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Tag: online contract

VALIDITY OF ONLINE CONTRACT

 E-Contract is an aid to drafting and negotiating successful contracts for consumer and business e-commerce and related services. It is designed to assist people in formulating and implementing commercial contracts policies within e-businesses. It contains model contracts for the sale of products and supply of digital products and services to both consumers and businesses. An e-contract is a contract modeled, executed and enacted by a software system. Computer programs are used to automate business processes that govern e-contracts. E-contracts can be mapped to inter-related programs, which have to be specified carefully to satisfy the contract requirements. These programs do not have the capabilities to handle complex relationships between parties to an e-contract 

In a country like India, where the literacy rate is not so high, the concept of ‘Digital India’ is far reaching. People still feel insecure to do online based transactions mainly because the terms  and conditions of such contracts are not transparent. Another major issue is the nature of the law governing the electronic contracts. Even if the IT Act, 2000 has legalized electronic contracts, there are no definite provisions mentioned in the Act. 

Documents are mainly registered for conservation of evidence, assurance of title and to protect oneself from fraud. The evidentiary value of electronic contracts has been given recognition and can be understood in the light of various sections of Indian Evidence Act. Sec 65B of the Indian Evidence Act deals with the admissibility of electronic records. As per Sec 65B of the Indian Evidence Act any information contained in an electronic record produced by the computer in printed, stored or copied form shall deemed to be a document and it can be admissible as an evidence in any proceeding without further proof of the original subject to following conditions are satisfied such as the computer from where it was produced was in regular use by a person having lawful control over the system at the time of producing it, during the ordinary course of activities the information was fed into the system on a regular basis, the output computer was in a proper operating condition and have not affected the accuracy of the data entered.

 Section 85A, 85B, 88A, 90A and 85C of the Indian Evidence Act deal with the presumptions as to electronic records. Sec 85A has been inserted later to confirm the validity of electronic contracts. It says that any electronic record in the form of electronic agreement is concluded and gets recognized the moment a digital signature is affixed to such record. The presumption of electronic record is valid only in case of five years old record and electronic messages that fall within the range of Section 85B, Section 88A and Section 90A of Indian Evidence Act. 

REMEDIES FOR BREACH OF ONLINE CONTRACT

There is no specific rule in case of breach of online contract but the rules regarding remedies for breach of contract can be followed as provided in The Indian Contract Act. A valid contract gives rise to co- relative rights and obligations and they are enforceable in the court of law when infringed on breach of contract. The Contract Act mainly talks about two remedies for the breach of contract such as Damages and Quantum Meruit. But few other remedies are also available as provided in the Specific Relief Act such as specific performance of contract and injunction restraining the other party from making a breach of contract. Sec 73 and Sec 74 of the Indian Contract Act, The person whose rights are infringed by the breach of contract may bring an action for damages or compensation in terms of monetary value for the loss suffered by the party. Sec 73 to 75 provides rules regarding the assessment of damages based on the famous case Hadley vs. Baxendale. According to the rules laid down in this case, there can be damages which naturally arose on the usual course of things from such breach of contract and can be called ordinary damages and secondly, damages for loss arose from special circumstances i.e. special damages. Contract Act, 1872 deals with the rules regarding the remedy of damages on breach of contract.

 The person whose rights are infringed by the breach of contract may bring an action for damages or compensation in terms of monetary value for the loss suffered by the party. Sec 73 to 75 provides rules regarding the assessment of damages based on the famous case Hadley vs. Baxendale. According to the rules laid down in this case, there can be damages which naturally arose on the usual course of things from such breach of contract and can be called ordinary damages and secondly, damages for loss arose from special circumstances i.e. special damages. 

REMEDY CLAUSE These clauses state what rights the non-breaching party has if the other party breaches the contract. In contracts for the sale of goods, remedy clauses are usually designed to limit the seller’s liability for damages. 

Arbitration Clauses: An arbitration clause states that disputes arising under the contract must be settled through arbitration rather than through court litigation. Such clauses generally include the name of the organization that will conduct the arbitration, the city in which the arbitration will be held, and the method for selecting arbitrators. 

Merger Clauses: Merger clauses state that the written document contains the entire understanding of the parties. The purpose of merger clauses is to ensure that evidence outside the written document will not be admissible in court to contradict or supplement the terms of the written agreement. 

Breach of Contract: The parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provisions of the Act, or any other law. Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract. In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. Non-performance of the duty undertaken by a party in a contract amounts to breach of contract, for which he can be made liable.

Remedies for breach of contract

The legal remedies for breach of contract are: (a) damages; (b) specific performance of the contract; and (c) injunction.

 Damages: In practice damages constitute the main remedy. When a contract has been breached, the party who suffers by such breach is entitled to receive, from the party who has breached the contract, compensation for any loss or damage caused to him thereby, being loss or damages which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach. 

A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through non-fulfillment of the contract.

 Liquidated damages and penal stipulations If a sum is named in the contract as the amount to be paid in case of breach of contract, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage of loss is proved to have been caused thereby, to receive, from the party who has broken the contract, reasonable compensation, not exceeding the amount so named or the penalty stipulated for. 

A stipulation for increased interest from the date of default may be regarded as a stipulation by “way of penalty”. The court is empowered to reduce it to an amount which is reasonable in the circumstances.

 Specific performance In certain special cases (dealt with in the Specific Relief Act, 1963), the court may direct against the party in default “specific performance” of the contract, that is to say, the party may be directed to perform the very obligation which he has undertaken, by the contract. This remedy is discretionary and granted in exceptional cases. Specific performance means actual execution of the contract as agreed between the parties. 

  • Specific Performance of any contract may, in the discretion of the court be enforced in the following situations 
  • When there exists no standard for ascertaining the actual damage caused by the nonperformance of the act agreed to be done; or 
  •  When the act agreed to be done is such that monetary compensation for its nonperformance would not afford adequate relief. 

Instances where compensation would be deemed adequate relief are: 

 Agreement as a consequence of a breach by a landlord for repair of the rented premises;  Contract for the sale of any goods, for instance machinery or goods.

 Exceptions A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms, cannot be specifically enforced. 

Another situation when a contract cannot be specifically enforced is where “the contract is in its nature determinable”. A contract is said to be determinable, when a party to the contract can put it to an end. A contract the performance of which involves the performance of a continuous duty, which the Court cannot supervise, cannot be specifically enforced. 

Persons who cannot obtain specific performance 

The specific performance of a contract cannot be obtained in favor of a person who could not be entitled to recover compensation for the breach of contract. Specific performance of a contract cannot be enforced in favor of a person who has become incapable of performing the contract that on his part remains to be performed, or who violates any essential term of the contract that on his part remains to be performed, or who acts fraudulently despite the contract, or who willfully acts at variance with, or in subversion, of the relation intended to be established by the contract.

ONLINE CONTRACT

Contract:

The Indian Contract Act, 1872 defines a contract as an agreement between two or more parties for the buying/selling of goods or services for a valid consideration. The essentials to a valid contract are also some of the essentials to an e-contract which are:

  1. An offer and acceptance have to be made.
  2. There should be a lawful consideration.
  3. There should be free consent between the parties to a contract.
  4. The object of the agreement should be lawful.
  5. Parties must be competent enough to contract.
  6. The contract must be enforceable by law.

The Indian Contract Act, 1872 provides a basic contractual rule that a contract is valid if it is made by competent parties out of their free consent for a lawful object and consideration. There is no specific way of communicating offer and acceptance; it can be done verbally, in writing, or even by conduct. Thus, oral contracts are as valid as written contracts; the only condition is they should possess all the essentials of a valid contract.

It was held in the case of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas, “that ordinarily, it is the acceptance of offer and intimation of that acceptance which results in a contract. This intimation must be by some external manifestation that the law regards as sufficient. Hence, even in the absence of any specific legislation validating e-contracts cannot be challenged because they are as valid as a traditional contract is.” 

E-Contract

The Information Technology Act, of 2000 provides various procedural, and administrative guidelines and regulates the provisions relating to all kinds of electronic transactions. These include computer data protection and authentication of documents by way of digital or electronic signature. Though electronic contracts have been given recognition by the IT Act, 2000, the majority feel it less secure to get into any kind of online contract as there are no concrete judicial precedents for the validity and enforceability of online contracts in India. The 2008 amendment to the IT Section 10 gives legislative authority to E contracts. It says 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 contracts that are not paper-based and are electronic in nature. These contracts are generally made for speedy entering into a contract or for the convenience of the parties. They are best made between parties who live in 2 different parts of the world and have to enter into an agreement. A digital signature is all they need to enter into a contract as a party even though both the parties to the contract are sitting miles away from each other. In this proliferating world, it is the most convenient method to enter into a contract without being physically exhausted. The 2 main parties to an e-contract are- The Originator and the Addressee.

Originator according to the IT Amendment Act, 2008 is a person who sends, generates, stores, or transmits any electronic message to be sent, generated, stored, or transmitted to any other person and does not include an Intermediary. ( In the present context, the person who initiates the process of making an e-contract sends it to the other party.)

An Addressee according to the IT Amendment Act, 2008 is a person who is intended by the originator to receive the electronic record but does not include any Intermediary. (In the present context, the party which receives the e-contract made by the other party.)

E contracts can be broadly categorized into :

  • Shrink Wrap Agreements
  • Click Wrap Agreements

Click Wrap agreements are mostly found in the software installation process. The user has to click either ‘Accept’ or ‘Decline’ to accept or reject the agreement respectively. These agreements lack a certain amount of bargain power. Choosing to make payments online or choosing to reject them is an example of using a click wrap agreement.

Shrink Wrap agreements are those which can only be read and accepted by the consumer after the opening of a particular product. The term is described after the shrink wrap plastic wrapping that is used to cover software or other boxes. Installing software from a CD into your PC is an example of a shrink-wrap agreement.

In the case of browse-wrap contracts, we usually accept the terms and conditions of the contract by clicking the button that indicates ‘I Agree’, and in the case of shrink wrap contract or purchase of a software product, assent is given by the consumer or the purchaser with tearing of the wrapper and using it. Many have the tendency of not reading the terms and conditions carefully before agreeing to such. But these actions should be taken consciously and carefully only after reading the terms of the contract properly as it leads to a valid contract and the terms can be strictly enforced against them. 

However, courts in other countries such as the US, have dealt with the validity and enforceability of contracts such as shrink wrap and click wrap contracts. It was held in the famous case of ProCD. Inc. vs. Zeidenberg ``that the very fact that purchaser after reading the terms of the license featured outside the wrap license opens the cover coupled with the fact that he accepts the whole terms of the license that appears on the screen by a keystroke constitutes an acceptance of the terms by conduct.” Thus, it is confirmed that shrink-wrap agreements are valid contracts and are enforceable against the purchaser of the software. But the enforceability of the shrink-wrap agreement is extended as far as the general principles of the contract are not violated. The validity of the click wrap agreement was first considered when the Court for the northern district of California upheld in the famous case of Hotmail Corporation that “the defendant is bound by the terms of the license as he clicked on the box containing

An online contract is simply a communication between two parties in regard to the transfer of goods/services. And as per the Indian Evidence Act, any e-mail communication and other communication made electronically is recognized as valid evidence in a Court of law. By considering the points, it can be concluded that the contract that follows the communication is valid too and Indian law thus recognizes the validity of online contracts. 

Difference between contract and E-Contract

ContractsE-Contracts
It requires the traditional signatures of the partyIt needs the digital signatures
The contracts are drafted on the paperThese are drafted digitally
Parties are physically present at the time of the contractThere is no need to present physically while making the contract
They took heavy transaction costLow transaction cost
More time consumingThese are time-saving contract
The risk factor is very low, almost secureThere is a high risk involved in the E-contracts

Conclusion

The citizens of India are encouraging the concept of Digital India, but there is no definite legislation relating to the transactions done over computerized communication networks. Several laws such as The Indian Contract Act, 1872, Information Technology Act, 2000, Indian Copyright Act, 1957, and the Consumer Protection Act, 2019  to some extent are working and acting on resolving issues that arise relating to the formation and validation of online contracts. The Information Technology Act, 2000 is the Act that governs the transactions conducted over the internet and explains the considerable mode of acceptance of the offer and provides the rules for revocation of offer and acceptance in a vague or indefinite manner.