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ONLINE CONTRACTS, CLICK-WRAP CONTRACTS, AND THE LAW

INTRODUCTION

With the advancement in technology over the years, there has been a drastic change in the lives of people. Nowadays, communication isn't only limited to letters or phone calls. Communication and any information can be transferred to any person, irrespective of his location within seconds because of the advancement in technology. Electronic commerce and communication are some of those things that have made people's lives easier. It has not only helped people in their day-to-day activities but it has also proved really helpful for business-related activities. Moreover, electronic commerce has completely changed the way business is done and the way business organizations interact with their clients and suppliers. The use of digital media to buy and sell items, information, and services has exploded in recent years.


With the rapid advancement of technology and e-commerce, the use of e-contracts, also known as online contracts or pseudo contracts, has risen exponentially. Out of all the legislations which talk about commercialized and business activity, the law of contracts is directly applicable to online business and contractual activities. A contract is defined as any promise or set of promises which is seen as a duty by the law and the remedy is provided by the law in case the person fails to perform that respective duty. It is basically a legally binding agreement between two parties wherein both the parties are vested with certain rights, powers, and duties, and failing to perform those they are punished by the law. Section 10 of the Indian Contract Act talks about the six essentials of any valid contract which are: valid offer and acceptance, free consent, lawful consideration and object, competent parties, intention to enter into a legal relationship, and certainty.

Earlier, contracts used to take place only through pen and paper. The parties used to sign at every page of the never-ending contract details but with the proliferation of the internet and digital media, contracts started taking place through the electronic medium which is now referred to as e-contracts or electronic contracts or online contracts. These contracts are contractual and legally binding and in fact, very similar to the traditional paper-based contracts when it comes to the rules, essentials, and the legal framework. Online contracts involve different types of contracts that take place through digital media and people enter into such contracts almost every day without knowing about their repercussions and the legal framework behind them.


ONLINE CONTRACTS

Electronic media is decentralized and with the advancement in technology, the use of the internet and digital media has grown tremendously. It is the dependence on the internet and digital media for almost everything that has made the internet an inextricable part of our lives. Electronic transactions have already begun to take the place of traditional pen-paper deals and agreements. Talking about e-commerce and e-transactions, this sector heavily relies on online contracts to operate and carry out its business.

A contract can be defined as a legally binding agreement between two or more parties wherein the parties have certain roles and responsibilities and if they fail to perform those respective roles or responsibilities, the law provides for compensation and punishment for the respective parties. An E-contract or an online contract is just a regular contract but the only difference is the platform where the contract has been entered into or made. In the case of regular contracts, parties enter into the contract either orally or by the traditional means of pen and paper which are also called paper-based contracts. But, in the case of online contracts, people enter into the contract through digital media, and the communication is done through electronic media such as by exchanging emails or using an electronic agent or computer software/ program. In simple terms, any contract that is made and signed digitally is called an Online or E-contract. Electronic contracts are made to make people's lives easier as the traditional paper-based contracts involve a lot of formalities and paperwork whereas, in online contracts, it is relatively easy to store information using computer programs and finalize an agreement. Online contracts are very similar to paper-based contracts. Just like in paper-based contracts, the seller presents all the options along with prices of any particular thing, conveys it to the buyer and the buyer selects accordingly and conveys his or her acceptance to the seller after finalizing the deal. The only difference is that online contracts take place through digital media which saves both time and money of all the parties involved in the contract.


2.1 TYPES OF ONLINE CONTRACTS

Online contracts or e-contracts are classified into the following three types:


Web or browse-wrap contracts

Contracts in which two or more parties intend to create a legal agreement with the use of a website or browser are called Web or browse-wrap contracts. In web wrap contracts, one of the parties accepts the terms and conditions of some website to use a particular section website or the whole website for his own reasons.


Click wrap contracts

People enter into click wrap contracts almost every day. In this type of contract, the consent of the user is taken by making him/her click the 'I agree' button on the webpage. In certain cases, if the user doesn't accept it, he/she isn't allowed to proceed further or use that website or in the case of e-commerce websites, the website doesn't let him or her order the product.


Shrink wrap contracts

Shrink wrap contracts usually involves buying of software or any software product. After the purchase is done, the buyer has to accept certain terms and conditions to open the packaging of that particular software product. In simple terms, the buyer enters into a shrink wrap contract by accepting the terms and conditions while installing or downloading the purchased software, software product, or software key.


2.3 ESSENTIAL ELEMENTS OF ONLINE CONTRACT

The essential elements of an online or e-contract are very similar to those of a regular paper-based contract. It includes Offer and Acceptance, Intention to create a legal relationship, Lawful object and legal/ lawful consideration, Capacity of parties, Free consent, and Possibility of performance. All the elements are discussed in brief below.


Offer and Acceptance

Just like a paper-based contract, the existence of a valid offer and valid acceptance is one of the most basic yet important elements of any e-contract. There must be a valid offer or proposal made by the buyer after going through the products or services on the internet and he should convey the same to the seller with an intention to create a legal relationship. Similarly, the acceptance should be communicated to the offeror without any extra terms and conditions. The acceptance can be communicated through emails in online contracts and both the parties might be asked to make an online or e-agreement by clicking on the 'I agree' button just to avail the products or services.


Intention to create a legal relationship

All the parties involved in the contract should have the intent to enter into a legal relationship. Promises or agreements of social and trivial nature don't constitute a legal relationship and the parties aren't held accountable if they fail to perform their duty. The intention of parties depends from case to case and the court has the final saying in this matter. For example, sending a wedding card through e-mail doesn't constitute a legally binding agreement or relationship between the parties.

  1. Lawful object and Lawful consideration

Parties involved in a contract must create an agreement for a valid or lawful purpose. The object should not defeat the provisions of the law and nature. For example, if a person enters into a contract with a website that sells drugs, it won't be considered a legal object as drugs aren't legal. Agreements that involve loss of human life and destruction of property are also considered void by the law. Similarly, the consideration (money, right, profit, or anything which is legal that a party gets to perform his promise) shouldn't be illegal, unlawful, or un-imaginative. For example, any website that offers purchase of a plot of land in Saturn.


Capacity of parties

Parties entering into a contract should be competent of understanding the details, provisions of the contract. The members of the party must not a minor and they must be of sound mind. Moreover, he shouldn't be someone who is disqualified from the law for entering into any contract. Agreement by a minor, person of unsound mind, and person disqualified by the law is void under the Indian Contract Act of 1872.


Free consent

Consent basically means the meeting of the minds of the parties to a contract. The parties should agree upon the same thing and in the same way and then only, the consent will be considered as free and absolute. Consent attained by misrepresentation, coercion, threat, or undue influence isn't considered free and thus, such agreements aren't valid in the eyes of law. In the case of online contracts, it becomes a bit easier to gain free consent as it involves clicking the 'I agree' button so it is expected that the consumer by clicking that button is reflecting his or her free consent to enter into the contract.


Possibility of performance

The terms and conditions of any contract must be reasonable and not ambiguous. The parties should be capable of doing that particular thing. Any contract to do something impossible like catching stars from the sky doesn't hold valid relevance and is considered void under the Indian Contract Act.


2.5 LEGAL FRAMEWORK BEHIND ONLINE CONTRACTS

The Information Technology Act of 2000, Indian Contract Act of 1872, and the Evidence Act of 1872 are the three statutes that provide the regulations and provisions regarding online contracts or e-contracts. One of the prime reasons behind the enactment of the Information Technology Act of 2000 was to provide legal recognition to the online transactions and communication which is carried out through the internet and digital media. Sections 4 and 5 of the IT Act provide legal recognition to electronic signatures and records. On the other hand, the Evidence Act states that electronic records would be admissible in the courts of law. Section 65B deals with the admissibility of electronic records whereas Section 67A provides admissibility of evidence to digital signatures. Lastly, the Indian Contract Act, 1872 provides the essentials of a contract and for a contract to be termed as a valid online contract; it should comply with all the essentials provided under Section 10 of the Indian Contract Act, 1872 which includes Offer and Acceptance, Lawful object and legal/ lawful consideration, Intention to enter into a legal relationship, Capacity of parties, Free consent, and Possibility of performance which have already been discussed above.

The regulations and provisions provided under these three acts include the validity of communication made through digital means, authentication of data and documents, and validity of digital signatures. Even though online contracts have been legalized by these three acts, a lot of people remain deeply skeptical about entering into an online or e-contract because there aren't any concrete case laws or precedents which dealt with the validity of online contracts.


According to the Indian Contract Act of 1872, a contract is valid if it is made by competent parties out of their free consent with an intention to create a legal relationship with one another for a lawful consideration and object. The contract act doesn't mention how the offer and acceptance should be communicated; hence it can be done in any way. There are three ways in which the offer and acceptance can be conveyed to the parties which include verbal communication, communication by conduct, and lastly through writing which is the most used way. It doesn't matter which way the parties adopt to convey their offer or acceptance. Communication done through conduct holds the same legitimacy as done though verbally. In Bhagwandas Goverdhandas Kedia vs. Girdharilal Parshottamdas, the Supreme Court held, "that ordinarily, it is the acceptance of offer and intimidation of that acceptance which results in a contract. This intimation must be by some external manifestation which the law regards as sufficient. Hence, even in the absence of any specific legislation validating online contracts cannot be challenged because they are as much valid as a traditional contract is."


In 2015, Prime Minister Narendra Modi launched an initiative called as 'Digital India'. The main reason behind coming up with this initiative was to make sure that all the government services are available and provided to the citizens of India digitally which will indirectly strengthen the digital interface and infrastructure. The vision is to make India digitally empowered in the field of electronic media and technology. This initiative was supported by the citizens of India but there isn't any act or legislation which is dedicated solely for the business transaction or any activities done through electronic media and the internet. Several legislations such as the Information Act of 2000, India Contract Act of 1872, Indian Copyright Act of 1857, and Indian Evidences Act deal with these activities to some extent and try their best to resolve issues arising out of validity and legal recognition of contracts and activities done through electronic media.


CLICK WRAP CONTRACTS

One of the major fundamentals of online transactions or online commercial activities is click wrap contracts. Click wrap contracts are something that people enter into, almost every day but they aren't aware of its terms and conditions. People enter into click wrap contracts because at times, the websites don't let them proceed or use certain features of a website without them clicking on the 'I agree' tab and agreeing with their terms and conditions. Moreover, they don't have an option to alter or change any of those terms and conditions if they feel they aren't appropriate which is possible in regular contracts. In regular paper-based contracts, both parties come to a common consensus after discussing the details of the contract. But in this case, the terms and conditions are already made and listed out by the operator and it basically creates a 'Accept it' or 'Leave it' situation for the users.

Basically, internet-based contracts that require the consent of the user by making them click on the 'I agree' or 'Ok' or 'I accept' button are called Click wrap contracts. The terms and conditions are shown to the customers but they often ignore them without thinking about the legal consequences of it as there's a long list of terms and conditions. Deloitte conducted a survey and it was found that around 90% of the users click on this button without going through the terms and conditions. Users who don't agree to the terms and conditions aren't allowed to proceed further and buy or avail a product or service in the case of e-commerce websites. Click wrap contracts have been challenged and gone through a scrutiny process regarding their legality several times and not only Indian courts but legal bodies of a lot of countries like United States and United Kingdom have also discussed their legality extensively. Some of the famous case laws in which the validity of click-wrap contracts was discussed are: Feldman vs. Google (2007), Specht. vs. Netscape Communications Corporation (2002), and Bragg vs. Linden Research Inc. (2007). Foreign legal precedents will only have persuasive value in Indian courts and will not be binding.


3.1 LEGAL FRAMEWORK BEHIND CLICK-WRAP CONTRACTS

The same three statutes which deal with online or e-contracts apply to the cases of click wrap contracts. The acts are: Indian Contract Act of 1872, the Information Technology Act of 2000, and the Indian Evidence Act. Indian Contract Act provides the essentials of any valid contract and the IT Act gives legal recognition to digital signatures and records. Lastly, the Evidence Act provides legal admissibility to digital signatures and electronic records in the courts of law.

In Trimex International FZE v. Vedanta Aluminum Limited, the Supreme Court of India held that if the terms and conditions of any contract are discussed through the electronic media or e-mails, such emails and communication would be considered valid and it would constitute a legal and valid contract and the same will be enforceable by the law. Therefore, we can say that the Supreme Court provided legality to online or e-contracts even if they aren't registered or digitally signed. We can say that the courts have provided legal recognition to online and e-contracts by considering them legal in case laws but it cannot be considered as a blanket acceptance. The courts are still trying to discuss the legality of online contracts by exploring the contents, essentials, principles, and different circumstances arising out of these contracts. The Indian courts are still silent over the situation wherein one party is present in Indian and the other party is located in some other country.

But one thing that is certain is that click wrap contracts won't be considered 'not valid' just because they are operating over electronic media. Click wrap contracts are just a type of online or e-contracts and thus, will be considered legal and enforceable by the law. Needless to say, only if they meet all the essentials which are required for a valid contract. If the online contract is in accordance with all the six essentials which the Indian Contract Act specifies, it'll be considered valid in the eyes of law. Therefore, the click wrap contracts are valid, legal, and enforceable in the court of law.


CONCLUSION

An online contract or e-contract is formulated and enforced to provide online business transactions with legality and protection. It is intended to identify frauds in order to encourage and instill trust in legitimate online transactions, as well as to give the concept of digital signatures legal status. In contrast to the conventional paper-based contract process, online contract is a very useful concept in the context of both money and time. But in order to keep pace with the rapid and exponential development and progress in technology, a separate online or e-contract law must be enforced in India. It can be effectively concluded that the electronic form of contracting has emerged as a notable form of agreement and has essentially extended its esteem to complete the timeframe. Bearing in mind the final aim of regulating privileges and rights, the Electronic Commerce Act, 1998 was to be enforced through e-contracts. The creation of electronic contracts is authorized by the terms of these demonstrations. There will be a significant offer and acknowledgment provided in the type of information messages. The demonstration agreements should be conducted in compliance with the Indian Contract Act, 1872, and the point and aims of the agreement shouldn't be in breach of the Contract Act's provisions.

All the necessary ingredients of a valid contract are present in an online or e-contract and a lot of benefits often flow from the creation of online contracts. The basic ingredients of a legal contract are in line with the sense of online contracts and if all the legislative criteria are fulfilled, contract formation is possible in all digital transactions. As the existence of a valid contract forms the epicenter of online contracts and online transactions or activities, adequate attention must be paid to the creation of a legal e-contract before finalizing transactions in the land of clicks. Notwithstanding such legislative provisions, the autonomy of the parties to negotiate on the terms is completely maintained. It is pretty evident online contracts will play a crucial role in the world of e-commerce in the future.

It can be inferred that if different steps of a contract have been influenced by digital communication, the parties of the contract are at consensus-id-idem and such a contract fulfills all the essential elements of a valid contract under the Indian Contract Act, then that online contract would be considered legal, valid, and enforceable in the court of law. So the next time you unintentionally click the "I agree" or 'I accept' or 'OK' button without even thinking about the terms and conditions or tear off a product key pr software CD wrap that has got some numbers written over it, "Think Twice".


REFERENCES

  1. Bhagwandas Goverdhandas Kedia v. M/S. Girdharilal Parshottamdas, 1966 AIR 543, 1966 SCR (1) 656

  2. Sharvari Shinde, Online click-wrap agreements, Legal Service India (June, 2018), http://www.legalserviceindia.com/legal/article-369-online-click-wrap-agreements-an-analysis.html

  3. Author Signdesk, Are Clickwrap Agreements Enforceable in a Court of Law?, Sign Desk (2017), https://signdesk.com/in/esign/are-clickwrap-agreements-enforceable-in-a-court-of-law#:~:text=Clickwrap%20agreements%20are%20electronic%20in,the%20Indian%20Contract%20Act%20requires.&text=This%20is%20only%20if%20all,clickwrap%20agreements%20are%20indeed%20enforceable.

  4. S.r. Subhaashini & Shaji M., Legal issues arising in e-contracts in India: an analysis, 120 IPJAM 4601, 4611 (2018)

  5. Ajay Thakur, All you need to know about online contracts, IPLEADERS (March 14, 2017), https://blog.ipleaders.in/all-you-know-about-online-contracts/

  6. ContractAwesome, E-contracts: Everything You Need to Know, Contract Awesome (April 11, 2020), https://contractawesome.com/e-contracts

  7. Maneck Mulla, Validity Of Electronic Contracts In India, Mondaq (May 4, 2018),https://www.mondaq.com/india/contracts-and-commercial-law/699022/validity-of-electronic-contracts-in-india#:~:text=Under%20the%20provisions%20of%20the,the%20Indian%20Contract%20Act%2C%201872

SHISHIR JOHARY

NMIMS KIRIT P. MEHTA SCHOOL OF LAW, MUMBAI

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