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Requirements for forming a contract

Discuss about the Business Law for Electronic Transactions Act.

In order to know that when and where a agreement was created as that can have an effect on the privileges of the parties and in determining the jurisdiction over the agreement in the case of a argument. But it was not clear when and how the agreements were created. If the postal approval rules were applied to the email agreements by similarity with same mail, then an email agreement would be created when the receiving party sent the approval by pressing the send button on his/her computer. If the postal approval rule was not applied, under the normal rules of an agreement, then the agreement would be created when the party who was making an offer receives the approval.

The Electronic Transactions Act 1999 does not specifically settle the case. It only defines the time of receipt of an electronic message at the time when it enters into the addressee’s information system. The place of that receipt would be the addressee’s principal place of trade or the place of trade which would be more closely linked with the deal regardless of where the addressee’s computer actually was.

Despite the fact, it has not been specified clearly that whether the sending or receipt of the approval completes the formation of an agreement or not. In the United States of America, the Uniform Computer Information Transaction Act lays down that the agreement negotiated by electronic message was created when approval was received. Though, this has only been accepted by two states, it was the suitable rule. However, it was not clear that these rules would be accepted in Australia, where the time and place of creation of email remains uncertain.

A contract has been regarded as an agreement entered among two individuals which was lawfully enforceable and binding upon the parties.

For creating or forming a contract by other means rather than by electronic means five major components were required. The requirements were as follows:

First element for forming a valid contract was an agreement, which normally comprises of a “proposal” and an “approval” and also involves a “meeting of minds on the same thing in the same sense” among two individuals upon an agreement. In order to be efficient an agreement must also be certain in all the material respects. Thus, an agreement which was vague, ambiguous, incomplete, or includes a mere agreement to agree would not be enforceable.

Formation of Contracts through E-mail

Second was the price hat was asked by the person who made an offer in exchange for their promise and was an necessary requirement in Australia before an agreement would be binding. Consequently, gratuitous promises were generally not enforceable. It was a complex requirement containing many rules and qualifications. In addition, the principle of promissory estoppels now operates to allow the enforcement of agreements even if the existence of valid consideration was absent.

For an agreement to exist the individuals who were the party to an agreement must intend to create lawful relations. Usually, the presence of price would offer evidence of this, but not always, so that this requirement must be proved separately in each matter. The burden of proof was on the party who was seeking to prove that the agreement demonstrated intention and the nature of the relationship between the parties, while relevant, no longer carries with it any presumption about the contractual intention of the individuals involved.

There were certain people and class of people who lack the capacity to enter into an agreement with the consequence that resulting agreements would not be enforceable against them. Lack of capacity now often stems to form a fear of vulnerability to exploitation.

Lastly, in most of the matters there was no requirement for an agreement to comply with any formalities. However, laws do force such a requirement in a limited range of agreements, most commonly those relating to the sale or disposition of property or assurance.

The crucial moment in formation of a contract was the approval. It was at that moment an agreement was said to be formed. Because of the internal role of approval in the formation of an agreement the law generally requires that the offeree actually communicate his or her approval of the offer.

In the case of Hartog v Colin & Shields [1939] 3 All ER 566 it was stated that if the offer was made by mistake and has not been accepted then it can be expressed and can be withdrawal by the party at fault.  But the mistake should be unintentional.

E-mail in the present context refers to any form of electronic messages which were based upon texts. Commonly, the agreements which were formed by way of email exchange resemble customary agreements in so far that an individual decision maker reviews the contractual relationship at both ends of the deal in the following way:

Electronic Contracts and their requirements

A sends an e-mail offer to B proposing an agreement and after reviewing the proposal, B indicates his or her approval by email or in the same manner. That is email communications facilitates the human-human agreements. Contracts which were formed with the aid of e-mail include those agreements which result from the posting of online messages at online sites.

A legally binding contract (electronic contract) made by buying goods or services through the internet between an electronic agent and the parties who have no personal contact or pre-existing business relationship.

Invitation to offer

It has been held in the matter of Cottee v Franklins Self-Serve Pfy Ltd (1995) Aust Contract Reports 90-060 that a display of goods online has been treated as an invitation made by the vendor. Such a display constitutes an invitation to treat to which the buyer makes an offer to pay the advertised price, and the agreements was created on the approval given by the vendor of the consumer’s offer at the point of sale.

An instant contact

The purpose of the parties to the contract

Time and Place of Receipt of Electronic Approvals

Time and Place of delivery

The procedure of forming an agreement has been divided into three different stages:

An invitation to treat;

An offer;

An approval

When an individual look over an item for sale in a shop window, it would be taken as an offer which has been made by the shopkeeper to sell the item. However, in legal terms the display of an object was not an offer to sell that item, rather it would be an invitation to proposal. An invitation to treat comes before the offer in the contractual process, and was an indication by the seller that they may be proposed to enter in an agreement.

The second stage i.e. the offer only takes place when a person go into the shop stating that they would like to buy the item which has been displayed. It would be then on the vendor to either accepts the offer or reject it.

It was likely similar that the websites would be treated as being similar to a shop window and that the advertisement of an item for sale on a site would amount to an invitation to proposal. If so, an offer would only be made when a customer gives notice of his aim ion to buy an item from the site at which the seller would either accept or reject that offer. Online trader’s should therefore particularly state in their terms and conditions that the display of items for sale on websites was only an invitation to treat even when a electronic agent was appointed to enable he agreement to be formed.

Click-wrap and Browse-wrap Agreements

Further complexity awaits the analysis if the online transactions involving email or contracts which were concluded totally online. For example, where a buyer, have obtained the email address of the vendor from the advertisement and emails an order to the vendor. The reply may depend on his or her purpose comprises an approval.

But in the matter of Carlill v Carbolic Smokeball Company Ltd [I8931 1 QB 256 it has been clearly state that the established categories of invitation to treat, offer, approval and so on cannot be applied mechanically or ultimately. So, the lawful interpretation and effect if an online communication would be determined by a specific reason of situation. So the advertisement has indicated an intention to be bind so was constituted as an offer.

It was held in another case of Reardon v Morley Ford Pty Ltd (1980) 49 FLR 401, 407 it was held that no absolute rule has been made that shop displays must be an invitation to treat. So, it can be concluded that it can be an offer in some situations but there is no absolute rule.

With the online trade process being automated there may be confusion as to when an offer was accepted. The basic rule was that for approval to be effective it must be communicated. However, it was not clear when an online approval was communicated.

Clicks wrap agreement which was an electronic agreement where the terms and conditions of the agreement were located on the same page as “I agree” button. Consumers were usually obligatory to scroll through all the terms and conditions and then take positive action by clicking I agree before proceeding further. This form of contract was highly likely to be enforceable as a contract.

A browse wrap agreement was where the terms and conditions were not on the same page as the “I agree” button and can be accessed by a hyperlink on the same page. This form of agreement was less likely to be enforceable as a contract.

More recently, new technologies have been established to create a more ultimate agreement between the parties to an e contract. These technologies allow the person to sign on an electronic device such as a tablet or hone. A digital autograph was a term used by people to define a type of e signature.

A proposal made under error could be withdrawal by the party only if approval has not been provided. Because once approval was given then the mistake cannot be rectified.

The parties at dispute have the privilege to have and get legal assistance from an advocate to take up his matter. The party can also do the settlement of dispute can be done outside the court by way of arbitration, conciliation, facilitation etc.

There have been special rulings that apply in relation to electronic dealings such as the Electronic Transactions Act which was almost a wholesale adoption of the UNCITRAL Model Law on Electronic Commerce and Electronic Transactions (Victoria) Act 2000. Both the acts are identical to each other there is no difference between them. The only disparity is that one of the statutes was applied all over Australia and other was applicable to the state of Victoria. 

Also since the organization of the postal rule of approval in the year 1818 in the matter of Adams v Lindsell, various substitute methods of contacting have been urbanized, including phone, telex, email, etc.

The most renowned formulation of the ruling was propounded by the Judge in the case of Henthorn v Fraser. In this case it was affirmed that where the situations were such that it must have been within the inspection of the individuals that, as per the normal practices of the humans, the post might be used as a means of communicating the approval of an offer, the approval would be completed as soon as it would be posted.

In the case of Bressan v Squire it was upheld that this rule can be displaced I the parties expressly or impliedly have made such terms in the agreement which necessitate that the approval be received by the offeror.

It has been a well established rule that the general rule governing the approval of a proposal which has been made was that the approval would not be effectual until it was communicated to the offeror. Though, a uniformly well recognized exemption to this general regulation was deeply well-established within the lawful system, the scope of the rule and its applicability to the new forms of communication were issues which have not been overwhelmingly resolved by the courts.

Since the original formulation of the postal approval rule, e-mail technology has radically distorted. As each new innovative method of communication has emerged, the courts have been bound to decide the applicability of the postal approval rule. The development of e-mail means that this matter has once again arisen for the price paid.

Under the Contract Law there has not been any basic rule that limit the agreements which were being created by electronic means. As a result, the legislations which were applicable to the agreements which were dealt online were the same as those appropriate to non- virtual dealings.

One of the key issues that arises for online agreements was the validity of “Click through” agreements, being agreements where the customer clicks on an on-screen icon to recognize the standard circumstances and situations. There were less case laws in relation to the click- through agreements.


Attorney General’s Department, Australian Government, ‘E-commerce’, 2016 <>

Australasian Legal Information Institute, ‘ELECTRONIC TRANSACTIONS ACT 1999’, 2016 <>

Australian Contract Law, ‘Formation’, 2013 <>

Clayton UTZ, ‘Electronic Commerce’, 2014 <>

Corny & Lind, ‘Enforceability of Online Contracts in Australia’, 2016 <>

Tandem, ‘The Legal Issues of Electronic Contracts in Australia’, 2011 <>

Find law Australia, ‘Internet shopping: How a contractual agreement is formed’, 2016 <>

Katherine Hawes, ‘Electronic Contracts’, 2016 <>

Kathryn O'Shea and Kylie Seaman, ‘Acceptance of Offers by E-Mail - How Far Should the Postal Acceptance Rule Extend?’ 1997<>

Legal Aid Queensland, ‘Contracts and unfair contract terms’, 2016 <>

Legal Aid Western Australia, ‘E contracts and online buying’, 2016, ‘Online Contract Formation’, 2016<>

Saul Squires, ‘Some Contract Issues Arising from online Business consumer agreements’, 2016 <>

Sharon Christensen, ‘Formation of Contracts by Email – Is it Just the Same as the Post?’ Queensland University of Technology Law & Justice Journal, 2001 <file:///C:/Users/Guest/Downloads/58-116-1-SM%20(2).pdf>

Simone W B Hill, ‘Email contracts –When is the contract formed?’ 2016 <>

The Law Society of New South Wales, ‘Civil Litigation Committee and Business Law Committee’, 2012 <>

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