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General Principles of Formation of Verbal and Written contract

Discuss about the Contracts Created by Electronic Means for The Essential Conditions.

Under the contract law, the essential conditions for an agreement to become a lawful contract are, that there should be offer and acceptance between the parties making the agreement, some consideration must have been paid and the parties had the intension to be bound by the contract to male it legally enforceable. These essential requirements/conditions of a contract were stipulated so as to make a typical agreement wherein terms and conditions are drafted on paper. It would have been difficult for our ancestors to have imagined the internet world, wherein people try to look for quick ways of entering into business transactions by forming contracts[1]. Therefore in the present times the issue that arises with the ease of making contractually binding relationships through emails or online contracts is the determination of the essential requirement of contract, i.e. intension of the parties to be bound by the contract and other problems that arise are the place and time of formation of the contract as it is not yet been made clear as to when would the agreement be said to have been formed, when the e-mail has been sent or when the receiver reads it (similarly in all kinds of other online contract formation) and also the place of contract so as to determine the jurisdiction in cases of breach of it.

Offer and Acceptance: As explained above the ingredients of formation of contract are the offer and acceptance, the contract becomes binding when the acceptance has been made. Under the law of contract the acceptance is completed when the communication of such acceptance is conveyed to the other party[2]. The actual communication of the acceptance of the offer ensures that both the parties are aware of the contractual relationship that they are getting into reflects their intension of being binding by the contract. This is the principle when contract formation takes place in written format on paper[3].

Revocation: The law also provides for revocation of the acceptance, but it is necessary that the communication of the revocation takes place before the communication of the acceptance reaches the offeree. Otherwise the contract becomes binding as per the rules of common law. But in cases of internet transaction when the offer and acceptance can take place simultaneously the principle of revocation becomes difficult to be implemented.

Time: the time of formation of contract becomes extremely important when the contract pertains to the changing of any condition within the contract due to factors that are dependent on time. This is usually the case of contracts that are based on market change in either rates of the goods/services for which the contract has been made or any other relevant factor that might change due to the change in the market conditions[4]. In such instances the determination of the exact time of formation of contract is necessary, for example if the contract is for the sale of gold at market price and during the time of offer and acceptance the price changes in the market then it would be disputable between the parties as to the acceptance of the rates at which the contract was intended to be made binding. In case of contracts formed through e-mails or other electronic means the same problem arises[5].

Electronic Transaction Act 1999

Place: place of contract is relevant in contract formation as that determines the jurisdiction of the courts and the laws that would be implemented on the formation of that contract if there is a breach of the same. Under the common law the rules is that where acceptance takes place that place becomes the place of contract formation and the jurisdiction of that place is taken in case of litigations arising out of the contract. In case of electronic contract formation the place of acceptance could be any place as the person communicating the acceptance can be anywhere while making the acceptance and the acceptance could be received at a completely different place.

The UNCITRAL Model Law for Electronic Commerce of 1996, brought the implementation of electronic means in contract formation. On the lines of the said model the Electronic Transaction Act was implemented in Australia to catch up with the changing trends of e-commerce. Under the Act, electronic documents and signatures have been made legal where by law hard copies of the said documents along with signatures are required. The Act makes the formation of contract through electronic means valid, although the formation was wholly or partly done through electronic means[6].

Types of electronic contracts:

E-mails: this is the most commonly used method of contract formation by exchanging information and communicating through e-mails.

Extensible MArkup Language (XML) Contracts[7]: this is an electronic tool of contracting wherein documents are in a certain markup language that contains information about the contract. It also contains negotiation tools and can be processed easily through machines.

Click to agree contracts: these are the most widely seen contracts oven the internet. Whenever you open a web page a dialogue box pops up wherein certain term (s) are given with the option of clicking on to the ‘agree’ would mean acceptance of the contract and simultaneously the contract is formed. The details of such contracts are sent via e-mail which is automatically generated when the information is confirmed.

Offer and Acceptance: After the implementation of the Electronic Transaction Act, the contracts formed through electronic means have now been made binding. According to the rules under the Act, when the offeror makes an offer either through email or advertisement over the internet, the acceptance of the same is said to have been communicated when the communication of the acceptance comes to the attention of the offeror, according to Section 14 (4) of Electronic Transaction Act 1999[8].

Types of electronic contracts

Another important point in case of electronic offers is that the offers made on the internet are not termed as offers in the sense of law of contract. These offers are mere invitations to offer.

Revocation: in case of electronic contracts also the rules of revocation are the same as in case of common law. Revocation of offer can be done any time before the communication of acceptance is received and the revocation of acceptance can be done at any time before the acceptance of the offer reaches the offeror. Therefore the offers made on internet or through electronic means can be revoked before the acceptance of the same is received by the offeror, also where the offer and acceptance take place simultaneously the revocation of the offer is to be done before the acceptor acts to his detriment.

Time: the crucial factor is the determination of time in case of electronic formation of contracts[9]. Determination of time of communication of acceptance makes the contract binding and the revocation is not possible after that as has been held in Great Northern Railway Co v Witham (1873) LR 9 CP 16. Under Section 14 (4) of Electronic Transaction Act 1999, it has been stated that receipt of communication occurs when the communication comes to the attention of the offeror, but, this would implicate that the offeror can deliberately not read his e-mails so as to avoid its correspondence. This would make the determination of the formation of time at the whims of the offeror. However, the legislatures have drafted the Act in a way to avoid such mischievous acts of the offeror. The act stipulates under Section 14 (3) that for the purpose of determination of time of receipt of communication is the time when the electronic communication/message enters the information system i.e. the email- address of the offeror.

Place: the place of formation of contract in cases of e-commerce or contracts made via e-mails the place or jurisdiction under which the contract is said to have been formed is the ordinary place of business of the offeror and offeree. The communication of offer and acceptance takes place at their place of business and if the place of business is not there then their place of residence. This has been done so as to avoid the problems that arise due to the information system as the communication sent from one place would be retrieved from some other place which would always dispute the question of the determination of place of communication.

Creation of contracts through electronic means

Contracts can be formed through e-mails have also been considered as binding contracts. In case of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd[10], Supreme Court held that the contract made through exchange of emails in the present case was binding as the e-mail stipulated all the terms of a contract, also that the contents of the e-mail suggested that the parties intended to bind themselves with the terms of the contract and act in accordance with it and the acceptance e-mail was also sent in this regard along with the agreement on the terms of due diligence. Therefore all the essential conditions of a contract were fulfilled [11].

Electronic Signatures: In order to form a contract it is important that both the parties have the intention to become binding by it. Signatures of both the parties on the contract validates the fact that the parties had read and understood the terms of the contract and have signed in due consonance of being bound by the said terms laid in the contract. Hence, signatures of the parties in a contract become extremely relevant, although contracts can be made without the parties signing any written document or even verbal contracts can be made effective[12]. However, signatures also play an important role. The one issue with electronic contract formation is the use of electronic signatures; issues of place and time have been made clear by the legislation under the Electronic Transaction Act.

However, the use of digital/ electronic signature is an issue as it is of evidentiary value under Statute of Frauds[13], the attestation via signatures makes the document legally binding, and reliance can be placed on the sign made by the person on the documents so as to become a warrantor of the same. The problem is with the identification of the signatures as the electronic signatures can be used by other people misusing the system and the veracity of it cannot be cent percent be proven. Also, Australia has recognised the use of digital signatures; however there are many countries that have not ratified the use of electronic means for forming contracts. 

In cases of e-mails the question arises as to the signing of the email only via writing down one’s name on any appropriate part of the mail would validate that the signor intended to authenticate the entire mail through those signatures. This issue was dealt with in the case of Mehta v J Pereira Fernandes[14], wherein a mail was sent for accepting the terms of the offer by only writing the name of the sender in the heading of the mail. Although a written contract was sent for the same but it was not signed. The sender had accepted that the mail was sent by an authorised person from his office. In appeal it was held that, only inserting the name of the sender in the heading of the mail would not mean that the sender intends to comply with each and every part of the mail that has been mentioned in the text. Therefore to show that he intends to comply with the entire mail it is necessary that the signatures of the sender, i.e. his name must be reflected at the end of the mail [15].

Issues with formation of contracts by electronic means

Jurisdictional issues: the problem of jurisdiction arises in case of contracts made electronically. This is an important issue as in case of disputes or breach of terms of contract the court will determine the issues, however for that to happen it is necessary to know under what jurisdiction the contract would be said to have been formed. Under the Electronic transaction Act, the issue of time and place has been dealt with in Section 14, however the sections do not make it clear as to the place of formation of the contract. It only clarifies he place of communication of offer and acceptance[16].

According to the principles enumerated above it can be seen that the difference between electronic contracts and other forms of contracts is that the electronic contracts are a faster method of contracting and are a easy way in cases of business transactions wherein the contracting involves parties from different places. Electronic means ensures that the parties do not have to meet every time in person to verify the contract as digital or electronic signatures can be done in electronic contracts. Also, the contract could be made effective through e-mails also.

Conclusion:

Contracts created through electronic means have been facilitated through the Electronic Transactions Act, 1999. Australia has implemented the UNICITRAL model code through the Electronic Transactions Act in every state through separate legislations based on the same outline. Although there are a few issues as to the validation of the electronic contracts and jurisdictional issues in this regard, but the ease of contracting and the saving of time by the business sector has prompted the growth of the electronic means of contracting and brought about various legislative changes in determination of the laws with regard to electronic contract formation.

References

Electronic Transactions Act, 1999.

UNCITRAL Model Law for Electronic Commerce of 1996.

Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd Queensland Supreme Court (2015).

Mehta v J Pereira Fernandes [2006] EWHC

Doris, Martin, "Promising Options, Dead Ends And The Reform Of Australian Contract Law" (2013) 34 Leg Stud (Soc Leg Scholars).

Radan, Peter and John Gooley, Principles Of Australian Contract Law (LexisNexis Butterworths, 2009)

Beale, H. G, Cases, Materials And Text On Contract Law (Hart Pub., 2010)

Delaney, Hayden and Briar Francis, Electronic Signatures And Their Legal Validity In Australia Findlaw.com.au https://www.findlaw.com.au/articles/5777/electronic-signatures-and-their-legal-validity-in-.aspx

Blount, Simon, Electronic Contracts (LexisNexis Butterworths, 2009)

Hogg, Martin, Promises And Contract Law (Cambridge University Press, 2011)

Christensen, Sharon, "Formation Of Contracts By Email - Is It Just The Same As The Post?" (2001) 1 QUT Law Review.

Tyree, Alan L, Electronic Signatures Austlii.edu.au https://austlii.edu.au/~alan/electronic-signatures.html

Christensen, Sharon, "Electronic Contract Administration – Legal And Security Issues Literature Review" (2006) https://www.construction-innovation.info/images/pdfs/Research_library/ResearchLibraryA/Literature_review/Final_Literature_Review_22_November.pdf

McKendrick, Ewan, Contract Law (Oxford University Press, 2010)

Smits, Jan M, Contract Law (Edward Elgar, 2014)

Stephenson, Graham, Core Statutes On Contract, Tort And Restitution (Palgrave Macmillan, 2011)

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