. The pervasive importance of Contract law has thus trickled down to being applied in other internet activities such as social media sites that lately seek that one has to understand the terms of agreement before they click on the ‘I agree ‘tab. Essentially there are various rules that govern the law of contract and the most conspicuous is the essential ingredients that must be present in contract for the contract to be legally binding.

Electronic Contracts

The traditional approach to contract law is that they are mostly in writing and signed by the parties to the contract.[1] Conversely, electronic contracts are commonly regarded as paperless contracts. They are defined as contracts that formed and agreed in a digital form by the use of a click and a button after clearly reading the agreed terms. The distinguishing factor between electronic contracts is also the fact that there is no use of pen and paper as is normally required. Electronic contracts are guided by the general rules of offer and acceptance supplied by the doctrines of equity, common law and statutes. It has been contended that an electronic contract should be treated like the normal contract in writing if the contract can easily be retrieved for future reference by the parties incase of any dispute or to revisit the position of the terms agreed. There must be consent made either expressly or impliedly from the parties in the contract. [2]

The requirement that a contract is one that is vital and it proves that the parties agreed to the terms. It has been affirmed by the federal court in Australia that a signature that has been made using an electronic pen has the effect as a signature that has scanned after being made on paper.[3] Moreover, it has been held in J Pereira Fernandez SA v Mehta[4] that it is sufficient for one input a typed name as a way of signature in an electronic contract and the same has the effect of agreeing to the terms of the contract therein. The person requiring the signature in the electronic contract or any other online agreement must have agreed or consented to that mode of agreeing to the terms of the contract.[5] In some electronic contract it is just a click button marking a tick in the box and consequently agreeing to the terms that signifies that the contract has been signed and agreed.

An Offer made Online

The rules of common law dictate that for a contract to be formed the first ingredients are a valid offer that is made to the other party with an acceptance that is communicated to the offeree.[6] The fundamental question that this part of the paper seeks to answer is whether the display of items in the internet is a legally valid offer. An offer is a proposed term of proposed products or services to the other with the expression of willingness to enter into a valid contract. The offer must be one that is clear and uncertain where no ambiguities will be created one that is capable of acceptance by the other party.[7]

There is always a strenuous debate as to whether to treat a display of an item in the internet or website as an offer or an invitation to treat. Controversy has also arisen as to whether websites advertisements can be treated as valid offer but various players in the field of contract law have argued that the substance of common must be applied to determine is such advertisements amount to an offer in the strict legal sense. [8]The test here is whether the wording in the advertisement could be construed as inviting to a legal contract. The courts should treat each situation on a peculiar basis and look at the entire appearance of the website is it encourages the formation of a contract.

It has been held that a proper offer in the internet is made when a customer of internet user fills a web order which he sends to the vendor by the click of a button and the vendor communicates the acceptance of the offer made.[9] Thus it has been argued flowing from the foregoing assertions that the displays of goods in the internet is essentially an invitation to treat and only amounts to an offer when the internet user or customer  visits the site. The risk of numerous unforeseen acceptances in the internet is also very high and therefore the vendor should not be entitled to validly accept them all and this has been argued to justify the contention that the display of goods in the internet amounts to an invitation treat and not an offer.[10]

Acceptance

It is a general rule that the contract should always state the mode of acceptance of the offer but even where there is no specific mode the general rule will of acceptance will apply to that particular mode selected. In the electronic  contracts there is no specific mode of acceptance that is encourage since in some online shopping sites acceptance should even be communicated via post unlike the traditional emails. Suffice to say, an acceptance made must reflect the offer made, otherwise it shall be regarded as a counter offer.[11] If an offer is made online then the acceptance I communicated by post or by electronic. The rules with regard to acceptance by post dictate that acceptance is deemed to have been made when the letter is put in the box and sent. On the other hand if the acceptance is made by electronic means it is deemed to be valid when it is received.[12] This is because online communications are regarded as instantaneous modes of communication and thus are automated in nature.

Acceptance

Mistake in electronic contacts have aroused a conundrum, where it is found difficult to apply the general rules of common law guiding mistake. It has been argued that a mistake in online transactions does not attract the strict application of the common law rules because of the difficulty on enforcing the contracts themselves. It is always a principle in law that there can be no mistake in the terms of the contract as it is deemed that everyone has read understood the terms of the agreement and properly signed the agreement. The test applied in online contracts is whether the other party was aware or ought to have been aware of that the mistake existed but took advantage of the situation.

The most notorious mistake in online transactions and agreements is the price of the product being sold where in most instances it is mistakenly put low and many people click to buy the product. In 2002 Kodak put up an advertisement in the internet of digital cameras and whose price was low and the parties who purchased the product with the low price claimed that Kodak was bound to honor the online agreement. Because of the persistence of the clients, Kodak eventually honored the online agreement and agreed to suffer the loss. The case was different in amazon.co.uk where they refused to honor the online agreement after they advertised an item at a very low price and several people purchased the product. They claimed that the advertisement was an invitation to treat and therefore they were not bound to any acceptance.[13]

It has been held that parties to a contract are bound by the terms of the agreement they subscribe to honestly over an agreed subject matter.[14] From the foregoing case, it is apparent that a mistake may not be excused if the once the contract has been finally agreed to by the parties. The case applied the common law precepts of caveat emptor (let the buyer be ware) and caveat venditor (let the vendor be ware). In common law a mistake was not recognized and therefore the courts then could not entertain cases of claimants asserting that they entered into the contracts by mistake.[15]

It has also been held that a mistake will be excusable if the mistake is one that is a fundamental mistake and goes to the root of the contract such that it will be unreasonable to proceed with the contract in that appearance; the mistake will render the contract void.[16] The Kodak case mistake can thus be justified by the application of the holding of this case because it will be unreasonable that the digital camera would be sold at such a low price and that the other party was aware of the mistake but was still proceeding to enter into the agreement. The agreement may thus be rescinded. By dint of the Electronic Transaction Act 2011 a person may withdraw an item on the internet based on an error but they must notify users of such a site timeously of the error.[17] The right to withdraw the error has been advised not to amount to totally making the entire agreement void but the correction could be made, and proper notice sent to a client and the contract would continue as normal, although in many circumstances the clients tend to get frustrated and terminate the contract entirely. [18]

Mistake in electronic contracts

Capacity

Any person entering to contract must be of legal age as is require d by law in Australia. The requisite for capacity in Australia is one that is mandatory. It is quite a tragedy that neither the Electronic Transaction Act 1999 (cth) nor the Electronic Transaction Act 2011 (cth) have provisions governing capacity in online contracts. There has always been a great challenge in the capacity requirement in electronically made agreements because of lack of the means to ensure that the other party is of legal age. This has been the case because unlike in other contracts there is no face to face agreement in electronic contracts. It has thus been advised that the electronic contracts should contain a clause or declaration that one agrees that they have the legal capacity to enter into the agreement.[19]

The argument again is that even with the identity certification of declaration that the person is of legal age, it is still not sufficient to show that the party entering the agreement has the requisite capacity. This is due to the growing use of the internet by minors and it can thus be summed up  that majority of electronic contracts are unenforceable because they do not meet the capacity requirement under the traditional contract law. The Australian Guidelines for Electronic Commerce has bestowed upon online business and service providers with the moral imperative to ensure that they take steps to ensure identification of capacity and a special attention should be given to websites that could easily be visited by children.[20] The forgoing assertions are precipitated by the fact that there are online service providers who take advantage of situation to exploits potential customer who lack a legal capacity to agree to such terms of the online agreement.

Doctrine Privity of Contract

Pursuant to this doctrine, it is only parties to a contract who are legally bound by the contract that can enforce a contract.[21] It may difficult to identify an online vendor or service provider for the purposes of enforcing the contract. It can thus be said that the parties to an online contract are in most circumstances not physically identifiable to each other. In the online agreements when the buyer of an online item clicks and accepts to buy an item and the vendor breaches the agreement and sends a different item it will be difficult to identify the physical location and the identity of the seller since some online companies are merely a hoax.[22]

Conclusion

It can thus be conceded that the area of electronic contracts is still a grey area in law of Australia and the Lawmaker both internationally and domestically should purpose to develop laws that march the current trends of the digital world.

Articles /Books

Carter J W and Harland D J, Cases and materials on contract law in Australia (LexisNexis Butterworths 1993)

Quirk Patrick and Forder Jay, Electronic Commerce and the Law (LexisNexis Butterworths 2003)

Martin Nicholas and Jaques Stephen , The Effective Formation of Contracts by  Electronic  Means (2001)  New  South  Wales Society  for  Computers  and  the  Law  Journal.

Forder Jay and Svantesson Dan, Internet and E-Commerce  Law, (Oxford University Press, 2008 )

Cases

Australian Competition and Consumer Commission (ACCC) v Boost Tel Pty Ltd (2010)

Bell v. Lever Brothers Ltd [I9321 A.C. 161 (H.L.).

Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-Gesellschaft   [1983] 2 AC 34

Carlill v. Carbolic Smoke Ball Company [1983] 1 QB 256.

Davies v Smith (1938) 12 ALJ 260

Getup Ltd v Electoral Commissioner [2010] FCA 869)

J Pereira Fernandez SA v Mehta  [2006] 2 All ER 891)

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) LD [1953] 1 QB 401;

Solle v. Butcher [1950] I K.B. 671 (C.A.).

Taylor v. Johnson (1983) 57 A.L.J.R.  197

Legislation

Electronic Transactions Act 1999

Electronic Transactions Act 2011

Statute of frauds

United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 2005)