Consent And Mistake In E-Contracts - A Way Forward
Author: LawSphereX
Category: International Law
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CONSENT AND MISTAKE IN E-CONTRACTS - A WAY
FORWARD
Rishab Chand Jain, National Law School of India University (NLSIU), Bangalore
INTRODUCTION
Free consent is one of the main essential conditions for a valid contract. Parties to the contract should have “consensus ad idem”, i. e. , a meeting of minds. They must agree upon the same thing in the same sense to make it free consent and to make that contract valid in the eyes of the law, but there are certain conditions in the contract which does not fulfill the essential condition of free consent in the contract. The mistake is one example in which there is no free consent between the contracting parties. A mistake is a false assumption that certain facts are valid at the time of contracting. If it is successfully asserted as a defense, the agreement in question may be ruled to be voidable; alternatively, the courts may give an equitable remedy.
In the modern world, when there is a rapidly growing use of the internet, many consumers make a contract in online terms to fulfill their basic requirements. This paper attempts to analyze two parts from the perspective of E-contracts. Firstly, this paper aims to analyze the determining of consensus ad idem in E-contracts. E-contracts are becoming more and more valuable in this growing world of globalization. In the growing internet age, what is the basis that determines consent in an online contract? It primarily deals with problems associated with consent in E-contracts and difficulties in proving consent and gives suggestions to determine the consent in online contracts. Secondly, this project paper deals with unilateral mistakes in Econtracts and gives recommendations to deal with these unilateral mistakes with both theoretical as well practical measures.
E-CONTRACTS: HOW TO DETERMINE CONSENT?
An E-contract is a contract that a software system model specifies, executes, controls, and monitors. In e-contracts, all (or a subset of) actions are carried out online, typically over the Internet, and contracts are prepared and signed electronically.1 1 Khush Bhachawat, 'Electronic Contracts in India: Challenges and Complexities' (2021) 4 Int'l JL Mgmt. & Human 3502, 3503.
Different Ways of E-Contracts. Online contracts have become an integral part of human lives in this rapid age of globalization. It enables consumers to choose the product of their choice in the comfort of sitting at their homes. It just requires a few clicks on their screens to enter the contract but the question is, are consumers really aware of what they are agreeing to when they click on an "I agree" symbol or check box that indicates agreement to the terms and conditions (hereinafter abbreviated to Ts&Cs) of an online contract. Do they have free consent which is an essential condition to make a contract valid? Online contracts can be made of two types: through electronic “e-mail” and through “websites”.
Indian Contract Act, of 1872 does not have a specific section for electronic contracts but section 4 of the Indian Contracts Act gives us an idea about the validity of contracts through “E-mail”. 2 E-contracts through websites can be made in three ways- Clickwrap, shrink-wrap, and browse-wrap. 3 The provisions of a "shrink wrap" agreement, which is a previous license agreement, can only be viewed and approved by users after they have paid for and opened the goods or software. 4 For example- “Before you open this package: Carefully read the following legal agreement regarding your use of the enclosed product. By the act of opening the sealed package, using the software, or permitting its use, you will indicate your full consent to the terms and conditions of this agreement.
If you do not agree with what it says, you may return the software package within 7 days of your receipt for a full refund. 5” The problem with these types of agreements is that consumers are unaware of the restrictions that have been imposed on them with this type of contract. 6 When two parties enter a "click wrap" agreement, they agree to the terms listed on the website and click an icon that reads "I accept" or "I agree" to show that they accept the terms. These econtracts typically contain fixed terms and little room for negotiation on the part of the online user; instead, they are more of a take-it or leave-it arrangement in which users learn about the terms after the contract has already been signed. 7 Similar to this, a "browse wrap" agreement has predetermined terms, so the user's direct written assent is not necessary. The website
2 Indian Contracts Act 1872, s 4.
3 Lalsangliani, 'Analysis of Section 10 of the Indian Contract Act in Relation to E-Contracts' (2021) 4 Int'l JL Mgmt & Human 1293, 1295.
4 ibid 1295.
5 Roy J. Girasa, 'Click-Wrap, Shrink-Wrap, and Browse-Wrap Agreements: Judicial Collision with Consumer Expectations' (2002) 10 Ne J Legal Stud 102, 2-3.
6 ibid 3.
7 Lalsangliani, (n 3) 1295.
provides a link at the bottom of the page that, when clicked, takes users to the terms and conditions page. The mere act of viewing a website or downloading software is assumed to constitute consent to the terms stated in a website hyperlink.8 Formation of E-contracts under the Indian Law. Every contract be it electronic or paper must follow the Indian Contract Act, of 1872. The contracts must follow requirements and conditions as mentioned in the Indian Contracts Act. Since the Indian Contracts Act was passed in 1872, it was not possible for the drafters to oversee the possibilities of E-contracts. It is the Information Technology Act, 2000 which makes E-contracts valid and enforceable.
1. Information Technology Act,2000.
Information Technology Act, 2000 was passed keeping in mind the guidelines of the United Nations Commission on International Trade Law (UNICTRAL)9. This act gave legal recognition to E-contracts in India and intends to create a smooth mechanism for E-contracts in India. 10 The word 'electronic record' is used in the IT Act instead of terminology like 'proposal' and 'acceptance'. Section 2(1)(t) of the Act defines an electronic record as "communication that takes place in an electronic form. " An Econtract has two parties: the originator and the addressee. 11 An originator is someone who sends, creates, saves, or transmits an electronic record, whereas an addressee is someone who the originator intends to receive the electronic record. 12 The amended section of the IT Act, 2000 included section 10 which specifically mentions the validity of E-contracts and terms it enforceable and valid.
13 All E-contracts are valid if they fulfill all the essential conditions of the Indian Contract Act. 14
2. Indian Evidence Act.
Indian Evidence Act also validates E-contracts through section 65(B).15 Section 85A of this Act also recognizes the legality of agreements made by electronic means.16 It
8 ibid 1295.
9 Khush Bhachawat, (n 1) 3503.
10 ibid 3503.
11 Information Technology Act 2000, s 2.
12 Khush Bhachawat, 'Electronic Contracts in India’ (n 1) 3503.
13 Information Technology Act 2008 s 10.
14 Khush Bhachawat, (n 1) 3504.
15 Indian Evidence Act 1872 s 65(B).
16 Indian Contract Act 1872 s 85.
assumes that any electronic record that is intended to constitute an agreement between parties and contains electronic signatures of the parties is concluded when the electronic signatures of the parties are affixed to it.17 DETERMINATION OF CONSENT IN E-CONTRACTS.
It is essential to have consent or “a meeting of minds” to validate the contracts. This statement is meant to show that the parties are on the same page and have the same intentions regarding the specifics of the contract. This understanding of consensus ad idem is highly consistent with the ideas of party autonomy and contractual freedom present in traditional contract law theory. 18 The question before the court is how to determine consent in E-contracts. Traditionally courts have been using the subjective test to determine the intention of the parties in the contract but over a period courts evolved a new test and now they are using the objective test to determine the intention.
In the case of Centrovincial Estates Plc Merchant Investors Assurance Co Ltd,19 the court held that “It is a well-established principle of English contract law that an offer is to be construed objectively, by reference to the interpretation that a reasonable man in the offeree's position would place on the offer, rather than subjectively, by reference to what really occurred to the offeror. ”20 Similarly, in the case of RTS Flexible Systems Ltd v Molkerei Alois Midler GmbH & Co (UK Production),21 the courts reiterated that “Depending on what they have decided, the parties will either have a legally binding contract or not, and if so, on what terms.
It is not necessary to consider their subjective states of mind in order to determine whether they intended to form legally binding relations and had consented to all of the contexts that they assumed or that the law requires as required for the formation of such relations. Instead, it is necessary to consider what was communicated among them through words or conduct. ” But the concept of free consent in E-contracts is based on the principle of uberrimae faith (good faith) where the parties to the contract are not dealing at arm's length and one party is fully dependent on the information provided by the other party, which is the only basis on which the willingness to enter the contract is expressed (by the consumer). Especially, in the case of standardized contracts which are usually pre-determined contracts comprising set clauses, one
17 Khush Bhachawat, (n 1) 3505.
18 Friedrich Kessler, ‘Contracts of Adhesion—Some Thoughts about Freedom of Contract’, [1943], 43 Columbia Law Review. 629, 630.
19 Centrovincial Estates Plc Merchant Investors Assurance Co Ltd [1983] com LR 158.
20 The Queen Mary University of London, School of Law Legal Studies Research Paper No. 234/2016, 8-9. 21 RTS Flexible Systems Ltd v Molkerei Alois Midler GmbH & Co (UK Production) [2010] UKSC 14; [2010] 1
WLR 753, [45]
party has hardly any negotiating power with the other one.22 This gives scope to large companies to exploit weaker parties and can even absolve all their liability. According to section 16 of the Indian Contract Act, of 1872 which talks about “undue influence” 23 vulnerable parties frequently have to agree to unjust terms in order to receive the products and services, which may be considered an attempt by contract drafters to exert undue influence. This results in the construction of contracts without free consent in the real sense of the word.
WAY FORWARD TO REACH ONLINE CONSENSUS AD IDEM
It is a common fact that most online consumers do not read the terms and conditions of any online contract they are entering into and with growing online business, it should be reasonable to have legislative reform keeping in mind UN initiatives (UNICTRAL). Presently, online contracts are being governed by various legislations but having integrated legislation specifically on online contracts would facilitate greater awareness and accessibility. Another point could be that B2C contracts should have the basic content layout for their terms and conditions. The summary, which is a simple version of the entire contract terms, would be made available at the same time, location, and in the same format as the full terms.
This would bring us closer to the original idea of consensus ad idem and raise the possibility (and reasonableness) that consumers would be aware of the agreement they were entering. 24 This content layout would include a description and contents of the goods or services, price, total payable amount (including taxes), return or rescission rights, length of contract, and future payment obligations. 25 MISTAKE AND EFFECT ON CONSENT IN E-CONTRACTS.
In the present era of rapid use of the internet, it is quite often that contract is formed autonomously with little to no human input. The contracting parties may not be aware of the terms and conditions of the contract they are entering into. This problem creates the scope of mistakes in online contracts. Traditionally, Section 20 of the Indian Contracts Act, of 1872 declares an agreement void between the contracting parties in case of a mistake (mistake of fact).26But this section of the paper deals with the mistake in online contracts. Singapore court
22 Lalsangliani, (n 3) 1299.
23 Indian Contract act 1872 s 16.
24 Ruth Orpwood, 'Electronic Contracts: Where We've Come from, Where We Are, and Where We Should Be
Going' (2008) 1 Int'l In-House Counsel J 455, 464.
25 ibid 466.
26 Indian contract Act 1872 s 20.
dealt with a similar landmark case of mistake in online contracts of Chwee Kin Keong v Digilandmall. com Pte Ltd. 27 In this case, six plaintiffs were also friends with each other. They ordered a total of 1606 Hewlett Packard commercial laser printers on the seller’s website who was also the defendant in this case. This was also noteworthy because the orders were placed for $66 per piece when the true price was $3,854 each. In summary, the plaintiffs paid a total of 05,996 for laser printers with a total market value of $6,189,524. This large price differential was caused by the defendant's error in putting the pricing on its websites where the printers were advertised, which websites operated on an automatic system, with confirmation notes being sent to the plaintiffs within a few minutes.
Not unexpectedly, when the defendant discovered the error, it immediately withdrew the advertisement from its websites. It should also be noted that 784 other people have ordered printers from the same website. 28 These types of E-contracts are governed by software technologies which make the contracts autonomous with less human involvement. 29 The learned judge, in this case, VK Rajah JC, made the judgment that although there had been a concluded contract between plaintiffs and defendant this contract was made invalid on the basis of the doctrine of unilateral mistake. 30 The court in this judgement agreed that mistakes will occur inevitably in the case of electronic transmissions. It might include human errors, programming or software errors, or transmission problems in the communication systems.
It is more often for the parties to be involved in unilateral mistakes in online contracts. To establish a unilateral mistake, the party seeking to set aside the contract must show that: 1) the unilateral mistake was made relating to the terms of the contract (rather than the surrounding facts); 2) the mistake was fundamental, and 3) the other party had actual knowledge or was wilfully blind to the mistake. In the case of Dularia Devi v. Janardan Singh31 (1990), an illiterate mother put her thumbprint on two documents, believing that they were both intended to be gifts to her daughters. She then realized that the second document was intended to rob her of more of her possessions. Although this was a unilateral error on the side of the illiterate woman, the contract
27 Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] 2 SLR 594.
28 Andrew Phang, 'Contract formation and Mistake in Cyberspace - The Singapore Experience' (2005) 17 SAcLJ 361, 363.
29 ibid 363.
30 ibid 363.
31 Dularia Devi v. Janardan Singh 1990 AIR 1173 1990 SCR.
was declared void by the courts because the consent for the aforementioned agreement was obtained by fraud and the woman was unaware of the nature of the transaction. The effect of unilateral mistakes in the eyes of common law is void ab initio. 32 In order to determine whether a mistake has been committed in online contracts, the non-mistaken party must examine the representations produced by the software of the other party. 33 In Software- Specific Cases, we can only rely on the representations made on his behalf by the software because the wrong party chose to utilize software rather than convey its intention directly. In this instance, the misled party's subjective purpose is irrelevant. The doctrine of mistake in equity should be applied in cases of mistakes in software contracts.
34 In circumstances of unilateral mistake, the necessity of real knowledge or intentional blindness is fundamentally in conflict with the use of software in contract construction, because software is incapable of either mental state. Rather, constructive knowledge is more defensible on the grounds that a party who decides to employ software to contract should incur the risk that the software will be unable to detect a mistake committed by the other party. When the mistake is obvious, putting the burden on the non-mistake party is more efficient rather than putting it on the mistaken party to check their software performance time and again. This was the reason why the Singapore court decided the case in favor of the defendant because the mistake was obvious.
Similarly, in case, where the error is not clear, it is more efficient to lay the burden on the mistaken party to check that the contracts arranged by his software are compatible with his intent. 35
CONCLUSION
Electronic contracts are becoming more and more common in the modern world. The nature and scope of E-contracts are not par with the traditional form of contracts, so, the need of the hour is to make separate legislation for online contracts. It is a difficult task to govern different types of contracts with the same law. Therefore, the urgent need of the hour is for a distinct and effective piece of legislation that specifically recognizes all forms of e-contracts and would do away with the ambiguities and blind spots that parties have when entering into contractual agreements via electronic means. Secondly, in cases involving software, the law of error may
32 Smith v Hughes (1871) LR 6 QB 597.
33 Vincent Ooi, ‘Contracts Formed by So6ware: An Approach from the Law of Mistake’ (2019) Journal of Business Law, Research paper No. 2019/02, 16.
be combined with the "extended objective theory of contract" to create a strategy that does not place an unreasonable burden on users and encourages commercial certainty.