The importance of electronic contracting has grown immensely with advances in the field of information technology and the increasing popularity of e-commerce. However, what makes an e-contract different from a traditional contract?
The fundamental point of departure is the medium used for the formation of the contract. E-contracts are not contracts having a specific subject matter, such as a contract for sale or a partnership agreement. Any contract which can be lawfully concluded can be an e-contract if it is made over an electronic medium.
According to the Indian Contract Act, 1872, proposals, acceptances, and revocations of proposals and acceptances can be communicated through any act or omission of a party that has the effect of communicating them[1]. Therefore, conventional contracts can be formed by reducing agreements to writing, or simply through words, gestures, or conduct. When these processes occur over an electronic medium, the resultant contract is an e-contract. Arriving at a legally enforceable agreement can involve multiple stages such as negotiating, making an offer, and acceptance.
However, even if only some of these steps happen electronically, the contract will be an e-contract. Not every step in an e-contract needs to be carried out electronically[2]. Even before the internet was widely used, e-contracts were made through modes like telephones, telex, and fax. Now, e-contracts can be made even through e-mails, instant messaging, and by interacting with web browsers.
The Essential Elements of an E-Contract
As an e-contract is just a contract over an electronic medium, all the essentials of a contract apply to e-contracts too. However, issues can arise when rules which have been evolved for conventional contracts are directly applied to e-contracts.
One such issue is determining the time at which an offer or acceptance in an e-contract is deemed to be complete. This will be discussed further on in this chapter. In this section, the general essentials of a contract which have been incorporated into the Indian Contract Act have been briefly described.
According to the Act, a contract is an agreement made by the free consent of parties who are competent to contract, for a lawful consideration and with a lawful object, and has not been expressly declared void by law. [sp1]
Agreement: An agreement refers to a set of promises forming the consideration for each other[3]. An offer and an acceptance are required to reach an agreement. An offer or proposal is made by the offeror, and it signifies his willingness to do or to abstain from doing something, and it seeks to obtain the other party’s assent. When the offeree or person receiving the offer assents to it, the offer is accepted.
Free Consent: Consent, which means that two or more persons agree upon the same thing in the same sense is necessary for forming a contract[4]. However, consent also has to be free, which means that it should not be obtained by coercion, undue influence, fraud, misrepresentation, or mistake[5]. There can be no contract if there is a complete lack of consent on the part of one or both parties. However, if the consent of a party is tainted by coercion, misrepresentation, etc., the contract will be voidable at the option of the party whose consent was not free[6]. This means that the contact will be valid and enforceable unless the aggrieved party chooses to invalidate it[7].
Competency: The parties to a valid contract must be of the age of majority, must be of sound mind, and must not be disqualified from contracting by a law[8]. A person of sound mind is a person who is capable of understanding the contract and making a rational judgement about its effects[9]. Even a person who is usually of unsound mind can make a contract when he is of sound mind[10].
Lawful Consideration and Object: Every contract must include consideration from both the promisor and the promisee, which is any act done by one of the parties at the desire of the other party[11]. Barring a few exceptions, agreements without consideration are void[12]. Consideration need not be adequate, but it must be valuable[13]. Both the consideration and the object must not be forbidden by law, of a nature which would defeat the provisions of law, fraudulent, involve injury to the person or property of another, immoral, or opposed to public policy[14].
Expressly Declared to be Void: Certain kinds of agreements have been expressly declared void by the Indian Contract Act, such as agreements without consideration[15], agreements in restraint of trade[16], marriage[17], or legal proceedings[18], and agreements which are wagers[19]. It is essential for a valid contract to not fall within one of these definitions.
Intention to Create Legal Relations: There can be agreements that contain all of the elements described above but are still unenforceable because the parties did not intend for them to have legal consequences. This is a common law principle, and agreements have been held to be unenforceable due to lack of intent even in commercial arrangements[20]. In Balfour v Balfour[21], the Court observed that there can be agreements that include a lawful promise and consideration, but are not contracts because the parties did not intend for them to be attended by legal consequences.
