Introduction
The New age is the digital age, where the world is registering massive advancements in the field of technology. Needless to say, the rapid development has been necessitated by the Covid-19 pandemic which had a devastating impact on lives and businesses. Transferring operations to a virtual mode has essentially made contractual dealings easy and convenient across nations. The concept of ‘e-contracts’ has built a platform that facilitates transactions and agreements between parties in their physical absence. Usually in case of high-value transactions, the parties refrain from entering into a contract without the direct interaction or physical presence of the parties. Hence, the written contracts are more commonly preferred. The E-contracts, thus, aim to create a safe and reliable alternative that is legally binding.
The Internet is infinitely powerful and in the face of evolving concepts such as digital marketing and SEO, websites have adapted various strategies aimed at consumers with the end objective of accumulating data and promoting commercial gains. However, these websites come along with certain terms and conditions, which must be accepted in order to gain access. Naturally, people give their assent through acceptance of these terms and conditions without a second though. What are the repercussions? The users receive spam emails and have no knowledge of the website owners and authorities that get access to their sensitive information. Consequently, these details are put into agreements by these platform administrators, leaving no room for further negotiation or alteration.
Surprisingly, the acceptance can be as easy as clicking away ‘I Accept’ or tearing off the plastic wrap of a game set. Though these are minor actions, they lead to the formation of a valid enforceable contract. This article deals with the concept and forms of E-contracts. The author also attempts to shed light upon the working and enforceability of electronically executed contracts with respect to the international precedents and Indian contract laws.
Electronic Contracts (E-contracts) in India:
Currently, in India, there are no specific laws that explicitly deal with electronic contracts. They are generally covered directly or indirectly, under the wide umbrella of conventional Indian laws[1] like the following:
- The Indian Contract Act (1872) has not been amended yet but it has been interpreted to include electronic agreements and clickwrap agreements
- The Information Technology Act (2000) was drafted by the Indian Parliament on the basis of UNCITRAL’s Model Law on Electronic Commerce, 1996 (applicable in the US). It states provisions regarding e-commerce, e-contracts and e-signatures.
- The Sale of Goods Act 1930.
- The Specific Relief Act 1963 coupled with the Specific Relief (Amendment) Act (2018)
- The Consumer Protection Act (2019) along with the E-Commerce Rules.
- The Civil Procedure Code (1908)
- The Indian Evidence Act (1872)
- The Indian Penal Code (1860)
- The Reserve Bank of India Act (1934)
- The Bankers Books Evidence Act (1891)
Although the court of law has accepted the validity and through its judgements welcomed the concept of electronic transactions, there is a long way to go in terms of global acceptance. They have also been resistant to decide upon the jurisdiction in the case of one party residing in India and another party in some other nation.
Types of E-Contracts
- Clickwrap Contracts
Clickwrap (or Clickthrough) Agreement is a type of electronic agreement that is most commonly used in software licensing, websites, application downloads, downloading or installing software, transport ticket purchase, Signing up and account registration on social media platforms etc. Clickwraps agreements can also be characterized as “take it or leave it” agreements. The bargaining power here is quite restricted. The users can take benefit of the website through the two sub-categories within Clickwrap agreements:
- Type and click, wherein ‘I accept’ or, similar meaning words or phrases are displayed on the screen via which the users accept the terms and conditions after clicking the ‘submit’ option. The acceptance will serve as the permission to download or view their desired information.
- Icon Clicking, wherein the user has to click the ‘I agree’ or ‘OK’ button present on the dialogue box/pop-up window to avail the targeted information. The users have the option to reject the terms and conditions by using the ‘Cancel’ button or closing the whole window, after which they will not be able to use the services or products of the respective website.
The terms and conditions of the product or service may or may not be explicitly stated on that very web page/ window, but they are always available before the user decides to accept or reject. Clickwrap agreements facilitate web-based organizations to formulate contracts with prospective clients without formal arrangements or personal relations. No paper record is generally created nor is the signature (electronic or paper) of the Internet user typically required.[2]
Clickwraps also help organizations by sparing electronic marks and implementing additional provisions currently unavailable in Indian digital laws. For instance, Banking sites readily put an agreement which is visible for the customer, for him or her to sign up on the page itself. This serves to enable the customer to read and understand the terms of services before accepting them and lowering the chance of disputes.
1.1 Few considerations
1.1.1) Affirmative assent of the User: [3]
When a user voluntarily selects an option to express his acceptance, it is called active consent. The acceptance box might often be priorly ticked and consented to by the host. In such a case, the recipient must remove the tick if he wants to withdraw from the agreement. Pre-ticked Options are construed as an unethical and illegal practice.
1.1.2) Notice of the Terms of Service:
The terms of Service (ToS) must be clearly and prominently displayed wherein the clauses must be reasonable. Before voluntarily clicking ‘I accept’ customers have the right to know the terms and conditions. They have constructive experience in the event when they have offered their legal consent but are unaware of the TOS.
1.1.3) Comprehensible for the Users:
TOS as well as other digital legal documents must be drafted and presented in a way that a layman without knowledge of legal terminology can easily interpret and understand those terms and accordingly make a conducive decision.
1.1.4) Bargaining Power:
The users have fewer choices and almost non-negotiable power, once they accept the terms and conditions. The power with them is restricted to acceptance of terms by ‘I accept’, withdrawing by exiting or closing the tab altogether. A clickwrap agreement can be made unenforceable upon the abuse of authority. Hence, the TOS can be enforceable for simple and clearly defined conditions.
1.2 Status and Enforceability
The validity of a Clickwrap contract was laid down in Hotmail Corporation vs. Van Money Pie Inc.[4] where Hotmail sued the customers who were spamming and forging emails to project that they had been sent from Hotmail’s formal Account. Hotmail claimed that the customers were violating the TOS agreement, where each customer had to accept when opening an email account. Hotmail could succeed on this contention and it was held that TOS are enforceable.
In LAN Systems Inc vs. Netscout Service Legal Corporation,[5] LAN provided network monitoring services to customers and made a software purchase from Netscout. Both the parties signed an agreement, wherein LAN could resell Netscout’s software to users. Netscout contended that it was not allowed under the Clickwrap license in the software. The court ruled that they were enforceable by selecting the “I Agree” icon and LAN had also accepted the terms. Further, agreements between the parties cannot be refuted against earlier purchase orders.
The Supreme Court in Trimex International FZE vs. Vedanta Aluminium Limited, [6]India, opined that since the terms of the agreement had been discussed via email, it will be construed as a valid contract. Thus, they are enforceable. The court recognised the validity of an electronic contract, despite no e-signature nor e-registration.
In another case, LIC India vs. Consumer Education and Research Centre[7], the Supreme Court reconsidered its degree of intrusion in cases where the bargaining power of both parties have a disparity. Where a contract is formed by parties having equal bargaining power, Article 14 shall be instrumental in removing unjust provisions.
Under Section 209 of the UCITA (Uniform Computer Information Transactions Act), terms and conditions if consented to by the initial performance of the party, can be followed. Section 112 states that a person can approve recording acceptance reflected by his conduct if he deliberately shows that his conduct will be construed as assent. The condition imposed is that terms must be known to the accepting party and he has an opportunity to review.
- Shrink-wrap Contracts
Shrink-wrap contracts refer to the purchase agreements that are attached to the shipped product, bound by a shrink wrap or plastic wrapping which contains the terms and conditions attached to the product.[8]. There are usually manuals put on the outer plastic covering of the software products. It is quite similar to the clickwrap agreements, with the distinction based on the form. While Clickwrap is the web version, the shrink wrap takes a physical form.
Shrink-wrap agreements also constitute ‘take it or leave it’ contracts, as the terms and conditions are formulated by the host and customers, are subjected to non-negotiability of terms. When the customer opens the package, it becomes the implication of his acceptance of terms and conditions. For maximum effect, the box covered underneath the plastic sheets should clearly convey that the software is copyrighted. Further, it should also indicate that the end-user, the consumer, is subject to the terms and conditions of the agreement of that very product. The terms and conditions must also be mentioned inside the shrink-wrapped box. The terms may include license, fees and payments, warranties, limitations of liability etc.
However, the concept of Shrink-wrap contracts invites controversy and ambiguity in the respect that once a customer opens the packet, he implicitly consents to the terms and conditions, but it is not informed consent per se. The customer hasn’t really read the terms and he can do that once he opens the box. https://www.legalmatch.com/law-library/article/shrink-wrap-agreements.html
2.1 Status and Enforceability:
The validity of the Shrink-wrap contracts was first questioned in Pro Cd Inc vs. Zeidenburg.[9] The appellant had used a shrink license in his software packaging but he ignored the license that restricted its use for non-commercial purposes. The appellant filed an injunction for enforcement of the license. The court dismissed the injunction on the ground that terms of the agreement were not mentioned outside the package and emphasised that the terms are subject to review by the customer. The license was supposed to be treated as an ordinary contract with the sale of software.
In the case, CompuServe Inc vs. Patterson[10], it was held that the state can exercise jurisdiction over the creator of the software, who makes sales of his software through an internet service provider inside that state.
In the landmark case of Tony Brower et al vs. Gateway 2000, inc et al[11], the appellant purchased computers and software from the defendant, Gateway 2000 via mail/telephone. The shipment was inclusive of the terms and conditions. The note was printed relatively larger than the remainder. It was also stated that in case the computers are kept for more than 30 days, it will automatically represent an acceptance. The related disputes would be resolved through arbitration. The appellant, Tony Browner alleged deceptive sales tactics. Furthermore, the arbitration clause was invalid under UCC 2-207 and unenforceable by UCC 2-302. It was held that the contract was formed not over the telephone but the moment the appellant decided to retain the subject matter for 30 days.
Even though the bargaining power was not equal, the consumer’s ability to return the computers and purchase from elsewhere affected the transaction. Therefore, unawareness of terms and conditions was irrelevant. Similar reasoning was also abided by in Interglobe Aviation Ltd. vs. N. Satchidanand.[12]
According to Section 209 and Section 112 of UCITA, agreements can be accepted by the conduct of the consumer, when he removes the packaging plastic and uses a product after going through terms and conditions. The additional terms appearing on using the product are also enforceable. Under Section 206, it has been duly recognised that contract forms after the interaction of two electronic parties.
- Browse-wrap Agreements
A browse-wrap agreement is a kind of license agreement or a hyperlink that controls the access or use of the content available on a web page, or downloadable product. Access to a certain website is available to a user only when he accepts the terms and conditions on that website. The user has to then bind by the terms of these websites, which are non-negotiable and each clause being of enforceable nature. In layman language, A browse-wrap agreement does not display your agreement explicitly with the websites by ticking ‘I Accept’ but the user consent is implied merely by utilizing their products (visiting webpage, downloading content or installing applications). Companies like Amazon, Paytm, Myntra etc. display a hyperlink on their web pages under the option of “Terms and conditions” or “Terms of Use”. This hyperlink redirects the user to the page with all the terms and conditions.
Notably, the Browse-wrap agreements sometimes include a statement (either in latent or explicitly displayed form) indicating that ‘continued use or downloaded software’ by the user is expressly construed as their acceptance.
3.1 Status and Enforceability:
The website through its agreement binds the user to the website’s terms and conditions. This agreement can be clearly exhibited or concealed by the respective websites whilst no explicit assent is required where the user has already assented to the terms and conditions. The courts have ruled that unless the website owners produce evidence supporting the claim that users have had the actual knowledge of all the terms, the agreement cannot be deemed binding and enforceable.
In Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas[13], the court held that an oral contract is equally valid as a written contract. The only requirement that must be fulfilled is that the terms should be in compliance with all the essentials of a valid contract. The case highlighted that offer, as well as acceptance and intimation, form a binding contract, where this intimation must be some external manifestation. Therefore, where there is no defined legislation, the enforceability of electronic contracts cannot be questioned.
Conclusion
The e-contracts are certainly dealt with numerous Indian laws on this date, but their recognition to be considered as important as convention contracts are the need for a thriving business and legal framework. Considering the fast-paced technological advancements, not only is there a need to keep contractual terms dynamic, but the terms must not compromise with the protection and requirement of the users and clients. Both the parties, client and business must read and draft agreements carefully and cautiously to avoid any harm to each other’s interests. Both sides must have, if not equal then at least a reasonable bargain.
[1] Suneeth Katarki et al., Digital Business in India: Overview, Thomson Reuters (May 1, 2021), https://uk.practicallaw.thomsonreuters.com/w-009 1979?transitionType=Default&contextData=(sc.Default)&firstPage=true.
[2] The Origin of Click-Wrap: Software Shrink-Wrap Agreements, WILMERHALE ( Mar. 22, 2000), https://www.wilmerhale.com/en/insights/publications/the-origin-of-click-wrap-software-shrink-wrap-agreements-march-22-2000.
[3] Katarki, supra note 1.
[4] Hotmail Corporation vs. Van Money Pie Inc. 1998 WL 388389 (N.D.Cal.).
[5] LAN Systems Inc vs. Netscout Service Legal Corporation 183 F. Supp. 2d 328 (D. Mass. 2002).
[6] Trimex International FZE Ltd. v. Vedanta Aluminium Ltd., 3 SCC 1 (2010).
[7] LIC v. Consumer Education & Research Centre, 5 SCC 482 (1995).
[8] Ken LaMance, Shrink-wrap Agreements, LEGALMATCH (Jun. 21, 2018), https://www.legalmatch.com/law-library/article/shrink-wrap-agreements.html
[9] Pro Cd Inc vs. Zeidenburg, 86 F.3d 1447 (7th Cir. 1996).
[10] CompuServe, Inc. v. Patterson 89 F.3d 1257.
[11] Tony Brower et al vs. Gateway 2000, inc et al 246 A.D.2d 246.
[12] InterGlobe Aviation Ltd. v. N. Satchidanand, 7 SCC 463 (2011).
[13] Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., 1 SCR 656 (1966).
YLCC would like to thank Harshima Vijaivergia for her valuable inputs in this article.
