Electronic contracts

The advent of information technology has given the ability to companies for making the process of contracting more easily and less costly. Moreover, information technology allow for the establishment of contracts at lower costs, in a shorter time and without geographical restrictions. This development has lead to the emergence of the field of electronic contracting. I`ve chosen this them since nowadays electronic contracting becomes more and more popular and useful. And also I would like to have a practice with this issue in the future.

1. Types of electronic contracts

There are three main methods of electronic contracting: email, click-wrap and browse-wrap method.

Email is the digital equivalent of the letter and can do that is done by real mail so that, in the context of the law of contract, it can be used for the purposes of making an offer and communicating an acceptance. Email is sent and received like real mail. The sender posts the email by putting it in his outbox and the message is then collected  by the email server and forwarded to the receiver where it is lodged to the inbox. The process is quick but not instantaneous, and messages can be delayed and even lost.

The second method of electronic contracting is click-wrap. It is used on the World Wide Web. The operator of a webpage carries an advertisement for goods or services which is called webvertisement. The operator offers to supply these goods or services against payment. In order for a contract to be made between the supplier and the customer, there will be a hypertext order form on the webpage, which the customer will be invited to click on a button marked “Submit” or “I accept”. When this button is clicked, the order is submitted to the operator. The communication can be compared to handing an item to a salesperson in a shop. In this case, the communication will be instantaneous. The final contract will be concluded between the parties when their acceptance is communicated to the offeror converting the offer into a contract.

And the third method is browse-wrap. “Browse-wrap”  agreements, as distinct from “click-wrap” agreements, do not require the active consent of the user. Acceptance of a browse-wrap is implied from the user’s browsing or other activity on the web site, even if the user has not reviewed the electronic contract. Browse-wrap agreements are typically found at the bottom of a webpage in the form of a link to another page on which the terms and conditions are posted. The user is not required to review the contract, much less access the page where it’s located, in order to proceed.

2. The terms of the electronic contract

As in real contracts, the terms of the contract will be those incorporated by agreement of the parties at the time the contract was made. The terms of the contract can be divided into three categories: express terms, terms incorporated by reference and implied terms.

The incorporation of express terms into either form of electronic contract is a simple matter. These terms don`t differ from the real contracts. Express terms are terms that have been specifically mentioned and agreed by both parties at the time the contract is made. Once proven, an express term is generally binding upon all who joined in the contract.

Terms incorporated by reference are terms which are set out in a separate document and which are incorporated by reference into the final contract. In all forms of electronic contracts, it is common to find the incorporation of terms by reference.

In respect of click-wrap contracts, the terms to be incorporated will be on a separate document in a separate webpage. This will be accessible by a hypertext link embedded in the main click-wrap agreement page. The party wishing to incorporate these terms and conditions into the final agreement must make sure that they have been brought to the customer`s attention before the contract is concluded in such a way as to make it clear that they are to be incorporated. In order to achieve this, the website has got to be designed so that it is not possible for the customer to press the “Submit” or “I accept”  button before the customer indicates knowledge of and acceptance of these terms and conditions. Requiring the customer to click an acknowledgement of the terms and conditions, which will then be incorporated into the final contract even though the customer has not actually read them, usually does this.

As for implied terms, they are implied into electronic contracts in the same way as for contracts in the real world. Terms will be implied to give business efficacy to the contract as well as terms implied on the basis of custom and usage. Terms may also be implied by common law as in real contract situations. In that respect, it is necessary only to consider the law applicable to reality contracts of the same nature.

3. European regulation of cross-border transactions.

The European Union examined the issue of contract formation in the Electronic Commerce Directive. The original draft was finalized in November 1998 but in 1999 it became clear that it was in need of review. The amended proposals were published in August 1999. After substantial amendment it was finally enacted on 8 June 2000. The Directive on electronic commerce required Member States to amend existing legislation to ensure that current requirements, including requirements of form, which may restrict the use of electronic documentation in the formation of contracts, are removed.

The final version differs substantially from the first in determining when a contract is concluded electronically. Instead of specifically providing when a contract is deemed to be concluded, the Directive provides guidelines as to when orders from customers and acknowledgements from service providers are deemed to be received. As a result, the Directive says little about contract formation and the legal position of an electronic offer or acceptance.

In the UK, the Directive was implemented by the Electronic Commerce Directive. These provide that, unless non-consumer parties have otherwise agreed, service providers shall, prior to the placing of an order, provide the person using the service with information concerning the technical steps to conclude the contract; whether or not the contract will be filed with the service provider and whether it will be accessible; the technical means for identifying and correcting input errors; and the available languages for concluding the contract.

Unless non-consumer parties have otherwise agreed, where the service user places electronic order, service providers shall electronically acknowledge receipt of the order without undue delay; and provide appropriate, effective and accessible means of allowing the recipient to identify and correct input errors prior to placing the order. Failure by service providers to comply makes them liable for damages for breach of statutory duty.

4. Electronic signatures.

There is concern in the business world that the electronic communications are afforded the same qualities of authenticity, integrity and confidentiality as in the real world. In this respect, a handwritten signature is traditionally regarded as a guarantee of the authenticity and integrity of the document, while the use of a sealed envelope can ensure confidentiality. On respect of e-commerce, the use of electronic signatures and encryption ensures that the electronic message is receivable by only the person for whom it was intended.

There are two principal types of cryptography in use: private key cryptography and public key cryptography. In private key cryptography both parties have the same key, which they keep secret. The key is used to encrypt and decrypt messages between the parties. This is a faster system than the public key system as it uses fewer digital symbols.

In public key cryptography, there are a public and a private key, which are a pair. The public key is published; the private is known only to the individual who generated the key pair. Only the private key fits together with the public key to form a compatible pair. Public key systems are slower to operate.

Electronic signature is a string of electronic data used to identify the sender of a data message. He effectiveness of an electronic signature depends on the fact that it must be able to be produced by the sender alone and that any attempt to alter it is incompatible with the integrity of the signature. In order to establish the authenticity of the signature, the electronic signature will generally have attached to it an electronic certificate of authenticity issued by bodies known as Certification Authorities. In respect of the liability of the Certification Authorities and other providers of cryptographic services for losses caused by them, the Electronic Commerce Directive on electronic signatures requires that Members States shall ensure that by issuing a certificate as a qualified certificate to the public or by guaranteeing such a certificate to the public, a certification-service-provider is liable for damage caused to any entity or legal or natural person who reasonably relies on that certificate.

There is also the issue of the liability of the holder of a private key, should the key`s secrecy become compromised and it be used by another with resulting loss. Liability could be based on negligence, but recovery of damages for pure economic loss would be a problem.

5. Payment mechanisms in the Internet

Most e-commerce transactions are paid for using existing electronic payment mechanisms.  The choice is between the use of credit or debit cards, PayPal or one of the various smart card electronic cash systems.

Where the consumer`s payment card is used fraudulently in connection with a distance contract by another person not acting, or to be treated as acting, as his agent the consumer is entitled to cancel the payment. If the payment has already been made the consumer is entitled to a recredit or to have all sums returned by the card issuer. In any proceedings where the consumer claims that the use of his payment card was not authorized by him, it is for the card issuer to prove that the use was authorized. This principle is established by the Consumer Protection Regulations 2000.

In respect of the fear that online merchants will fail to perform or defectively perform their contractual obligations, consumers are protected by the Consumer Credit Act. In the event of online merchants failing to comply with their contractual obligations, the consumer can obviously sue the merchant directly. The consumer`s claim is not limited to the purchase price of the goods, but can include consequential loss caused subject to the rules of the applicable law. It Means That a credit card holder`s bank acts as a guarantor for any misrepresentation or breach of contract claim which the card holder may have against the merchant.

PayPal is an e-commerce business allowing for payments and money transfers through the Internet. It performs payment processing for online vendors, auction sites and other corporate users against payment of a fee. It was founded in 1988 and is located in San Jose in the USA. Persons subscribe to PayPal by email, are identified by their email address and a password and identify a payment card from which payments are to be made giving the card numbers to PayPal. When payment is made, PayPal instantly confirms the payment to the vendor of the goods or services and debits the amount from the designated payment card. The vendor has the advantage of guaranteed payment and can instantly dispatch the goods or supply the service, while the purchaser is protected against the risk of the card details falling into the wrong hands. Nowadays PayPal is a global leader in online payment.

Electronic money, also known as e-cash and digital cash. "Digital cash" is a term that refers to any system that relies on the use of crediting accounts with small amounts of cash and allowing those credits to be used to make purchases online. The amount of the deposits of digital cash can be in very small increments, even a fraction of the lowest type of coinage used within a monetary system. Purchasing products with electronic money may involve disbursements of any size.

One of the differences that sets digital cash apart from other types of cash transactions is that the identity of the buyer does not have to be revealed. The actual transaction is managed with the use of a number normally known as a digital certificate. This number provides verification that the digital cash is negotiable and can be accepted as the payment option for the services purchased. This is different from using a credit card to buy something online, a transaction in which the buyer must provide basic information related to the credit card account before the vendor can process the payment.