THE LEGAL PROBLEMS OF ONLINE CONTRACTS

With the development of science and technology consumers have witnessed a change from traditional method of contracting to online contracting. Internet as a medium of communication has turned to be an important tool to facilitate commerce online. Apart from facilitating commerce legal problems has arisen with regard to online contracting making it difficult for the merchants and customers to know exactly the status of online contract[1]. These problems are many and the list is not exhaustive, but some of the commonest ones are; where, when and how is the contract formed online? In what ways can acceptance be communicated? Does the display of goods on the web constitute an offer or invitation to treat? Is the received message the same as the message sent? Are the legal requirement of writing and signature met with online contracting? Other problems include jurisdiction and legal status of online terms and conditions[2]. All these issues at time make formation of online contracts fraught.
According to Peter stones[3], online contracts are contracts concluded by means of electronic messages, communicated through the internet or some other electronic network. These can be e-mails, websites and Electronic Data Interchange (EDI) and they can be for supply of goods, on-electronic services and supply of electronic services. Therefore this essay seeks to point out and discuss three of these legal issues to see how they are addressed by domestic and international legal instruments. It will first examine traditionally how the contract is formed and whether English law addresses online legal issues and then through the course of the discussion test its applicability to online contracts, secondly, it will examine how extra-national legal instruments addresses the issue of online contract formation. This will answer sub-questions as to when the message is sent and received and whether errors can be corrected. Thirdly, it will examine the legal requirement of writing and signature to see whether electronic messages meet the legal requirement of writing and signature and what is the response of the domestic law and international law. Fourthly, it will examine whether web advertisement constitute an offer. Lastly, it will conclude by showing whether these legal issues have been resolved and in passing address a little bit on web terms and condition.

Formation of Contract Offline: When and how is a contract made?
· English Law
Under English law formation of the contract involves three basic elements that is agreement which is constituted by offer and acceptance, intention to create legal relation and consideration[4].An agreement is reached by making an offer followed by acceptance. An offer is defined as a statement of willingness to be bound on specified terms made with the intention that they will become legally binding on acceptance by the addressee whereas an acceptance is an unconditional assent to all terms of the offer, communicated by the offeree to the offeror, and made with the intention of accepting[5].
An offer can be made orally or in writing or by conduct. It can be made to one person, or to the public at large[6]. However, advertisements intended to lead to the making of bilateral contracts are not offers[7].An acceptance is not effective unless and until it is communicated to the offeror on behalf of the offeree[8]. The acceptance of the offer can take any form, unless specified by the offer. In determining whether parties have reached agreement the normal test is whether an offer has been made and accepted by the other. In other words there must be a meeting of the mind[9]. Online contract raises the question; when is acceptance communicated?
In UK, an offer is made when the letter is posted[10] this is called postal rule and communication of acceptance, takes effect when the letter of acceptance is posted. As to the issue when a letter is posted? For this purpose it is when it is put in the control of the post office or one of its employees authorised to receive letters[11]. However the rule does not apply where remote contracting takes place through instantaneous communications. Contrary to the postal rule the rule in Brinkibon[12] and Entores[13] provides that a contract is concluded when both parties are apprised of the other’s intentions with regard to putative legal relations.
As regards advertisements, the rule of law is that the display of goods in a shop window is an invitation to treat rather than an offer to sale. The rationale behind this rule is to protect the seller from supply shortage and freedom to contract with the person he likes[14]. However in online contracts the issue remains; whether the display of goods on a webpage constitutes an offer?
English law does not have different legal requirement for an online or offline contracts. The same rules of offline contracts apply in online contracts because online contracts are not different from offline contracts[15]. To cater for inherent uncertainties of online contracting, English law adopts a number of regulations in force which apply over and above the general law of contract; these are The Consumer Protection (Distance Selling) Regulations, 2000, Electronic Commerce (EC Directive) Regulations, 2002 all of which implement the EC Directive on Electronic Commerce,2000.

Extra-National legal Instruments: When and how is a contract made online?
· THE EC DIRECTIVE, 2000.
The Directive does not define the legal position of an electronic offer and acceptance. The directive only imposes obligation on the service provider to inform the user about the technical procedure to follow in order to conclude a contract online[16] and Member States to ensure that their legal system allows contracts to be concluded by electronic means. In terms of acceptance the directive requires the service provider to acknowledge receipt of the recipient’s order without undue delay[17]. The directive seems to create three requirements in order to form online contract, i.e. offer, acceptance and confirmation. However, as what happens if the service provider does not acknowledge, the directive is silent. Some authors have suggested that, it should be when an offer contemplates acceptance by a non-immediate form of communication and that acceptance is effective from the time it leaves the acceptor’s control[18]. The problem with this view is the difficult to know when the message is deemed to have left the acceptor’s control.
As to when the message is received, the directive states, an order and acknowledgement receipt are deemed to be received when the parties to whom they are addressed are able to access them[19]. It is submitted that this rule ‘ability to access’ is capable of confusion and against Adam v. Lindsell[20]meaning that if the addressee cannot retrieve the message even due to fault of his computer a contract is not made. Under English law the offeror may be stopped from denying that the acceptance was communicated if it was his own fault that he did not get it[21] or even where the message is transcribed in his machine[22]. It is submitted that this rule should apply to e-mails as well.
· THE Principles of European Contract Law,1999(PECL)
According to the PECL, article 1:303(3), a notice reaches the addressee when it is delivered to it, its place of business, mailing address or its habitual residence. The delay or inaccuracy in the transmission of the notice or its failure to arrive does not prevent it from having effect. For the purpose of this law, a notice includes the communication of a promise, statement, offer, acceptance, demand, request or other declaration. It follows that the time when the message is delivered is of essence in determining when the contract is made however, sometimes it is very difficult to know whether the message has delivered or not but this definition seems to answer the question left unanswered by the EC Directive.
· UNCITRAL Model Law on E-Commerce, 1996.
According to article 15 of this law, the dispatch of the data message occurs when it enters an information system outside the control of the originator or of the person who sent the data message on behalf of the originator. The main test here is whether the sender still has control of the message; it appears that, if the sender has control then the message has not been sent as it is capable of being altered, whereas if he has no control then it is deemed to be sent. This definition is in line with a postal rule in Adams v. Lindsell[23]. The difference between UNCITRAL and PECL is that whereas in UNCITRAL delivery does not matter in PECL proof of delivery matters. The UNCITRAL model law goes further by clarifying receipt where the addressee has a designated receipt information system and where he does not have. In the former case, the message is deemed to be received at the time it enters the information system or when it is retrieved and in the latter case when the message enters the information system.

· The Uniform Electronic Transactions Act, 1999.
According to the UETA, an electronic message is sent when it is addressed properly to the information system of the recipient or where he is able to retrieve[24] in a form capable of being processed by that system [25]and outside the control of the sender or sender’s agent but information system it enters must be under the control of the recipient[26].As to when the message is received, the Act states; is when it enters an information processing system that the recipient has designated or uses for the purposes of receiving electronic records and it is in a form capable of being processed by that system[27]. This definition is self sufficient as it encompasses all aspects of control, entry to the information system and retrievability.It follows that if the message cannot be read then there cannot be a meeting of the mind. In addition to that, it is the author’s view that online acceptance should also depend on complying with the terms and conditions of the offer and meeting the required consideration.
Lastly, the UN Convention on the Use of Electronic Communications in International Contracts, 2005 is a positive step in resolving issues such as time, dispatch and receipt of electronic communications[28]. According to the Convention the time when the message is dispatched is the time when the information leaves an information system under the control of the originator and if it did not leave under his control at the time when it is received[29]. The message is received when it become capable of being retrieved by the addressee at an electronic address designated by the addressee[30] or becomes aware of the sent message at another address. The law further says an electronic message is presumed to be capable of being retrieved by the addressee when it reaches the addressee’s electronic address. In short this law is saying the message arrives when it enters the recipient’s information system and is capable of being received. This approach is analogous to that of UETA. This convention seems to answer the question as to when the contact is formed online by specifying when is an offer made and when is deemed to be accepted and by defining when communication of an acceptance would take place.

The Legal Requirement of Writing and Signature.
The second fraughting issue is the legal requirement of writing and signature. According to commentators[31] this requirement is one of the most hotly-discussed legal questions in relation to e-commerce as it raises the questions whether digital documents constitute writing and how they must be signed in order to fulfil the legal signature and hand writing requirement. In case of signature, the legal question is not whether the document was signed but whether it was signed by the person from whom it purports to originate. Thus, Ramberg[32] suggests that, it is necessary for the service providers to ascertain that the procedures at the websites are unambiguous and make it perfectly clear to the user that by clicking a certain box or inserting a PIN-CODE or applying a digital signature, it commits itself and becomes bound.
Under traditional English law of contract, a contract can be formed in writing or by word of mouth or implied by conduct of parties[33]. If not in writing the general law of contract says the contract can be evidenced in writing. So writing is not necessary[34], it all depends on the type of contracts[35].At present all formal requirements in the law of contract are contained in legislation which deals with specific contracts. Section 5 of the Interpretation Act, 1978 defines writing to include typing, printing, lithography, photography and other mode of representing or reproducing words in a visible form, and expressions referring to writing are construed accordingly. According to the Law commission recommendations ‘writing’ does not need a physical memorial such as paper[36]. A document is defined as anything which information of any description is recorded[37].The commission further observed that the requirement of signature can generally be interpreted in a functional way, by asking whether or not the conduct of a would be signatory indicates authenticating intention to a reasonable person, though each requirement must be considered in its own statutory context. In its view the requirement of writing and signature can be fulfilled for the purpose of online contracts via some electronic means without any changes being made to the law. Writing can be fulfilled by electronic mail and website trading but not EDI as it does not involve any visible text so as to satisfy s.5 of the Interpretation Act, 1978’s definition of writing. As a result of the foregoing English law adopts two pieces of legislation, i.e. the Electronic Communications Act, 2000 and Electronic Signatures Regulations, 2002[38].
Apart from English law, extra-national instruments also addressed the issue of legal requirement of writing and signature as follows; For instance, the Principles of European Contract Law[39] define writing to include communications made by telegram, telex, telefax, electronic mail and other means of communication capable of providing a readable record of the statement on both sides. Again, the UETA[40] provides that e-mail and digital symbols constitute writing as long as they are in perceivable form. Under section 7(c) an electronic record satisfies the legal requirement of writing. For the purpose of the law[41], electronic record means a record created, generated, sent, communicated received or stored by electronic means and record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in a perceivable form[42]. Furthermore, UETA stipulates that the formal requirement of signature can be satisfied by electronic means[43] as long as the technique used for making such a signature ensures an intention to sign[44]. The problem here remains reliability and how to determine intention to sign. The Law also define electronic signature to mean an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with intent to sign the record[45].
Likewise the UNCITRAL Model Law on Electronic Commerce states that where the law requires information to be in writing, that requirement is met by a data message if the information is accessible for subsequent reference[46] and where the law requires signature that requirement is met if a method is used to identify that person and indicates the person’s approval of the information contained in the data message and the used method is reliable. Here the law brings issues of accessibility and reliability of writing and signature.
In line with the above, the UNCITRAL Model Law on Electronic Signatures, also defines signature as data in an electronic form in, affixed or logically associated with, a data message[47] and a data message is defined as information that is sent, generated, received or stored by electronic, optical or similar means, including but not limited to EDI, e-mail, telegram, telex or telecopy. It follows that this definition is flexible to accommodate new technology[48]. On reliability, the model law provides some guidelines on how signature creation must be made. It emphasises data linking to signatory, control and integrity[49].On the other hand the European Union Directive on Electronic Signature defines electronic signature as data in electronic form which are attached to or logically associated with other electronic data and which serve as a method of authentication[50]. Advanced Digital signature" means an electronic signature which is uniquely linked to the signatory, capable of identifying the signatory and is created under the signatory’s control and linked to the data which it relates. However, on its part, the E-commerce Directive[51] does not explicitly refer to the terms writing and signature but merely imposes obligation on member states to recognise electronic contracts and remove obstacles for the use of them[52]. It follows that having considered the changing nature of e-commerce and technology the directive makers found it useful to leave it open for member states to choose the type of signature they want and be able to accommodate new changes in technology.
Lastly the UN Convention on the Use of Electronic Communications in International Contracts also provides for legal recognition of electronic messages[53] and as to the writing requirement, the convention stipulates categorically that a contract need not be evidenced in any particular form and that where the law requires writing that requirement is met by electronic message similarly in respect of signature requirement.
Web advertisement: Offer or Invitation to treat?
Having looked at this point the next question is whether webpage advertisement constitutes an offer or invitation to treat. According to the ordinary law of contract, display of goods at a fixed price in a shop window[54] or on a shelf in a self service store[55] constitutes an invitation to treat. Since English law treats online contracts and offline contracts as same, similar principle would seem to apply where a supplier of goods indicates their availability on a website. The offer would seem to come from the customer for instance when he clicks the appropriate button and it is then open for the supplier to accept or reject.
This view is analogous to article 11[56] which treat advertisement in websites advertising services or goods to be an invitation to treat unless it clearly indicates an intention to make a proposal to be bound. It is submitted that this law is good as if the display of goods in offline contracts is treated as invitation to treat the same rationale should be treated on web display however, if an advertisement meets the requirement of an offer i.e. it manifests the intention by one party to be bound upon acceptance by another, the offer is good until withdrawn and can be accepted universally[57].This interpretation will depend on terms and conditions of an advertisement. It is suggested that, in website as in offline contracts terms and conditions must be displayed before concluding the contract[58]; however it is not necessary that the terms should have been read by the customer or made subjectively aware of their impacts[59]; rules as regards to notices laid down in Parker v. Southern Eastern Railway[60] must be used.
In case of contracts with automated machines, it is the general principle of contract law that a party can be bound by the acts of his agent with apparent authority to act on behalf. This being the case computer or automated machine is an agent of seller, so the seller must be bound by the contract as envisaged by article 12 of the Convention on Electronic Communications[61]. Analogous to this is the decision in Parker v. South Eastern Railway[62] and Thornton v. Shoe Lane Parking[63]

Conclusion.
Therefore in view the foregoing, the national and extra-national legal instruments have shown positive response towards resolving the issues of online contracts, this has been stage by stage process of legal development. The question as to legal requirement of signature and writing is no longer fraught. English law and extra national legal instruments have shown their recognition and willingness to accommodate electronic signatures in place of handwriting signature in online contracts. Furthermore, the law now recognises electronic messages to constitute writing. What remains are just small matters of evidence which are to be left to the court to decide. As to whether web advertisements constitute an offer, the UN convention has already established it to be an invitation to treat and in the case of terms and condition English law seems to be a better law to deal with.



BIBLIOGRAPHY
BOOKS
Beale, H.G., et al, Chitty on Contracts, Volume II, (29th Edition, General Principles, Sweet & Maxwell, London, 2004)
Carole, M., et al., Schmitthoff’s Export Trade: The Law and Practice of International Trade, (11th Edition, Sweet & Maxwell, London, 2007).
Carr, I., International Trade Law, (3rd Edition, Cavendish Publishing Limited, London, 2005)
Chissick, M and Kelman, A., Electronic Commerce, Law and Practice, (3rd Edition, Sweet & Maxwell, London, 2002)
Eden, P., Electronic Commerce-Law and Policy, in Akdeniz, Y, et al, (Eds), The Internet, Law, and Society, (Longman Pearson, UK, 2000)
Singleton, S., E-Commerce: A Practical Guide to the Law and Practice, (3rd Edition, Sweet & Maxwell, London, 2002)
ARTICLES.
Angel, J., Why Use Digital Signatures for Electronic Commerce? [1999] JILT 1
Newton, J., The Legal Issues of Electronic Commerce and Communications, [1999] 1 EBL 5
Ramberg, C., The E-Commerce Directive and Formation of Contract in a Comparative Perspective, [2001] EL.Rev. 429
Savirimuthu, J., Online Contract Formation: Taking Technology Infrastructure Seriously, [2005] 2 UOLTJ 105
Stone, P., The Treatment of Electronic Contracts and Torts in Private International Law under European Community Legislation, [2002] 11 ICTL 120
Veyvey, G., and Chissick, M., The Perils of Online Contracting, [2000] CTLR 121

INTERNATIONAL INSTRUMENTS
UNCITRAL Model Law on Electronic Commerce, 1996 available at
http://www. uncitral.org/en-index.htm
EU Directive on Electronic Commerce, 2000
Uniform Electronic Transactions Act, 1999 available at http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta99.htm
UN Convention on the Use of Electronic Communications in International Contracts, 2005 available at http://www.uncitral.org/pdf/english/textx/electcom/06-57452 Ebook.pdf
UNCITRAL Model Law on Electronic Signatures, 2001 available at http://www.uncitral.org/uncitral/en/uncitral texts/electronic commerce/2001/model signatures.html
Principles of European Contract Law, 1999
[1] I. Carr, International Trade Law,3rd Edition, Cavendish Law Publishers, chapter.3&4, J. Savirimuthu, Online Contract Formation: Taking Technological Infrastructure Seriously[2002] UOLTJ 105
[2] M. Chissick, Online Contracts, in M. Chissick and A. Kelman, (Eds) Electronic Commerce Law and Practice, chapt. 3, P. Eden, Electronic Commerce-Law and Policy, in A. Yaman, et al, The Internet, Law and Society,chpt.15, S. Singleton, E-Commerce: A Practical Guide to the Law, Carole Murray, et al, Schmitthoff’s Export Trade, 11th edition, chapter.33, J. Newton, Legal Issues of Electronic Commerce and Communications(1999) 1 EBL,5.
[3] The Treatment of Electronic Contracts and Torts in Private International Law under European Community Legislation(2002) ICTL, Volume II
[4] Chitty on Contracts, volume I, 29th edition, 2004; M. Chissick, Online Contracts, in M. Chissick and A. Kelman, (Eds) Electronic Commerce Law and Practice, chapt. 3
[5] J. Newton, ‘Legal Issues of Electronic Commerce and Communications’ (1999) 1 EBL 5.

[6] Carlil v. Carbolic Smoke ball Co. Ltd [1893] 1 QB 256
[7] Below note 8, at p.334.
[8] Holwell securities v. Hughes[1974] 1 WLR 155 at p.557
[9] Falck v. Williams[1900] AC 176
[10] Adams V. Lindsell (18181) 1AB & Ald 681 in Chitty On Contracts
[11] Chitty on Contracts
[12] Brinkibon Ltd V. Stahag Stahl(1983) 2 AC 34
[13] Entores Ltd v. Miles Far East Corp.[1955]2QB 327 at.333.
[14] Grainger & Sons v. Gough[1896] AC 325 at.334, Fisher v Bell[1961] 1QB 394 at 399
[15] C. Reed, Internet Law: Text and Materials(London: Butterworths,2000) at.p.174-175
[16] Article 10 of EC Directive,2002
[17] Art.11 ibid
[18] D. Murray, “Entering into Contracts Electronically: The Real www” in Lillian Edwards & Charlotte Waelde (Eds), Law and the Internet, 2nd edition, (Oxford: Hart, 2000).
[19] Article 11(1)
[20] supra
[21] Entores Ltd v. Miles Far East Corp.[1955]2QB 327 at.333
[22] Tenax steamship co. Ltd v. The Brimners(Owners)[1975] QB 929
[23] Supra,n.20
[24] S. 15(a)(1) of the Uniform Electronic Transactions Act, 1999
[25] S. 15(a)(2) ibid
[26] S. 15(a)(3) ibid
[27] S. 15(b)(1)&(2) ibid
[28] Carole Murray, et al, Schmitthoff’s Export Trade, 11th edition, chapter.33
[29] Article 10(1) of the UN Convention on the Use of Electronic Communications in International Contracts, 2005
[30] Article 10(2) ibid
[31] C.H.Ramberg, The E-Commerce Directive and Formation of Contracts in a Comparative Perspective,[2001] ELRev.429, I. Carr, International Trade Law,3rd Edition, Cavendish Law Publishers, chapter.3&4
[32] ibid
[33] Section 4 of the Sales of Goods Act, 1979
[34] Chitty on Contracts,at.p.329
[35] For instance s.4 and 17 of the Statutes of Fraud,1677 and The Law of Property Act,1989
[36] Beale and Griffiths(2002) L.M.C.L.Q. 472; Electronic Commerce: Formal Requirements in Commercial Transactions (2001) available in full at www.lawcom.gov.uk
[37] Section 15(9)(3) of the Civil Evidence Act, 1995
[38] Implementing article 9(1) of the European Directive on Electronic Commerce, 2000, and, Electronic Signatures Directive, 1999.
[39] Article 1:301
[40] Uniform Electronic Transactions Act
[41] Section 2(7) UETA
[42] Section 2(13) ibid
[43] Section 7(d) ibid
[44] Section 3(b)(1)ibid
[45] Section 2(8) ibid
[46] Article 6 of UNCITRAL Model Law, on Electronic Commerce.
[47] Section 2(a) of the UNCITRAL Model Law on Electronic Signatures, 2001
[48] The same view is supported by Indira Carr, note.30 above.
[49] Article 6(3) supra, n.46.
[50] Article 2 of European Union Directive on Electronic Signatures
[51] Article 9 of the E-Commerce Directive
[52] See C. H. Ramberg, The E-Commerce Directive and Formation of Contracts in a Comparative Perspective, and [2001] ELRev.429 for general criticism on the directive.
[53] Article 8
[54] Fisher v Bell Supra,n.14
[55] Pharmaceuticals Society of Great Britain v. Boots Cash Chemists[1953] 1QB 40
[56] The UN Convention on the Use of Electronic Communications in International Contracts,2005
[57] Supra, n.6
[58] Olley v. Marlborough Court Ltd [1949] 1 K.B 532
[59] L’Estrange v. Graucob Ltd [1934] 2KB 394
[60] [1877] 2CPD 416
[61] Supra,n.55
[62] Supra,n.59
[63] [1971]2QB 163