“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.
Online contracts can add the element of
speed and efficiency to the contracting
Elements of valid contracts and online
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.
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.
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.
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
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
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.
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].
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 .
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.
In electronic commerce, consideration does
not pose any special concern except,
perhaps, for the risks associated with
payment online or through electronic means.
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.
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.
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.
In online contracting, two major issues
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
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
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
Parties to an online contract must still
exercise due diligence to ascertain whom
they are dealing with on the other side.
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.
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
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.
For digital signatures to work, two
different translation keys are generally
The first, called a public key, creates the
digital signature by transforming the data into
an unintelligible code .
A person’s public key is distributed by the
person to other’s with whom they do
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.
The second key, called a Private Key, verifies
the digital signature and returns the message
into its original form.
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
The private key is used to create the digital
The document’s recipient must have the
corresponding public key in order to verify
that the digital signature is the signer’s.
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
This feature provides integrity and
authenticity to a communication that a
manual signature does not.
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.
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.
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
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
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
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 .
If the two match the recipient has now
verified the integrity of the message.
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
Such a third party is called a certification
authority. Several national companies serve
in this capacity for individuals and
organizations for a nominal fee.
The Legal Effect of a Digital Signature
Digital signatures should meet all of the
legal requirements for online contracts.
Digital signatures accomplish the following.
provide a means to verify the integrity of
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.
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).
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
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.
Sometimes additional terms are also
imposed in such licenses which appear on
the screen only when the CD is loaded to the
The user always has the option of returning
the software if the new terms are not to his
liking for a full refund.
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".
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.
Here unlike the other two there is exchange
of information and completion of contracts
between two computers and not an individual
and a computer.
The Cardinal Question
The question which arises is –
Are these agreements valid and binding
contracts in the eyes of law?
Can they be enforced ?
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.
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.”
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
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".
The Indian Evidence Act deals with the
manner of providing documents by requiring
proof of documents through primary
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
Thus the electronic maintenance of records
will lead to a whole scale reduction in costs in
relation to record keeping as well as facilitate
Contractual issues in cyberspace: a
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.
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.
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
For sending or dispatch, it is proposed that it
occurs when the message enters a system
outside the control of the sender.
For receipt, a system of designating specific
electronic mailboxes as receiving points is
A message is deemed received by such
designated mailboxes when it enters the
. If there is no designation, it is also to a
mailbox other than he designated one; it is
received when the recipient retrieves the
. 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.
The genesis of legal relations
In principle, the formation of a contract takes
place after an offer is made and that offer is
The law requires a ‘meeting of the minds’.
This usually results from the acceptance of
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
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
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.
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.
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.
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
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
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