What an Electronic Contract Is

In one line

An electronic contract is an ordinary contract whose formation happens in electronic form, and there are six recognisable kinds, differing not in their law but in how much the customer can be said to have agreed to.

First, what the Act does and does not do

The Act does not create a new species of contract. It removes obstacles. Four provisions do the work.

Section 4 satisfies a requirement of writing. Section 5 satisfies a requirement of signature. Section 10A says a contract is not unenforceable merely because it was formed electronically. Section 13 says when and where despatch and receipt occur.

Everything else is the Indian Contract Act, 1872. Offer, acceptance, consideration, capacity, free consent, lawful object. There is no separate law of electronic contracts and an answer that suggests otherwise is wrong. Chapters 300, 930 and 870.

The six kinds

One: exchange of email. Two parties negotiate and conclude by messages. Legally the least difficult of all: it is offer and acceptance in writing, and the only novelty is fixing time and place, which section 13 does. Trimex International v. Vedanta Aluminium is the Indian authority that an email exchange makes a binding contract, and chapter 930 works it.

Two: electronic data interchange. Structured messages exchanged directly between the computer systems of two businesses in an agreed format, typically for purchase orders, invoices and shipping notices. It is machine to machine, but it operates under a framework agreement signed on paper by the two businesses beforehand, which is what makes it unproblematic. The Model Law was drafted with electronic data interchange principally in mind, and section 2(1)(t)'s definition of an electronic record still shows it. Chapter 60.

Three: the website contract. A customer selects goods, fills a form, pays, and receives a confirmation. The contract law question is whether the listing is an offer or an invitation to treat, which chapter 920 answers.

Four: shrink-wrap. The oldest of the forms, and it predates the internet. Software was sold in a box with the licence terms printed inside or visible through the wrapping, and the buyer was told that tearing the wrapping accepted them. The obvious objection is that the buyer paid before seeing the terms, so the terms came after the contract was complete. American courts split on it, and the case usually cited for enforceability is ProCD v. Zeidenberg, decided by the Seventh Circuit in 1996, which reasoned that the vendor may make the offer and specify acceptance by conduct after an opportunity to read and return.

Five: click-wrap. The terms are displayed, and the user must click an affirmative control, "I agree" or "I accept", before proceeding. This is the strongest form, because the user is shown the terms and does a positive act, and because the platform can prove both. It is what almost every online service now uses.