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Law and contractual acceptance

Discuss about the Report for Contracts Created by Electronic Means.

Introduction:

The exact moment when the contract has been created between the parties when the contract is created through electronic has remained an important issue. The need for deciding the exact moment of the formation of a contract will always remain very crucial. The performance of the contract may be referenced to the moment when the contract was formed, and in the same way, the place of the formation of the contract is relevant when the applicable jurisdiction has to be decided in case of a dispute between the parties. However the recent legislation, Electronic Transactions Act, 1999 has not definitively answers these issues. Indeed, the legal intervention in this area, both at the local as well as on the international level has been deliberately noncommittal regarding the subject. Partly this has been due to the reason that it should not interfere with the national law that applies to the contract formation (Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd., 2015). However, contrary to this trend across the globe, the United States has, at least partly, legislated on this question in the form of Uniform Computer Information Transactions Act. However apart from this legislation, the question regarding the formation of a contract created by the parties through electronic means remains entirely in the realm of common law and there is a possibility of the application of the antiquated postal acceptance rule to such communication method. However in order to deal with the issue of contracts created through electronic means, these contracts have to be considered in the context of the basic principles that are related with the formation of contract (Burns and Hutchinson, 2009).

Law and contractual acceptance: according to the ordinary rule, a contract is not created between the parties and the offer is not accepted unless the other party has communicated the acceptance of the offer. In this way, the crucial moment related with the formation of a contract is that of acceptance. This is the moment when it can be said that a contract has been formed between the parties. Due to the integral role played by acceptance in the formation of a contract, generally is required by the law that the party should actually communicate the acceptance to the party making the offer. In view of the requirement of actual communication, there can be no doubt that both the parties to the contract are in agreement regarding its terms and at the same time, the parties are also aware of the fact that their obligations under the contract have commenced (Schiano, 2004). However, certain exceptions and adaptations are present to the rule of actual communication of acceptance which have an impact on when and where the contract is created between the parties. In view of the impact of this rule itself, as well as its different modifications, there are certain very real consequences for the parties that are trying to create a contract using electronic means (Carter and Harland, 1993).

Time and place in the formation of a contract

Time and place in the formation of a contract: As mentioned above, the law considers that the contract is formed between the parties at the moment when the acceptance of the offer takes place. In the present research paper, the focus is on to subsequent effects, the time and the place of acceptance or in other words, the time and place of the contract formation. This is also known as when and where questions.

Time: The exact time of the formation of a contract can be crucial in many cases. For instance, if it has been agreed between the parties that an item will be purchased at market price that will be determined on the basis of the formation of the contract, it becomes necessary to pinpoint the exact time when the contract is formed between the parties. In the same way, the timing of the formation of the contract can also be relevant for the purpose of ascertaining whether, for example a particular duty is applicable to purchase or a government rebate can be claimed by the purchaser (Cornwilaw, 2006).

In case of the negotiations and the formation of a contract using electronic brainstorming is not very difficult to imagine the global scenarios where it becomes vital to accurately find out the exact moment when the contract has been formed. Therefore ranging from trading futures to a simple purchase that has been made to the Internet, finding out the exact moment of acceptance and in this way, the exact moment of the formation of the contract may directly influence the price paid by the parties or more generally, the rights and obligations of the parties arising under the contract (Starke, Seddon and Ellinghaus, 1992).

In order to clearly demonstrate this point, an example can be given of a simple purchase of shares made through e-mail. In such a case, usually the price paid for the shares is determined at the time when the contract is formed between the parties (Entores Ltd v Miles Far East Corporation, 1955). Therefore by applying the basic principles of contract law, this will mean the moment when the acceptance has been given. In such a case, an e-mail will be sent by the purchaser in which an offer will be made by the shares and an e-mail will be sent by the seller in which the acceptance of the offer will be communicated. However what will happen if between the time of sending the acceptance e-mail and the actual receipt of the acceptance by the offeror, there is a dramatic increase in the price of the shares in question. The impact on the price that has to be paid for these shares will be considerable, depending on the fact that the contract can be considered to have been formed when the acceptance was sent or when the e-mail containing the acceptance was the received. Therefore it again reveals the significance of ascertaining the exact moment at which the contract has been formed between the parties (Forder and Svantesson, 2008).

The Postal Acceptance Rule

Place: The instant of acceptance is relevant not only for the time of the formation of the contract but also for the place of the formation of the contract. In case of simple contracts, the moment acceptance takes place, is considered as the moment of the formation of the contract, not just regarding when the contract was created but also regarding where the contract was created. In this way, the place where the acceptance has taken place also considered to be the place where the contract was formed between the parties. This situation has jurisdiction consequences in case of any subsequent litigation between the parties. The law provides that in order to have jurisdiction in an action in contract by a court, it is required that the contract should be either made within the jurisdiction; governed by the law of the forum or it should have been broken within the jurisdiction of the court. In context of the present research paper, it is the first of these qualifications that is the most relevant. In order to establish that a particular court has jurisdiction in case of an action based on a contract that was formed to e-mail, it has to be established that the acceptance of the offer has taken place within the jurisdiction of such a court (Gatt, 1998).

Once again this shows the significance of distinguishing the exact moment of the acceptance of the offer. In case of the contracts that are created using e-mail, it is not clear whether the acceptance has taken place at a time when the acceptance was sent by the offeree or it is considered to have taken place when the same is received by the offeror. However the jurisdictional consequences in both the cases are very significant. An example in this regard can be given of a sale of goods were the contract has been formed between the parties using e-mail. If it can be considered in such a case that offer has been made by the by, and the acceptance has been made by the seller, the sending of acceptance by the seller will be the critical transaction. If it is considered that the acceptance takes place in the acceptance instead, in such a case the buyer's forum will be relevant jurisdiction but the opposite will be true if it is concluded that the contract is formed at the moment of the actual receipt of the acceptance (Graw, 2005).

This rule provides an exception to the general rule according to which, the acceptance has to be communicated to the offeror for the purpose of contract formation. However the rule has been developed nearly 2 centuries ago for the purpose of dealing with the perceived problems when the contracts were formed by the parties using post. Therefore according to the postal acceptance rule it is considered that the contract is complete and binding when the acceptance is posted instead of the time when it is actually received by the other party. However it is still not clear if the postal acceptance rule will be applicable in case of the contracts created through e-mails. It can be claimed that at least conceptually, snail mail and e-mail are the same. In both these cases, the sender 'posts' the correspondence through third-party and arrives in the mailbox of the receiver and the message is not actually read until such correspondence has been opened by the recipient. If the postal rule is applied to e-mail negotiations, the result will be that a contract will be formed between the parties when the acceptor/offeree presses the send button instead of the moment when the acceptance has been received by the offeror. Therefore in such a case, the time and place of the contract will be when and where the acceptance has been sent. But the arguments that are made in support of the postal acceptance rule are not applicable to e-mail. Most significantly, there is no real time delay in posting and the receipt of the e-mail. These modes of communication are appropriate reconsidered as instantaneous and therefore, the rules related with virtually instantaneous communications are applicable. Hence in such cases it can be said that the contract will be complete only when the acceptance has been received by the offeror and the contract is created at the place where the acceptance is received (Optus, 2009).

The instantaneous communication rule has been reaffirmed as a rule of general communication according to which the formation of the contract takes place when and where the acceptance is actually received by the party making the offer. Therefore this general communication rule is applicable to other instantaneous modes like telephone, fax and telex and not the postal acceptance rule (Mehta v J Pereira Fernandes SA, 2006).

Electronic Transactions Act, 1999 (Cth): The purpose behind the introduction of this legislation is to facilitate electronic transactions. Therefore this legislation validates electronic or digital versions of signatures and electronic documentation were the hard copies are needed. For example, section 8(1) of this Act provides that for the purpose of a commonwealth law, a transaction cannot be considered invalid due to reason that it has taken place wholly or partly by means of electronic communications. At the same time, this legislation also deals with the timing and the place of dispatch and the receipt of electronic communications. Even if this legislation has not been particularly drafted to deal with the issue of contract formation, any contract that has been created using electronic means is necessarily affected by it (Perry, 2002).

Under the common law and also under the Electronic Transactions Act, it has been recognized that there are certain circumstances where it may be necessary to deem receipt. In this context, the Act provides that in case of an addressee (or the offeror) as not designated an information system (e-mail address) for receiving the communication, the receipt takes place when the communication comes to the attention of the addressee. In case of contractual negotiations, the acceptance of the offer will not take place unless the offeror had actually read the e-mail. This provides an example of legislation requiring actual communication and in this way, it upholds the general communication rule. However, what may happen if the offeror is remiss in reading their e-mail. Or if they had deliberately avoided logging onto check their mail. Under the common law, a person who has not received the message or in the present case, the acceptance, in a timely fashion, due to poor business practices or as a result of deliberate evasion, is not allowed to rely on their tardiness to delay the time of the notice (Rahukar, 2010).

Conclusion:

As a result of the provisions of Electronic Transactions Act, in case of untimely delay by the recipient, the better question is answered: when the offeror as actually read the message or ought to have read the message. In the end, it can be said that it is still a moot point when it can be considered that a contract has been created between the parties using electronic means. Therefore, still the answers to the when and where questions are not certain. At present, there is no legislation in Australia or case law that directly deals with this issue. Hence, till the time these questions are settled, there will be a lot of uncertainty in case of contracts created through electronic means.

References

Burns, K. and Hutchinson, T. (2009) The Impact of ‘Empirical Facts’ on Legal Scholarship and Legal Research Training. The Law Teacher, 42 (3) pp. 153-179

Carter, J. W. and Harland, D. J. (1993) Cases and Material on Contract Law in Australia, pp. 339-40

Cornwilaw (2006) Electronic signatures and Electronic Contracts, Available: https://www.corwinlaw ( 22 May 2011).

Forder, J. and Svantesson, D. (2008) Internet and Ecommerce Law, pp. 52-53

Gatt, C. (1998) Comparative Issues in the Formation of Electronic Contracts. International Low and Information Technology, 6 (1), pp. 34 -57

Graw, S. (2005) An Introduction to the Law of Contract, pp. 461-464

Optus, (2009), Buying Online is Easy: A Few Things to Note. Available: https://personal.optus.com.au (December 26, 2009)

Perry, D. (2002) Electronic Enforcement Environment and Capability, Internet Law Bulletin, 5 (7), pp. 73- 74

Rahukar, S., (2010), Electronic Contracts (Part-1) Club Hack Mag. Available: https://chmag.in/article/nov2010 (May 22, 2011)

Schiano, W. T. (2004) CyberLaw: Text and Cases, pp. 158-159

Starke, J. G., Seddon, N. C. and Ellinghaus, M. P. (1992) Cheshire and Fitfoot’s Law of Contract pp. 663- 773

Case Law

Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3

Mehta v J Pereira Fernandes SA [2006] EWHC 813 Ch

Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119

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