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Importance of electronic contracts in contemporary business

Describe about the Creation of Electronic Contracts for Dynamic Business.

"Contract law is essentially a defensive scorched-earth battleground where the constant question is, "if my business partner was possessed by a brain-eating monster from beyond space time tomorrow, what is the worst thing they could do to me?" these words by award winning British Author Charles Stross has become an undeniable truth in this ubiquitous and dynamic business environment. With the changing business environment business owners or partners have a tool of resistance in the form of contract or agreement[1]. Over the years the mechanism of business has changed and with the induction of internet electronic businesses have emerged in the market. In this scenario the means of contracts have also undergone significant change. Before the internet age only paper was a means of writing contracts, but for electronic businesses paper contracts have been avoided which gave rise to a new form of contract that is electronic contract. The creation of electronic contract is comparatively new and is used in the contemporary business market[2]. The modern society relies on an economic system which is mainly based on contracts and with the emergence of the electronic businesses consumers have showed inclination in online shopping in fact to say doing online transaction which has created the need of having electronic contracts[3]. It is important to mention that with the electronic business spreading all across the world it has become very tough to maintain a proper legal relationship. Maintaining legal relationship became important and hence the concept of electronic contracts came up. According to several legal surveys it has been found that most of the consumers feel skeptic about online transactions for the absence of valid contract which established the need of electronic contract[4].

Electronic contract could be defined as the contract agreement between two or more individuals in the course of electronic transaction which acts as a formal legal contract as it contains all of the fundamental elements of the traditional contract. Generally a contract could take any form which could be verbal or written and hence an electronic contract is another form of agreement which could be used as a tool in case of any legal implication. According to the Electronic Transactions Act 1999 has facilitated the process of electronic transaction with the help of electronic communication in the form of data that is defined as the any kind of computer program as stated in the Copyright Act 1968[5]. The enforceability of online contracts in Australia has been done to facilitate online transaction looking at the booming e-commerce sector which has helped to develop the industry and provide ample support to it’s for nourishment. Since the concept of contracts is the basis for the exchange of goods having an effective contract is important and hence since the growth of e-commerce business has seen a rapid rise it was important to develop regulatory framework for online business and the electronic contracts rightly serves this purpose. The electronic contracts just differ by means but have all the essential elements of a valid contract[6].

Definition and features of electronic contracts

The formation of an electronic contract is a vital factor to be considered here as electronic contracts have been used for the online businesses. In e-commerce people doesn’t meet face to face and hence it is important to mention that there remains a strong confusion about the inclusion of the different fundamental elements of contract in the agreement[7]. A contract is considered valid or invalid based on the presence or the absence of the basic elements in the contract. In the recent years the efficiency and market accessibility of the e-commerce business has allowed the business owners a wide scope of expanding their businesses as well as it has also allowed the consumers to get their required things sitting back at home which has also added to the importance of electronic business[8]. With the rise of electronic business the essentiality of electronic contracts have risen consistently but since the parties making the contract never meet face to face it becomes extremely tough for them to consider a contract for their transaction and hence in these circumstances it becomes extremely important to assess the vitality of electronic contracts. It is important compare electronic contracts with the traditional form of contract to see its legitimateness and also its legal validity to serve the purpose of a transaction. There are two basic kinds of electronic contracts which are being used nowadays namely Click and Wrap Contract and Browse and Wrap Contract[9].

Comparison between Electronic Contracts

The formation of traditional legal contract is quite similar to the formation of an electronic contract but they do have significant difference the basic elements of contract should be present in the electronic contract as well. For instance there should be a clear offer to sale and not a mere invitation to sale as shown in the case of AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454 where it was made clear that the offer by the auctioneer was a offer to treat and hence unlike this case the legal contract should have a clear offer[10]. Understanding of clear offer often becomes a problem for the consumers since the contracts have fixed place and time of making the contracts. On the other hand there should be a clear intention to create legal relations as shown in the case Administration of PNG vs. Leahy[11]. Basically it could be said that in the online world it is hard to understand the whether a visible information is an offer or not since it is not properly communicated to the other party regarding the terms and conditions which should be very clear in terms of offer, consideration and intention to create legal relations unlike the case Australian Woollen Mills Pty Ltd v The Commonwealth High Court of Australia (1954) 92 CLR 424 where the plaintiff argued that there was a contract but the court held there was no contract due to the absence of the above three aspects of contract[12]. It is important to mention that key difference between traditional contracts and electronic contracts is both the parties come into consensus at idem. The e-commerce has produced number of challenges which has to be handled effectively. Hence it could be said that the biggest problem in the formation of contract is the presence of the different key elements of contract in the absence of which a contract is deemed invalid. In electronic contracts it is important to identify and assess these elements failing which it could nullify the contract made as per the Electronic Transaction Act 1999[13].

Legal framework for the enforceability of electronic contracts in Australia

Offer and Acceptance

One of the biggest confusions that prevail in the creation of an electronic contract is the presence of absence of offer. Prima facie to the concept of offer, invitation of treat was not a known concept. Both the concepts become important for the law keepers due to the constant emergence of cases where consumers became confused whether to consider one ad as the offer or invitation to treat.  Carlill v Carbolic Smoke Ball Co Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1 one of the cult cases in contract law showed the difference between an offer and invitation to treat consumers[14]. In this the court ruled that there was a valid offer as the company promised to pay reward if any one catches flu after using the smoke balls three times. When the company argued it was an invitation to treat the court stated that it was a unilateral contract from the side of company[15]. Similar legal implication could arise for the e-commerce businesses when they display their products and services for sale.

The Click and Wrap contracts are those contracts which have the terms and conditions set in the same page as the “I Agree” button clicking on which the contract becomes valid. On the other hand the browse and wrap agreement is not an enforceable contract since it doesn’t contain the terms and conditions page in the same page to agree to a particular offer or contract. Hence it is important for the consumers to be careful when they get into any sort of contract. In this kind of contract the merchants do face legal implication as they fail to show reasonable behavior towards the consumers[16]. Showing reasonability is important for every merchant especially dealing in electronic contract in order to keep that trust of the consumers failing which they could lose their business. 

There is a long standing confusion to displays being actual offers or being just invitation to treat since not all the advertisement satisfy the criteria to become an offer. This has been clearly shown in the case of Fisher v Bell 1961 that not all the advertisement could become an offer[17]. But it has been argued in the above case of Carlill vs Carbolic smoke ball that advertisements could be considered as unilateral offers and in this case once a display of a product is placed and consumer clicks on to buy it construes as an offer and in case the company fails to provide the same product the company is liable to be punished. From the above cases it could be said that perceived inconsistency lies in the fact about websites and hence it is not the fault of the law but for the lack of established facts which could have helped to determine these things effectively[18]. But to conclude it could be said that the displays are apparently an invitation to treat until and unless a consumer clicks on it to get into an agreement. Hence it could be said that the difficulty is just the matter of fact and law that hinders the decision making in electronic contracts.

Comparison between electronic and traditional contracts

Withdrawal of mistaken offer

Taking back a mistaken offer or rescinding it could be an arduous job for the offerors. In the recent cases it has been seen that mistaken offers were not taken very lightly by the other parties namely the consumers. It doesn’t go well if any party does a misrepresentation of an offer and it can affect the relationship between both the parties getting into an agreement especially in the electronic means of business. Rescinding a mistaken offer could be done only before an offer is accepted. In this case it is same for the online transactions. If in case the online vendor makes a mistake by printing the wrong price for a product and then consumers pay for it to get that product in that case the vendor has to honor the deal as stated by the Australian Contract Law and in that case the party trying to withdraw shall be bound to pay for the damages caused to the other party[19]. For the withdrawal of an offer it is extremely important to communicate and in case it is not done the offferor might face trouble regarding the offer. However the vendor could take back the offer whenever he or she wants since the ads are basically displayed as invitation to treat and not as an offer as shown in the case of Bell v Lever Bros [1932] AC 161. As per facts it could be said that most of the mistakes made by one side doesn’t affect the contract as it is considered as a unilateral mistake and hence doesn’t affect the contract, whereas if the mistake is a mutual mistake made by both parties then the contract could be considered void[20].

Legal assistance for Parties

The standard legal principles of contract law are applicable for online transactions. The Australian businesses have to abide by certain principles of business and the fair trade policies developed by the Australian Competition and Commission in support with Australian Competition and Consumer Act 2010 which also applies to the e-commerce businesses. The ACCC focuses to develop a strong platform to safeguard the rights of its consumers by contracting the persons with whom the contracts have been made. The consumers are open to seek legal actions in case they feel cheated or betrayed. Overall it could be said that the party affected in online transaction could get legal support from Australian Competition and Consumer Commission as per the Consumer act of 2010[21].

Offer and acceptance in electronic contracts

Existing issues in the creation of electronic contracts

There are number of issues with electronic contracts which have to be addressed by the Australian Government with the help of Electronic Transaction Act 1999. The main issue of offer and acceptance stay there since the merchants precisely fix the time and place of the agreement thus determining the jurisdiction of the contract. Offer in electronic business could be misleading and hence it becomes tough for the consumers to understand which one is an offer and which an invitation to treat is. With the e-commerce business expanding it has become tough for the government to understand the jurisdiction for keeping the law intact and finally the enforceability of online contract still have confusions which has to be addressed to continue electronic business. It could be concluded by stating an old aphorism “Prevention is better than cure” to properly go ahead with the electronic contracts to avoid any legal issues[22].

Bakos, Y., Marotta-Wurgler, F., & Trossen, D. R.. Does anyone read the fine print? Consumer attention to standard form contracts. (2014)  Journal of Legal Studies.

Bonell, M. J. An international restatement of contract law: (the UNIDROIT Principles of International Commercial Contracts. Martinus Nijhoff Publishers 2009). 

Chrysostome, E., & Rosson, P. The internet and SME internationalisation: promises and illusions. (2009). Journal for International Business and Entrepreneurship Development.

Cole, J., & Milosevic, Z. Extending support for contracts in ebXML. In Australian Computer Science Communications . (IEEE Computer Society. 2001, January).

Davidson, A. The law of electronic commerce. (Cambridge University Press. 2009)

Gindin, S. E.. Nobody reads your privacy policy or online contract: Lessons learned and questions raised by the FTC's action against Sears. (Nw. J. Tech. & Intell. Prop., 8, 1. 2009)

Governatori, G., & Pham, D. H. Dr-contract: An architecture for e-contracts in defeasible logic (2009).. International Journal of Business Process Integration and Management.

Hillman, R. A. The richness of contract law: An analysis and critique of contemporary theories of contract law (Vol. 28). (Springer Science & Business Media. 2012)

Hillman, R. Principles of Contract Law, ( 3d Concise Hornbook Series. West Academic. 2013). 

McKendrick, E.. Contract law: text, cases, and materials. (Oxford University Press UK 2014).

Murray, A. D.. Entering into contracts electronically: the real www. (Hart Publishing. 2012)

Nottage, L.. Consumer law reform in Australia: Contemporary and comparative constructive criticism. (2009). Queensland U. Tech. L. & Just. J., 9, 111.

Paterson, J. M.. The Australian Unfair Contract Terms Law: The Rise of Substantive Unfairness as a Ground for Review of Standard Form Consumer Contracts (2009). Melbourne University Law Review, 33(3).

Schaffer, R., Agusti, F., Dhooge, L. J., & Earle, B International business law and its environment. (Cengage learning.  2011). 

Twigg-Flesner, C. The Europeanisation of contract law: current controversies in law. (Routledge. 2013). 

Case Laws

AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454

Administration of PNG vs. Leahy

Woollen Mills Pty Ltd v The Commonwealth High Court of Australia (1954) 92 CLR 424

Carlill v Carbolic Smoke Ball Co Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1

Fisher v Bell 1961

Bell v Lever Bros [1932] AC 161

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