Cyber Contract – JH NEWS UPDATE

Cyber Contract
The Indian Contract Act, 1872 has been the basis for the enforcement of contracts.

The Act specifies the conditions that are necessary for a contract to be a valid contract and to be enforceable by law.

The information technology Act, 2000 (I.T. Act, 2000) contains provisions on how a contract can be formed electronically.

The Act acts in conjunction with the Indian contract Act, 1872.

Cyber Contract objective
The objective in this unit is to give you a concise picture regarding the formation of a contract, the validity of a contract, and statutory provisions governing the formation of a contract.

After reading through this unit you will be able to explain the essential features of a contract and the specific requirement for electronic contracts.

Cyber Contract
The formation of a valid contract is governed by the Indian contract Act, 1872.

The contract could be made in any form to show an agreement between two parties which takes into account all the essentials of a contract.

Writing is not essential for the validity of a contract except where a specific statutory provision requires writing.

An arbitration clause may be in writing. However, the traditional method of recording a contract and signing a contract by all parties continues to be a prevalent mode of executing a contract.

A written document with the signing is associated with validity and as useful evidence of a transaction.

An offer and acceptance are two main ingredients of a valid contract.

New avenues to conclude and validate a contract executed by people separated geographically have emerged in the age of the internet where distances are no barriers to business.

The primacy of paper documentation had given way to contracts by electronic means.

As far as there are a valid offer and acceptance, the means of communication have ceased to be a factor.

The I.T. Act, 2000 is a commercial code of e-business transaction, contains a provision with means to conclude a contract electronically and also to provide legal validity to such a transaction.
The I.T. Act, 2000 states that where any law provides that information shall be in writing or in printed form, the requirement is deemed to be satisfied if such information is in an electronic form and is accessible for subsequent reference.

The key ingredients of the formation of electronic contracts comprise communication of offer and acceptance by electronic means, verification of the source of the communication, authentication of the time and place of dispatch, and finally the verifiability of the receipt of the data communication. If the key ingredients are satisfied the legal enforceability of an electronic contract is at par with the paper contract.
The provisions of the act are not applicable to the following

Negotiable instruments such as cheque, bill of exchange, and promissory note as defined in the negotiable instruments act, 1881.

1.Power of attorney instruments as defined in the power of attorney act, 1882.

2. Trust as defined under the Indian Trust Act, 1882.

3.Will as defined in the Indian Succession Act, 1925.

4.Any contract for the sale or conveyance of immovable property.

5.Any such class of documents or transactions as may be notified by the central government in the official gazette.

Cyber Contract

Essential of Cyber Contract

In India, the general law of contracts is contained in the Indian Contract Act, 1872, The Act defines ‘contract’ as an agreement enforceable by law. The essential of a (valid) contract are:-

Intention to create a contract,

1. Offer and acceptance,

2. Consideration,

3. Capacity to enter into a contract,

4. Free consent of parties,

Cyber Contract’s Lawful object of the agreement.

Writing is not essential for the validity of a contract, except where a specific statutory provision requires writing. An arbitration clause must be in writing.

Cyber Contract’s Intention to be bound
A defined intention to be bound is highlighted by Gibson V. Manchester City Council, (1979) I ALL E.R. 192. M adopted a policy of selling council houses to tenants.

In February 1971 the City treasurer wrote to G, stating that the council “may be prepared to sell the house to you at 2,180 pounds (freehold)”.

The letter asked G to make a formal application.

This he did, and the council took the house off the list of council-maintained properties. Before the completion of the normal process of preparation and exchange of contract when the property is sold, control of the council changed hands, and the policy of selling council house was reversed. The new council decided only to complete those transactions where the exchange of contracts had already taken a place.
In the court of Appeal, it was held (by a majority) that a contract had been made between G and M. Lord Denning suggested that “there is no need to look for strict offer and acceptance” in every case; a price had been agreed and the parties intended to carry through the sale. However, the House of Lords held that the February letter was (at the most) an invitation to treat and therefore G’ application was an offer and not an acceptance.

Cyber Contract’s Offer and Acceptance

It is an essential ingredient of a contract that there must be an offer and acceptance. If there is no offer, there is no contract, because there is no meeting of minds. Again, if there is an offer by one party, but it is not accepted by the other party or if the ostensible acceptance of the offer is defective, then also there is no agreement and therefore no “contract”.
These propositions may appear to be elementary. A large bulk of commercial litigation, however, requires the parties to deal with the basic questions, which are:
Has there been an offer at all in the particular case, or there is something less than an offer?
Has been an acceptance if the offer?
If there is an acceptance, is it in the proper forum?
Has the acceptance been communicated to the person making the offer?

Cyber Contract’s Concept of offer

An offer (or its Indian counterparts, a “personal”) is not defined by statute. It is generally understood as denoting the expression, by words and conducts, of a willingness to enter into a legally binding contract. By its terms, expressly and impliedly indicates that it is to become binding on the offeror as soon as it has been accepted, usually by a return promise or an act on the part of the persons (the offeree) to whom it is so addressed.
An acceptance, in relation to an offer, is a final and unqualified expression of assent to the terms of the offer.
An offer followed by acceptance is an agreement. If an agreement is enforceable by law, it is a ‘contract’.

Offer by and to whom

An offer must be made by a person legally competent to contract or on his behalf by someone authorized by him to make the offer.

It is usually made to a person or to a number of persons, but it can be made to the entire world, as happened in Carlill v. Carbolic-Smoke Ball Co, (1893) I Q.B. 256: (1891-94) ALL E.R. Rep.127, in that case, the defendants (manufacturers of medicinal smokes balls) promised to pay 100 pounds to anyone who, after having bought and used their smoke balls, caught influenza, plaintiff did so and caught influenza. Plaintiff was held to be entitled to recover his money. It was no defense that there was no particular individual to whom the announcement was addressed. Such contracts are sometimes called “unilateral contract”, not a very happy term because a contract can never be “unilateral”. There must be two parties. It is really a case of innumerable offers, made to all potential readers of the announcement.

Statements which are not offers

Every statement of intention is not an offer. A statement must be made with the intention that it will be accepted and will constitute a binding contract. The following are offers:
A statement made during negotiation, without indicating that the maker intends to be bound without further negotiation.
A statement that invites the other party makes an offer (e.g. a notice inviting tenders).
Statement of lowest price, Harvey v. facey, (1893) A.C. 552; Macpherson v. Appana A.I.R. 1951 S.C.184. It is regarded as an individual to make offers Re Webster (1975) 132 C.L.R. 270.
A quotation, Mylppa Chettlar v. Aga Mirza, (1919) 37 M.L.J. 912.
Display of goods in a shop with price tags is not an offer but is merely an invitation to make an offer. Bell (1960) 3 ALL E.R. 731

Cyber Contract’s termination of the offer

Some parties clearly indicate that their statements or documents do not constitute offers, e.g. estate agents. “These particular do not form, nor constitute any part of an offer, or a contract, for sale”.
Until an offer is accepted, it creates no legal rights and it may be terminated at any time in a variety of ways.

Principal modes of termination of offer are:-
By the offer revoking (or withdrawing) it before acceptance.

In Great Northern RlyCo. Ltd v. Witham, (1873) L.R. 9 C.P.16 GNR advertised to tenders for the supply of such stores as they might require for one year. W submitted a tender to supply the stores in such quantities as GNR ‘might order from time to time’ and his tender was accepted. Orders were given for some time, but eventually, W was given an order which he refused to carry out. It was held that W was in breach. A tender of this kind was a standing offer which was converted into a series of contracts as GNR made their orders. We might revoke his offer for the remainder of the period covered, but must supply the goods already ordered. The revocation of an offer is effective only when communicated to the offeree.
Bye, the offeree rejecting the offer outright or by making a counter-offer.
By lapse of time, if the offer is stated to be open for a fixed time.

Cyber Contract’s Quality of Acceptance

Acceptance of the offer must be absolute and must correspond with the term of the offer. This rule a key constituent of the basic premise does not always accord with the realities of complex business contract negotiation today. Such negotiations may indeed proceed through a series of proposals, counter-proposals, withdrawals, variations, and qualifications before the agreement (or otherwise) is reached. When parties carry on lengthy negotiations, it may be hard to say exactly when an offer has been made and accepted. Butler Machine Tool Co Ltd. V. The Ex. Cello Corp. (Eng.) Ltd, (1979) I W.L.R. 401.
The court must look at the entire correspondence to decide whether an apparently unqualified acceptance did, in fact, conclude the agreement.
A conditional offer, if accepted must be accepted along with the conditions, Shyam Sunder v. Mun Chairman, A.I.R. 1984 Orissa III-113.

Cyber Contract’s consideration

As a rule, an agreement without “consideration” is void. The Indian Contract Act defines “consideration” as follows:
“When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or abstains from doing, or promises to do or abstains from doing something, such act, abstinence, or promise is called a consideration for the promise”.
A mere promise to give a donation, either orally or in writing is not enforceable. The settlement of bona fide but doubtful claim involves a bargain between the contracting parties and is, therefore, base on consideration. Money is not the only form of consideration. Consideration may consist sometimes in the doing of a requested action, and sometime in the making of a promise by the offeree. Forbearance of sue at the promisor’s desire constitutes good consideration.
Consideration is not required for a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do, it is also not required for a written and signed promise by the debtor (or his duly authorized agent) to pay a time-barred debt to the creditor.

THE COMPETENCY OF THE PARTIES

A person is competent to contract if, at the time of making it, he is of sound mind, major and not disqualified from contracting under law. Where he has not attained the age of 18 years (or being under a court of wards, has not attained the age of 21 years), he cannot contract. The agreement made by minors is void. Minors cannot, on attaining majority, ratify agreement entered into during their minority. But if a minor makes a fraudulent misrepresentation about his age and obtains a loan he can be required (at the discretion of the court under section 33of the Specific Relief Act 1963) to refund it or make compensation for it. An adjudged lunatic can enter into a valid contract during lucid intervals. A corporation can contract subject to certain limits.

CONSENT

When consent to a transaction is procured by coercion, undue influence, fraud, or misrepresentation the agreement is voidable at the option of the party whose consent was so procured. Cases of undue influence arise where the transaction is ex facie unconscionable and one party was in a position to dominate the will of the other. Where parties are bound by a fiduciary relationship, as in the case of father and son, doctor and patient, master and servant, advocate and client, the law protects the weaker party, throwing on the other party the burden of proving that no undue influence was exercised. The mutual mistake in respect to material facts in the formation of a contract renders the agreement void. A unilateral mistake, however, does not render an agreement void. Not does a mistake of law affect its validity.

UNLAWFUL AGREEMENT

An agreement, whose consideration or object is unlawful, is void. The consideration or object of an agreement is unlawful, if it is forbidden by law or it would defeat the provisions of any law, is fraudulent, or involves or implies injury to the person or property of another or the court regards it as immoral or opposed to public policy.
A party to an illegal agreement who has advanced money under it to the other party is entitled to recover it if the illegal propose has not been partly or wholly carried out.
The agreement is restraint of marriage, trade and legal proceedings are void. The seller of goodwill of a business may, however, validly agree with the buyer to restrain from carrying on a similar business within specified local limits, provides the limits are reasonable.

Cyber Contract’s persons bound by contract

Promise binds the promisors and (in case of death of promisors before the performance) their legal representatives unless there is a contract to the contrary, or the nature of the contract is such that it depends upon the personal qualifications of any party.

Cyber contracts performance and frustration

There are special provisions dealing with the case where time is the essence of the contract. In commercial contracts, it is better to prove specifically that time is of the essence. A contract is validly discharged by faithful performance, by release or remission by the promise, by “frustration” (under law) or by “Notation” (by agreement). Frustration occurs when unexpected development subsequent to the making of the contract renders performance impossible.
Notation occurs when the old agreement is replaced by a new agreement.

Cyber Contract’s subsequent events and frustration

If subsequent to making of the contract, some event happens, which the parties could not control so that the agreement cannot be performed, the contract is said to be “frustrated” because the contract then becomes impossible of performance. Frustration may occur by a change in the law, destruction of the subject matter, the incapacity of the contracting party to perform the contract, or fundamental change in circumstances after the contract is made. Mere strike, lock-out in the factory, rise in prices of the contracted goods or other commercial difficulties does not, as such, render the contract “impossible” of performance.
The introduction of the permit system by statute does not absolve the promissor from supplying the goods. He must make a reasonable efforts to procure the permit to fulfill his agreement. Change in market conditions also does not justify a supplier in demanding a price higher than the stipulated, unless there is an “escalation” clause.
Frustration leads to automatic termination of the contract and exempts the parties from the performance or further performance of the contract without rendering any of them liable for damages. Where, however, any party has received any benefit under the agreement, he must restore it or make compensation for it to the other party.

Cyber Contract’s remedies for breach of Contract

The principal remedies for the breach of contract are
Damages
Specific performance of the contract
Injunction.
Damages
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, being loss or damages which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
The same principle applied for determining damages for breach of an obligation arising from quasi-contract.
In estimating the loss or damage from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

Penal stipulations
If a sum is named in the contract as the amount to be paid in case of breach of contract or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved have been caused thereby, to receive from the party who has broken the contract, reasonable compensation not exceeding the amount so named or the penalty stipulated for.
A stipulation for increased interest from the date of default may be regarded as a stipulation by “way of penalty”. The court is empowered to reduce it to an amount reasonable in the circumstances.

Specific performance

In certain special cases dealt with in the Specific Relief Act, 1963 the court may direct against the party in default “specific performance” of the contract, that is to say, the party may be directed to perform the very obligation which he has undertaken by the contract. (P.M. Bakshi, 1994).

Injunctions

An injunction is a preventive relief and is granted at the discretion of the court. The discretion of the court is not arbitrary but is guided by judicial principles. A further check on the discretion is the provision for correction through an appeal in a higher court. The different types of injunctions are:
Temporary injunction: a temporary injunction is granted to continue until a specific period of time or until the time the court orders its continuation. The injunction can be granted at any time of the suit and is governed by the code of civil procedure.
Permanent injunction: a permanent injunction is granted to prevent a breach of an obligation existing in favor of an applicant. A permanent injunction is granted by the court only after a hearing and on the merits of the case.

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