The ABC’s of Electronic Contracts

Have you recently visited a website, placed an order and paid for an item from the comfort of your desk? If so, you have been party to an electronic contract (“E-Contract”) i.e. an agreement formed and concluded online. In this article, we consider the essential legal elements of E-contracts.

1. What is an E-Contract?

Generally, E-contracts include all agreements negotiated and concluded by electronic means. Examples include contracts concluded through email, specialised contracting software or through websites. Kenyan law does not ascribe any specific definition for the term E-contract. Under s.83B of the Kenya Information and Communications Act (“KICA”) the following contracts cannot be concluded electronically: (a) wills (b) negotiable instruments; and (c) documents of title. However, by virtue of the Business Laws (Amendment) Act 2020, it appears that land transactions can now be concluded electronically.

2. Offer and Acceptance

Contracts in Kenya are governed by the Law of Contracts Act and English Common law relating to contracts (as modified, from time to time, by doctrines of equity and UK Acts of Parliament). Under these rules, the formation of contracts occurs where a party makes an offer and another duly accepts it.

An offer is essentially an expression of willingness to enter into a contract on specified terms. A valid offer should be:

  • expressed in clear and certain terms;
  • communicated to the offeree (“the person to whom it is addressed); and
  • made with the intention to become binding on the offeree.

Contract law distinguishes between “an offer” and “an invitation to treat“. In , the case of The Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) [1953] QB 1 401 (CA), the English Court of Appeal made the distinction through an analogy of a shop. It was held that the display of goods on shelves of a self-service store constitutes an invitation to treat and not an offer. Similarly, in Fisher v Bell [1961] 1QB 396 (QB), it was held that display of goods on a shop window with an accompanying price tag did not amount to an offer. In a nutshell, in the contract formation process, an “invitation to treat” is nothing more than an invitation to make an offer.

In addition to a valid offer, the acceptance of the offer must also be valid. Acceptance should be:

  • final and unconditional;
  • communicated to the offeror (the person making the offer)

(i) E-Contract Offers

In the context of E-Contracts, we examine the validity of offers made on commercial websites and through email. Under section 83J of KICA, an offer and acceptance of an offer may be expressed by electronic means. Globally, it is widely accepted that offers on websites and via email should adhere to the traditional contract law requirements of a valid offer. Several international legal conventions echo this position. For instance, Article 11 of the UN Convention on the Use of Electronic Communications in International Contracts provides that a proposal to conclude a contract electronically only becomes an offer when if addressed to one or more specific people and isn’t generally accessible. Article 14 (2) of the UN Convention on Contracts for the International Sale of Goods also contains a similar provision.

Discerning the validity of an offer made through email is pretty straightforward. The challenge arises in website contracting. Consider the display of items for sale on commercial websites such as Amazon or Jumia. Does such a display constitute an offer or is it an invitation to treat? In Chwe Kin Keong v Digilandmall Pte Ltd [2004] SGHC 71 the court compared a website display to a “billboard outside a shop” or an advertisement in a newspaper. Further, the Court made the point that the internet “conveniently integrates into a single screen traditional catalogues, shop displays/windows, and physical shopping”. In other words, website displays constitute a mere invitation to treat. To avoid creating automatic contracts, it is common for sites to provide that offers only arise when customers place orders.

(ii) E-Contract Acceptance

As noted in prior sections of this article, as a general rule, an offeree ought to communicate the acceptance of an offer to the offeror. With regard to emails, communication is effective when the offeror receives an emailed acceptance of the offer. Further to this, it is generally accepted that email acceptance takes effect when the email arrives on the servers that manage the offeror’s email. (For further guidance on this point refer to Article 24 of the UN Convention on Contracts for the International Sale of Goods; Article 15 (2) of the UNCITRAL Model on Electronic Commerce and s 102(a)(52)(B)(II)  of the US Uniform Computer Information Transactions Act).

Most websites, manage the offer and acceptance process through “clickwrap” agreements. Clickwrap agreements require users to click a button or link to indicate confirmation of an order or acceptance of terms. For example, after placing an order on Amazon, the site requires the customer to select preferred delivery options and to confirm the order and acceptance of terms by clicking “I Accept” or “Submit“. In addition to clickwrap, retailers often deploy email acceptances. In fact, most retailers use both the clickwrap agreements and email notifications to denote acceptance. This is especially useful in cases where retailers wish to decline offers due to limited stock or where they concluding the sale would give rise to illegality.

3. Mutual Assent

Contractual parties should mutually assent to the contract’s terms and conditions (T&C’s). Mutual assent connotes parties’ meeting of the minds and a general intention to be bound by the T&C’s. In the context of E-Contracts, mutual assent occurs where there is a clear indication of affirmative assent. Generally, the user ought to have:-

  • adequate notice of the existence of the T&C’s;
  • a meaningful opportunity to review the T&C’s;
  • notice that taking a specified, optional action connotes assent to the T&C’s; and
  • taken action to assent to the T&C’s.

To achieve the above requirements, most websites require users to assent to the T&C’s through “clickwrap agreements”. These are agreements where users manifest assent to T&C’s by clicking on ” I accept” or I agree” icon on a web page or pop-up screen. The terms are often accessible through a hyperlink displayed on the same screen and near the “I accept” button.

In some instances, website providers display their T&C’s through “browsewrap agreements”. In contrast to clickwrap agreements, browsewrap agreements do not require users to take any action to indicate assent to terms. For instance, the terms may be placed in a hyperlink which leads to a separate page containing the detailed terms. Alternatively, the terms may appear at the bottom of the web page in small print. Clearly, browsewrap agreements fall short of the assent requirements set out above. Therefore, in the event of a dispute, it becomes difficult to prove that the terms have been sufficiently incorporated into an electronic contract.

4. Signatures

According to section 2 of KICA, an electronic signature serves two key purposes. Firstly, it identifies the signatory in relation to the data message or in our case the E-contract. Secondly, e-signatures indicate the signatory’s approval of the information contained in the contract. Consequently, as per section 83 (O)) electronic signatures may be relied upon in E-contracting provided the signature or signature creation data is:

  • an advanced electronic signature as defined in s.2 of KICA.
  • generated through a signature creation device
  • linked solely to the signatory
  • solely under the control of the signatory

Additionally, any alteration made to the signature or the information to which it relates after the time of signing should be detectable.

5. Consideration

In simple terms, consideration is something of value that converts a mere agreement into a legally enforceable contract. Consideration also includes detriment to the promise or benefit to the promisor. In general commercial transactions, consideration relates to the money paid over by the purchaser and the goods delivered by the vendor. Legal scholars argue that the consideration requirement poses no threat to the validity of online contracts as money and goods exchange hands as is the case with traditional contracts.

Conclusion

I wish to close this post with an interesting observation made by Jonathan Hill in his book “Cross Border Consumer Contracts”. That is, “It is easy to be blinded by the technological wizardry which lies behind the Internet and to reach the conclusion that the uniqueness of cyberspace gives rise to a range of complex and unique problems.” In reality, contract law rules have proved flexible enough to deal with an E-contract without much difficulty and should be so applied.

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1 Comment

  • Katumbi Mbaluto
    Reply 22 May 2020 at 4:44 PM

    Wow…. Just wow… This in a nutshell was a free and informative course for me to better understand electronic contracts… Comprehensive and articulate 👌 Good stuff!

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