Cyber contract


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Cyber contract

  1. 1. Cyber Contract
  2. 2. “Cyber," or Online Contract    A contract created wholly or in part through communications over computer networks. A cyber-contract can be created entirely by the exchange of e-mails where an offer and an acceptance are evident or they can be made by a combination of electronic communications, paper documents, faxes and oral discussions.
  3. 3. Benefits  Online contracts can add the element of speed and efficiency to the contracting process.
  4. 4. Elements of valid contracts and online contract:  Offer  Acceptance  Consideration  Consent
  5. 5. Offer  In a number of cases where a company is likely to enter into contracts over the Internet, it will do so by way of an advertisement which, if worded correctly, would amount to an ‘invitation to treat’. The visitor to the site or the buyer can make an offer.
  6. 6.  Online contracts raise some interesting issues. A website acts as an advertisement, a display and a shop for sales. Bearing in mind that an offer when accepted results in a binding contract, it is advisable to design and arrange a website in such a manner as to avoid making an offer. On the other hand, it is advisable to so arrange matters that it is the consumer or visitor to the website who makes an offer to the website owner. This obviates several risks and unintended consequences, as we shall presently see.
  7. 7. A website versus a shop  When a shop displays goods with prices, the shop owner is not making an offer. Therefore, when a consumer walks in and picks up a product and offers the price displayed, the shop owner is not bound to part with the product. In fact, it is the consumer who makes the offer that the shop owner may accept or reject. This principle is extremely useful on a website because it allows the website owner to select the territories he wants to serve, the customers he wants to select and to avoid stock depletion and the risk of being sued for failure to deliver.
  8. 8. Acceptance  Acceptance of an offer has to be unconditional. In other words, if any additional or different terms (from those in the offer) are appended to the acceptance we would have a counter-offer rather an acceptance.
  9. 9.  In online transaction, the visitor to the site or the buyer can either accept or ignore the opportunity provided by the website to enter into the transaction with him (but not make a counter offer).
  10. 10.   On a website this is typically handled by allowing a simple type of positive response, namely the pressing of a button stating "I agree" or a similar signal. In the case of email transactions, email offers or acceptance, there is greater scope for counter offers and therefore, reduced scope for automation of processes.
  11. 11.   For example: an email acknowledgement or a "read and received" receipt will not constitute, by itself, an acceptance of an offer, thereby binding the person making the offer . [unless, of course, such receipt or acknowledgement conveys an acceptance explicitly or otherwise].
  12. 12.  Automated offers and acceptances are valid An offer or acceptance made by an automated machine or system programmed by any person or on his behalf binds such person .
  13. 13. Consideration    Any contract (except under exceptional circumstances as permitted by law) is not valid, without valid consideration. Typically, consideration is the compensation or promise that is given in return for a promise (in most cases the money paid or promised for goods or services). In other words, consideration is the price or the return for a promise that turns that promise into a legally binding contract.
  14. 14.  In electronic commerce, consideration does not pose any special concern except, perhaps, for the risks associated with payment online or through electronic means.
  15. 15. Consent    There can be no contract without free consent of the contracting parties. If the parties do not understand the same thing in the same sense, there can no agreement or contract. In website transactions it is very important for a website owner to ensure that the consumer scrolls through the appropriate terms and conditions before clicking the button for the purchase of goods or services.
  16. 16.   This could help preclude any claim that there was no consent or that there was no intent to be legally bound. This is analogous to a situation where a passenger is bound by the terms and conditions on the reverse of a ticket where his attention is drawn to such terms by an indication on the face of the ticket.
  17. 17. Verification of Party to Contract  The biggest concern in electronic communication is the identity and authority of the person on the other side of the transaction. It is a simple matter for a person to adopt a pseudonym online or to send an electronic message that appears to come from someone else.
  18. 18. In online contracting, two major issues arise:   How can you be sure that the person with whom you are communicating is the person he or she claims to be? Can an impersonator bind you to an electronic contract?
  19. 19.  Since electronic communications does not involve business cards, letterhead or corporate seals, it is impossible for one party to determine the other party’s authority to book a meeting or sign a contract
  20. 20.  Just because someone has a corporate email address and says they are the executive director, vice-president of special events or director of meeting planning does not make it so .  Parties to an online contract must still exercise due diligence to ascertain whom they are dealing with on the other side.
  21. 21.  The development of digital signatures is helping to solve this problem.  A digital signature can provide assurance that the communication was sent by a known party and not an impostor.
  22. 22. Electronic / Digital Signatures  A digital signature is an electronic substitute for a manual signature and is generated by a computer rather than a pen. It serves the same functions as a manual signature, and a lot more.
  23. 23.   In technical terms, digital signatures are created and verified by a special application that generates cryptographic messages. . Cryptography is a branch of applied mathematics and involves transforming clear messages into seemingly unintelligible forms and back again.
  24. 24. For digital signatures to work, two different translation keys are generally used.  The first, called a public key, creates the digital signature by transforming the data into an unintelligible code .
  25. 25.    A person’s public key is distributed by the person to other’s with whom they do business. One way of accomplishing this is to post the public key on an organization’s web page for anyone to access. A public key can also be attached to the document being executed.
  26. 26.  The second key, called a Private Key, verifies the digital signature and returns the message into its original form.
  27. 27.    Individual’s using a digital signature will also have a private key that is known only to that individual, or a limited number of corporate officers. The private key is used to create the digital signature. The document’s recipient must have the corresponding public key in order to verify that the digital signature is the signer’s.
  28. 28.    A digital signature has many advantages over a manual signature. Digital signatures allow the recipient to determine if the digitally signed communication was changed after it was digitally signed. This feature provides integrity and authenticity to a communication that a manual signature does not.
  29. 29.  Additionally, a message sender can include information about the sender’s authority and job title as well as the sender’s identity encrypted into their digital signature.
  30. 30. How Are Digital Signatures Actually Signed and Then Verified?    A sender must first create a public-private key pair before an electronic communication can be digitally signed. The sender discloses his or her public key to the recipient . The private key is kept confidential by the sender and is used for the purpose of creating a digital signature.
  31. 31. How?    The entire process is started by the sender who runs a computer program that creates a message digest (technically known as a oneway hash value). . The program then encrypts the message digest using the sender’s private key. The encrypted message digest is the digital signature.
  32. 32. Verification   The sender attaches the digital signature to the communication and sends both electronically to the intended recipient. When the digitally signed communication is received, the recipient’s computer runs a special program containing the same cryptographic mathematical formula that the sender used to create the digital signature
  33. 33.  The digital signature is automatically decrypted using the sender’s public key .  . If the recipient’s program is able to decrypt the digital signature successfully, he or she knows that the communication came from the purported sender.
  34. 34.  The recipient can tell if a communication has been altered or tampered with because the recipient’s program will create a second message digest of the communication.  This second message digest is then compared to the original message digest .
  35. 35.  If the two match the recipient has now verified the integrity of the message.
  36. 36.    This system is virtually foolproof as long as the public key used by a sender can be verified as indeed belonging to that sender versus an impostor. This potential risk has been solved by the use of third parties to verify an individual’s public key. Such a third party is called a certification authority. Several national companies serve in this capacity for individuals and organizations for a nominal fee.
  37. 37. The Legal Effect of a Digital Signature    Digital signatures should meet all of the legal requirements for online contracts. Digital signatures accomplish the following. They can: provide a means to verify the integrity of messages sent;
  38. 38.  verify the source of an electronic message because only a sender’s public key will decrypt a digital signature encrypted with the sender's private key;  prevent repudiation by the sender once the authenticity and integrity of a communication have been established;  satisfy the requirement for a writing and signature required by the Statute.
  39. 39. The Three Basic Genre  Generally the basic forms of "E-Contracts" that a person comes across are:  The Click-wrap or Web-wrap Agreements. The Shrink-wrap Agreements. The Electronic Data Interchange or (EDI).  
  40. 40. Click-wrap agreements   Click-wrap agreements are those whereby a party after going through the terms and conditions provided in the website or program has to typically indicate his assent to the same, by way of clicking on an "I Agree" icon or decline the same by clicking "I Disagree". These type of contracts are extensively used on the Internet, whether it be granting of a permission to access a site or downloading of a software or selling something by way of a website.
  41. 41. Shrink-wrap agreements   The name was derived from the "shrink-wrap" packaging that generally contains the CD Rom of Software's. The terms and conditions of accessing the particular software are printed on the shrinkwrap cover of the CD and the purchaser after going through the same tears the cover to access the CD Rom.
  42. 42.  Sometimes additional terms are also imposed in such licenses which appear on the screen only when the CD is loaded to the computer .  The user always has the option of returning the software if the new terms are not to his liking for a full refund.
  43. 43. Electronic Data Interchange or EDI  Electronic Data Interchange or EDI is “ the electronic communication between trading partners of structured business messages to common standards from computer application to computer application".
  44. 44.  In other words they are contracts used in trade transactions which enables the transfer of data from one computer to another in such a way that each transaction in the trading cycle (for example, commencing from the receipt of an order from an overseas buyer, through the preparation and lodgment of export and other official documents, leading eventually to the shipment of the goods )can be processed with virtually no paperwork.
  45. 45.  Here unlike the other two there is exchange of information and completion of contracts between two computers and not an individual and a computer.
  46. 46. The Cardinal Question    The question which arises is – Are these agreements valid and binding contracts in the eyes of law? Can they be enforced ?
  47. 47. Internet legislation   Contrary to popular belief, cyberspace is not a lawless arena for conducting commerce. Mostly, existing contract laws are generally able to deal with on-line and click-wrap agreements. In addition, the United Nations Commission on International Trade Law (UNCITRAL) has drafted a Model Law on Electronic Commerce that provides a basis for jurisdictions to prepare legislation relating specifically to electronic commerce.
  48. 48.   Article 11 of the Model Law provides that “unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed by means of data messages . Where such data message is used, the contract shall not be denied validity or enforceability on the sole ground that a data message was used for that purpose.”
  49. 49.   However, the mere acceptance of on-line contracts is not in itself sufficient protection for the merchant. The contract itself still has to be structured in such a way for the merchants not to be caught by any deficiencies under this new trading arena.
  50. 50.  The IT Act in India provides for legal recognition and protection to electronic records and digital signatures. An electronic record is defined as "data, record or data generated, image or sound stored, received or sent in an electronic form or microfilm or computer generated micro fiche".
  51. 51.    The Indian Evidence Act deals with the manner of providing documents by requiring proof of documents through primary evidence. The IT Act provides evidentiary value to electronic records by introducing a new section 65B in the Indian Evidence Act which deems any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media, to be a "document" if certain conditions specified are met. In such cases, the information is deemed to be "admissible in any proceedings" without further proof or production of the original
  52. 52.  Thus the electronic maintenance of records will lead to a whole scale reduction in costs in relation to record keeping as well as facilitate e-commerce
  53. 53.  Contractual issues in cyberspace: a brief prologue. The issues relating to formation of a contract in cyberspace are intriguing.  While rules on the formation of contracts are clear in the physical world, there are significant ambiguities in the electronic world.
  54. 54.  There is, therefore, a need to enact legislative provisions to clarify the rules of formation of electronic contracts .  . This would supplement the digital signature system, as the signatures are likely to be used in an environment where contracts and transactions are concluded electronically.
  55. 55.   The main issue involving the transmission of a message through different electronic mechanisms such as electronic mail is when the message was considered sent or received. For sending or dispatch, it is proposed that it occurs when the message enters a system outside the control of the sender.
  56. 56.    For receipt, a system of designating specific electronic mailboxes as receiving points is proposed . A message is deemed received by such designated mailboxes when it enters the system. . If there is no designation, it is also to a mailbox other than he designated one; it is received when the recipient retrieves the message .
  57. 57.   . The place of contract is also an issue in electronic contract formation. The proposal is to designate the place of dispatch and receipt as the regular place of business or residence of the sender and recipient respectively, regardless on the actual place of receipt.
  58. 58. The genesis of legal relations    In principle, the formation of a contract takes place after an offer is made and that offer is accepted. The law requires a ‘meeting of the minds’. This usually results from the acceptance of an offer.
  59. 59.   The growing e-commerce practice is that the online seller does not make an offer online, which would be accepted by the purchaser’s acceptance, but merely an invitation to treat [i.e. a call for proposals]. This practice can be seen for example in Amazon’s terms and conditions
  60. 60.   The purpose of such a provision is to protect the seller from making a unilateral offer directed at the world and from being bound by an agreement that is finalized outside of its control. It ensures that a failure by the seller to honor an online request from a buyer will not adversely affect the seller and both parties are informed of the actual time of the conclusion of the contract.
  61. 61.  There is no [legally] binding contract until there has been a assent to the offer signified in the mode required by the terms of the offer. At common law prima facie, an acceptance by post is complete when the letter is posted or by telegram when it is handed in; but acceptance by instantaneous form of communication takes effect only on receipt.
  62. 62.  The formation of contracts over the Internet is a contentious issue.  However, under the Indian Information Technology Act, 2000, electronic media is no longer an obstacle to forming a valid contract.
  63. 63.  The international dimension may add additional problems to the complicated issue and it is possible that courts other than those in India may forming have jurisdiction in the event of a dispute [ for example, where one of the contracting parties resides overseas and the services or goods are to be provided to him there]. Non-Indian Courts also may hold that the local legal requirements have not been complied with to form a valid contract.
  64. 64. Conclusion   Although the meetings industry is still primarily dependent on the use of paper in creating contracts, the full use of online or "cyber-contracts" is probably not far away. Such cyber-contracts will not take the place of full-scale negotiations but they will definitely speed up the end game of signing contracts once the details are agreed to by the parties.
  65. 65.  As business and technology race forward, the use of online contracts and digital signatures in the future will probably seem as commonplace as sticking a piece of paper in a fax machine for someone far away to sign does today