Author: Christopher Hamel-Smith
Contracts are the basic legal building blocks for all commerce. They are essential to business. Like building blocks, contracts can be assembled into structures that range from the very simple to the most sophisticated. They provide businesses with great flexibility to allocate commercial risks and to select and adapt established legal structures, or to design new ones, according to their particular commercial needs. This is as true of e-commerce as it is of traditional business.
As we begin to engage in e-commerce, we need to understand the various legal structures that may be used for this purpose. In this way, we can adapt those legal structures, or even create entirely new ones, to add value and manage risks in the context of the particular types of e-commerce that we propose to transact. For this reason, our first step will be to examine the principles that apply to these basic legal building blocks for e-commerce i.e. the law of contract as it applies in cyberspace. On this journey, we shall confront many of the practical legal issues that arise when we transact business and enter into commercial relationships over the Internet.
Creating On-Line Contracts
At the most basic level, a contract is simply a promise that is legally enforceable. It is formed when two or more persons reach an agreement that the law recognizes as binding. Contracts are traditionally analyzed in terms of an "offer" and "acceptance". For example, we usually will have entered into a legally binding contract when I "offer" to buy a particular book from you at a price that you "accept". If either of us attempts to avoid our obligations, the law will compel compliance or award compensation.
This is so whether we have arrived at this agreement in a face-to-face meeting, on the telephone or in correspondence. It is also the case if we reach agreement on-line, for example by exchanging e-mail messages. Similarly, contracts can be formed via Web sites, through automated touch-tone telephone systems and in any number of other ways, such as via interactive television or the wide range of so-called "digital appliances" which are becoming widely available.
Generally, the applicable legal principles are not affected by the medium through which we conduct our communications leading up to an agreement. For example, when a company advertises products for sale to the public, this is not considered to be an "offer" but merely an invitation to submit "offers". A person who orders the product in response to the advertisement is considered to be the party making the "offer" and until the company "accepts" that offer there is no contract. If it were otherwise, the company would be legally obliged to fulfill all orders received even if these exceeded supply. Obviously, the same principles will apply where goods are offered on a Website, so that when a person transmits an electronic order, by filling out a form at the Website, it must first be "accepted" before there will be a binding contract.
However, challenging issues can arise. For example, some systems may automatically produce a computer-generated response to an order received via the Internet. Will this be considered to be an "acceptance" resulting in the formation of a binding contract? The answer will probably depend on the form and content of the response generated. And the test will probably be an objective one, i.e. whether a notional "reasonable person" receiving that particular response would have considered it to be an "acceptance" so as to immediately produce a binding contract.
There are, of course, many other legal issues that can arise in relation to the formation of on-line contracts. These include whether an automatic computer-generated communication can constitute an "offer" which, if accepted, immediately results in a binding contract. This could be an issue, for example, where an insurance company's computer automatically generates a renewal notice. Will an "acceptance" by the policyholder immediately create a binding contract? And what if the renewal notice was generated in error or contains a mistake?
Also, while using the mouse to click on a button on a Website would normally constitute an "acceptance" resulting in a binding contract, this may not always be the case. Certainly, there must be more doubt about whether the act of simply downloading a file from a Website would itself constitute an "acceptance" binding the person doing so to terms sought to be imposed on a notice at that Website.
Under Trinidadian law, very few categories of contracts require to be in writing or signed in order to be legally enforceable. The main exceptions include contracts involving the transfer of an interest in land, contracts of guarantee and hire-purchase contracts. These do not pose a major obstacle to e-commerce between parties who are all located in Trinidad and Tobago.
However, the same is not true for all jurisdictions. Some jurisdictions (including US jurisdictions) have more general requirements that may apply, for example, to all contracts for the supply of goods over a defined dollar value. Careful consideration needs to be given to such requirements, if you contemplate conducting e-commerce across national boundaries. In subsequent articles we shall therefore examine some of the possible solutions to the problems raised by these requirements.
Clearly, companies need to understand and to factor these types of legal considerations into the design of their e-commerce systems. By doing so, they can make use of established principles of contract law to design technical solutions and user-interfaces that achieve their business objectives while mitigating their risks. An ounce of protection is always worth a pound of cure, particularly in situations where the alternative to careful planning is the possibility of becoming involved in expensive litigation to resolve novel and difficult legal issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
