Cyberspace Contracts

To some it may sound strange, but electronic commerce has been with us for quite some time now. Traditionally, it has been used by established business partners; for example, between wholesalers and manufacturers or by banks exchanging magnetic tapes containing details of clearing cheques. It is only in the past few years, with the advent of the Internet, that electronic commerce concluded over the Internet on a business-to-consumer or consumer-to-consumer basis has become feasible.

“Contrary to popular belief, cyberspace is not a lawless arena for conducting commerce”


Electronic commerce by way of EDI is conducted between existing business partners operating under a pre-existing contract containing all the terms and conditions pertaining to all transactions between the business partners. The agreements are most likely to be extremely detailed and explicit leaving very little room for unresolved issues or the possibility of litigation.

Internet legislation
Contrary to popular belief, cyberspace is not a lawless arena for conducting commerce. 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 messages are used, the contract shall not be denied validity or enforceability on the sole ground that a data message was used for that purpose”. This concept, under the Model Law, has been adopted by various jurisdictions as a model for drafting their own electronic transaction legislation, including the Indian Information Technology Act, 2000.

A brief prologue
The issues relating to formation of a contract in cyberspace are intriguing. There is 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 received. 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 proposed. A message is deemed received by such designated mailboxes when it enters the system.

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 of the actual place of receipt. In order to achieve harmony with other countries on the formation of international digital contracts, it is recommended that the provisions of the Model Law be adopted.

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’. 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 on 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.

There is no (legally) binding contract until there has been an 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 have jurisdiction in the event of a dispute.

The ‘elements’
Under the Indian Contract Act, 1982, there are four essential requirements of a contract:

  • An offer
  • Acceptance of the offer
  • An intention to create legal relations
  • Consideration

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 that, if worded correctly, would amount to an “invitation to treat”. Thus, where a potential customer is applying for a service or purchasing over the Internet, the website owner would be entitled to turn down the application. Each case will turn on
its own facts and the intended objectives of the website owner should determine how the advertisement is worded.

The transaction should not be completed without confirmation that the terms and conditions have been accepted. These points should be in mind when designing a web

As a rule, a contract will not be formed until acceptance of the offer has been communicated to the offeror. Parameters should be made clear under the relevant terms and conditions or by a statement that will be seen by the user before he communicates acceptance. The contract will not be formed until the website owner has received an email accepting the offer.

The website owner could pre-empt matters by specifying the law to be applied to the contract and the courts to have jurisdiction in the event of a dispute. However, the effectiveness of these measures would [in all probability] be determined by the foreign court, and in any event, the measures would not bind third parties [such as a person who has been defamed on an electronic bulletin board run by the website owner] nor would they be effective to avoid regulatory regimes or criminal sanctions.

There is very little authority on when acceptance is deemed to have been received by the offeror when the offer is transmitted via a computer communication. The case referred to for the purposes of the discussion deal with telex transmission, but there is no case law on facsimile transmissions or the Internet. Therefore, all discussions in respect of computer communication can only be by analogy. The receipt rule must apply to computer communications where there is a direct link between the parties.

Direct Internet communications, that is to say those relayed from one Internet node to another, are more closely analogous to a telephone conversation rather than a postal situation. If the communication is not received, one of the parties, probably the
offeree, is likely to become aware of this. In addition, there is no intermediary to whom the transmission is entrusted.

Therefore, the receipt rule would equally apply any analogy to Internet contracts, if there were no intermediary service provider. This would have to presume that the transmission is instantaneous and that once the acceptance is communicated, it is read immediately on receipt.

A middle path
The practical reality of communications via the Internet is that they are not as instantaneous as one would like to believe. There can be some if not considerable delay. In addition, there is no guarantee that the received message will actually arrive at the website owner’s server, that it will arrive without any corruption, or that it will be read immediately.

The author is a consultant on intellectual property, trade and technology laws.

Leave a Reply

Your email address will not be published. Required fields are marked *