Dr.

Ram Manohar Lohiya National Law University

Lucknow
2011-12

LAW OF CONTRACTS
FINAL DRAFT

On

“Examining the aspects and rules related to communication in electronic

form”

Submitted for the project work undertaken in the partial fulfilment of

B.A.LL.B. (Hons.) 5 years integrated course of
Dr. RMLNLU, Lucknow
Supervised by: Submitted by:
Dr. Visalakshi Vegesna Vikramarth Sheo Chand

Asst. Professor of Law And Vimy Chandra

Law of Contracts Roll No.- 150, 151

II Semester, Sect.-B
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ACKNOWLEDGEMENT .

We would like to extend my sincere thanks to our teacher and mentor

Dr. Visalakshi Vegesna for her able guidance and advice, our seniors
for sharing theirs valuable experience and tips and our classmates for
their constant support.

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TABLE OF CONTENTS.
 INTRODUCTION TO CONTRACTS.

 HISTORY OF THE INDIAN CONTRACT ACT AND ESSENTIALS OF A CONTRACT .

 TYPES OF CONTRACTS .

 INTRODUCTION TO CONTRACTS IN ELECTRONIC FORM , ITS ASPECTS AND

RELATED RULES .

 CONCERNED CASES.

 CONCLUSION.

 BIBLIOGRAPHY .

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INTRODUCTION TO CONTRACTS.

Contract law is based on the principle expressed in the Latin phrase pacta sunt
servanda, which is usually translated "agreements must be kept" but more literally means
"pacts must be kept".
Contract law can be classified, as is habitual in civil law systems, as part of a general law of
obligations, along with tort, unjust enrichment, and restitution.
As a means of economic ordering, contract relies on the notion of consensual exchange and
has been extensively discussed in broader economic, sociological, and anthropological terms
(see "Contractual theory" below). In American English, the term extends beyond the legal
meaning to encompass a broader category of agreements.
A contract is an agreement entered into voluntarily by two parties or more with
the intention of creating a legal obligation, which may have elements in writing, though
contracts can be made orally. The remedy for breach of contract can be "damages" or
compensation of money. In equity, the remedy can be specific performance of the contract or
an injunction. Both of these remedies award the party at loss the "benefit of the bargain" or
expectation damages, which are greater than mere reliance damages, as in promissory
estoppel. The parties may be natural persons or juristic persons. A contract is a legally
enforceable promise or undertaking that something will or will not occur. The word promise
can be used as a legal synonym for contract., although care is required as a promise may not
have the full standing of a contract, as when it is an agreement without consideration.
Contract law varies greatly from one jurisdiction to another, including differences in common
law compared to civil law, the impact of received law, particularly from England in common
law countries, and of law codified in regional legislation. Regarding Australian Contract
Law for example, there are 40 relevant acts which impact on the interpretation of contract at
the Commonwealth (Federal / national) level, and an additional 26 acts at the level of the
state of NSW. In addition there are 6 international instruments or conventions which are
applicable for international dealings, such as the United Nations Convention on Contracts for
the International Sale of Goods (Vienna Sales Convention)
However, contract is a form of economic ordering common throughout the world, and
different rules apply in jurisdictions applying civil law (derived from Roman law principles),
Islamic law, socialist legal systems, and customary or local law.

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HISTORY OF THE INDIAN CONTRACTS ACT AND THE ESSENTIALS
OF A CONTRACT.

INTRODUCTION:
Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as
subsequently amended.
It determines the circumstances in which promise made by the parties to a contract shall be
legally binding on them. All of us enter into a number of contracts everyday knowingly or
unknowingly. Each contract creates some right and duties upon the contracting parties. Indian
contract deals with the enforcement of these rights and duties upon the parties.
The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872. It applies
to the whole of India except the state of Jammu and Kashmir. It is not a complete and
exhaustive law on all types of contracts.
o Section 2(h) of the Act defines the term contract as "any agreement enforceable by
law". There are two essentials of this act, agreement and enforceability.
o Section 2(e) defines agreement as "every promise and every set of promises, forming
the consideration for each other."
o Section 2(b) defines promise in these words: "when the person to whom the proposal
is made signifies his assent thereto, the proposal is said to be accepted. Proposal when
accepted, becomes a promise." And other words Say Agreement is Sum of Promise

The Indian Contract Act occupies the most important place in the Commercial Law. Without
contract Act, it would have been difficult to carry on trade. It is not only the business
community which is concerned with the Contract Act, but it affects everybody.

The objective of the Contract Act is to ensure that the rights and obligations arising out of a
contract are honoured and that legal remedies are made available to an aggrieved party
against the party failing to honour his part of agreement. The Indian Contract Act makes it
obligatory that this is done and compels the defaulters to honour their commitments.
According to Sir William Anson. "The objective of law is to maintain order because only in a
state of order can a man feel safe and secure."

HISTORY:

Prior to the enactment of the Indian Contract Act, 1872, the English Law is applied into the
Presidency towns of Madras, Bombay and Calcutta by the Charter granted in 1726 by King
George I to the East India Company. In 1781, the Act of Settlement was passed by the British
government which says that in the matters of inheritance and succession, contracts dealing
with parties in the case of Mohammedans and Hindus, their respective laws were considered.
In cases where only one of the parties is a Mohammedan or Hindu, the laws and usages of the
defendant is considered. This rule was applied in the Presidency Towns. In places outside the

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presidency towns, judgment was decided according to the justice, equity and good
conscience.
The Indian Contract Act, 1872 initially also dealt with Sale of
Goods, Indemnity and Guarantee, Law of Bailment, Agency and Partnership. However, in
1930, a separate Act on the Sale of Goods was passed. The Indian Partnership Act was passed
in 1932.

ESSENTIALS OF A CONTRACT:

1. Proper offer and proper acceptance. there must be an agreement based on a lawful offer
made by person to another and lawful acceptance of that offer made by the latter. Section 3 to
9 of the contract act, 1872 lay down the rules for making valid acceptance
2. Lawful consideration: An agreement to form a valid contract should be supported by
consideration. Consideration means “something in return” (quid pro quo). It can be cash,
kind, an act or abstinence. It can be past, present or future. However, consideration should be
real and lawful.
3. Competent to contract or capacity: In order to make a valid contract the parties to it must
be competent to be contracted. According to section 11 of the Contract Act, a person is
considered to be competent to contract if he satisfies the following criterion:

 The person has reached the age of maturity.

 The person is of sound mind.
 The person is not disqualified from contracting by any law.
4. Free Consent: To constitute a valid contract there must be free and genuine consent of the
parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue
influence or mistake.
5. Lawful Object and Agreement: The object of the agreement must not be illegal or
unlawful.
6. Agreement not declared void or illegal: Agreements which have been expressly declared
void or illegal by law are not enforceable at law; hence they do not constitute a valid contract.
7. Intention To Create Legal Relationships:-when the two parties enter in to an agreement
there must be intention must be to create a legal relationship between them, if there is no such
intention on the part of the parties, there is no contract between them agreements of a social
or domestic nature do not contemplate legal relationship; as such they are not contracts.
8. Certainty, Possibility of Performance
9. Legal Formalities

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TYPES OF CONTRACTS .

ON THE BASIS OF VALIDITY:

1. Valid contract: An agreement which has all the essential elements of a contract is called a
valid contract. A valid contract can be enforced by law.
2. Void contract[Section 2(j)]: A void contract is a contract which ceases to be enforceable by
law. A contract when originally entered into may be valid and binding on the parties. It may
subsequently become void. -- There are many judgments which have stated that where any
crime has been converted into a "Source of Profit" or if any act to be done under any contract
is opposed to "Public Policy" under any contract—than that contract itself cannot be enforced
under the law-
3. Voidable contract[Section 2(i)]: An agreement which is enforceable by law at the option of
one or more of the parties thereto, but not at the option of other or others, is a voidable
contract. If the essential element of free consent is missing in a contract, the law confers right
on the aggrieved party either to reject the contract or to accept it. However, the contract
continues to be good and enforceable unless it is repudiated by the aggrieved party.
4. Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if
permitted, would defeat the provisions of any law or is fraudulent; or involves or implies
injury to a person or property of another, or court regards it as immoral or opposed to public
policy. These agreements are punishable by law. These are void-ab-initio.
“All illegal agreements are void agreements but all void agreements are not illegal.”
5. Unenforceable contract: Where a contract is good in substance but because of some
technical defect cannot be enforced by law is called unenforceable contract. These contracts
are neither void nor voidable.
ON THE BASIS OF FORMATION:
1. Express contract: Where the terms of the contract are expressly agreed upon in words
(written or spoken) at the time of formation, the contract is said to be express contract.
2. Implied contract: An implied contract is one which is inferred from the acts or conduct of
the parties or from the circumstances of the cases. Where a proposal or acceptance is made
otherwise than in words, promise is said to be implied.
3. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly not
contracts as there is no intention of parties to enter into a contract. It is legal obligation which
is imposed on a party who is required to perform it. A quasi contract is based on the principle
that a person shall not be allowed to enrich himself at the expense of another.
ON THE BASIS OF PERFORMANCE:
1. Executed contract: An executed contract is one in which both the parties have performed
their respective obligation.
2. Executory contract: An executory contract is one where one or both the parties to the
contract have still to perform their obligations in future. Thus, a contract which is partially
performed or wholly unperformed is termed as executory contract.

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3. Unilateral contract: A unilateral contract is one in which only one party has to perform his
obligation at the time of the formation of the contract, the other party having fulfilled his
obligation at the time of the contract or before the contract comes into existence.
4. Bilateral contract: A bilateral contract is one in which the obligation on both the parties to
the contract is outstanding at the time of the formation of the contract. Bilateral contracts are
also known as contracts with executory consideration.

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INTRODUCTION TO CONTRACT IN ELECTRONIC FORM, ITS
ASPECTS AND RELATED RULES.

MEANING OF ELECTRONIC CONTRACT:

An e-contract is a contract modeled, executed and enacted by a software system. Computer
programs are used to automate business processes that govern e-contracts. E-contracts can be
mapped to inter-related programs, which have to be specified carefully to satisfy the contract
requirements. These programs do not have the capabilities to handle complex relationships
between parties to an e-contract.
When the communication is made by ‘instantaneous’ mode i.e., in electronic form namely, by
telephone or telex, the sender is able to know immediately whether his communication has
reached , and has an opportunity of making a proper communication. When communication
is sent by post or by telegram, there is a risk of the letter or telegram being lost, and the
sender may not know about it. Hence the postal rule constitutes an exception to the general
rule. Fax and e-mail fall into an acceptance sent by fax may not be received at all, or may not
legible, and hence should not be effective instantaneously. An acceptance by e-mail may not
reach the addressee at all. The sender’s mail gets ‘posted’ in the addressee’s ‘mail-box’ with
the addressee’s server. The addressee will receive it, the server facility being available, when
the addressee accesses it and downloads the message is sent, and it goes into a course of
transmission so as to be out of the control of the sender. In case the of fax as well as e-mail,
the sender is unable to know at once about the success or failure of communication, It is
therefore submitted that the rules of postal communication must be made applicable to
communication by fax or e-mail, or messages sent by similar applicable to communication by
fax or e-mail, or messages sent by similar electronic means, except where the sender has an
opportunity of verifying immediately the proper communication of the message.

INSTANTANEOUS MODE OF COMMUNICATION: TELEPHONE, TELEX

Where the acceptor uses the telephone or telex for communication, the acceptor will
generally know if his communication has not reached the proposer, and can try to send it
again. The rule is sound and practical because the oral acceptance may be drowned by the
noise of a flying aircraft, or the telephone may go deal or feeble and instinct, and not be
heard. Such a contract is concluded is concluded when the acceptance reaches the proposer.
In the ENTORES CASE the offer was made by telex in Amsterdam and notification of the
acceptance was received in London also by telex; it was held that in the case of oral
communication or by telex or telephone, an acceptance is communicated when it is actually
received by the proposer and the contract resulting thereupon was held to be made in London.
In the USA and CANADA, the contract in such cases is made where the acceptance is
spoken. However, the rule in the ENTORES CASE, to apply to instantaneous modes of
communication, and not to the provision of this section.

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MODES OF ENTERING INTO AN E-CONTRACT:

An electronic contract is an agreement created and “signed” in electronic form — in other

words, no paper or other hard copies are used. For example, you write a contract on your
computer and email it to a business associate, and the business associate emails it back with
an electronic signature indicating acceptance. An e-contract can also be in the form of a
“Click to Agree” contract, commonly used with downloaded software: The user clicks an “I
Agree” button on a page containing the terms of the software license before the transaction
can be completed.
In spite of slow progress in the field of artificial intelligence, computer systems are now
emerging that can operate not just in an automatic way but autonomously as well. The
processes of Artificial Intelligence includes forming intentions, making choices and giving
and withholding consent which means humans can give substantial autonomy in decision
making which permits computer systems to complete highly complex tasks involving precise
judgements. Now the question which arises in our minds is that whether a computer system
can replicate the processes that are regarded as free will of the humans and what would be the
legal consequences of it. These are the questions which make people apprehensive while
entering into a commercial contracts with the aid of a computer system. Contractual rights
must be determined with reference to individuals, the need of the hour is to ascertain the
whether the existing contract law doctrine can cope with the new laws of technology.
Analysing these concepts under the Contracts Act, the question that arises in our minds is
that whether the offer made by the buyer comes to the knowledge of the seller before the
acceptance is made by the computer program on his behalf , whether the acceptance on part
of the computer program would amount to a valid acceptance or not. In cases of e-contracts,
even though the communication of acceptance is not complete and the computer program
itself accepts the offer on behalf of the acceptor and that too without any knowledge of the
acceptor but still these contract are deemed to be legal.
In present scenario, if an offer has been made, then prima facie the seller's computer uses the
set of instructions to accept the offer and evince an intention to assent to that offer.

There appear to be three possibilities:

(1) intention may be of the seller's computer alone but since computers are not capable of
being parties, it must follow that we do not have a meeting of minds by the parties
themselves; or
(2) intention may be the seller's alone, this view, however, is problematic given that the seller
never knows of the transaction; or
(3) intention may be the seller's though embodied in an e- program of the computer. Can this
view be realistic, though, when the decision to make the offer in question has been formed
autonomously by the seller's computer?
If a question before the court of law comes about the legality of such a contract entered
between the parties through a computer program, in my view the first and the second
possibilities are not at all applicable to the present scenario.

In an e-transaction without the interposition of human interaction, both, the offeree and the
offeror must assent to the agreement contemporaneously. In all transactions, electronic or
otherwise, the timing and legal effectiveness of the offers, acceptances and any revocations
thereof affect the formation of a valid contract.
Sec. 64 of the Restatement provides that “acceptances given by telephone or other medium of
substantially instantaneous two-way communication is governed by the principles applicable

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to acceptances where the parties are in the presence of each other.” To qualify for this
treatment, a medium of communication must be capable of “prompt, reliable verification that
a message has been received and that it has been received intact and without communication
errors.” The purpose of such technique is the verification that the receiving party has had
legally sufficient notice that an offer or acceptance has been made. EDI and other e-
commerce exchanges conducted on-line certainly satisfy this requirement, but delayed and
store-and-forward communications such as an e-mail may not.

THE TIME OF CONCLUSION OF A CONTRACT:

It may be necessary to determine the time of contract, for example, to decide priorities
between competing claims, or to determine the law applicable to a contract. Where parties are
in the presence of each other, or even if at a distance, connected on the telephone or telex
enabling immediate communication of proposal and acceptance, the time of the contract is
not difficult to ascertain. It is the time at which the offer and acceptance take place. When the
proposal and acceptance are made by letters the contract is made at the time when the letter
of acceptance is posted. A contract is concluded when the acceptance is posted, although the
formal agreement may not have been still executed.

In India the law relating to contracts is governed by The Indian Contract Act 1872.
Electronic Commerce Bill does promise to make electronic contracts feasible. Would a
supplier making details of goods and services with prices available on a website be deemed to
have made an offer or would it be an invitation to treat? Learned authors have opined that
there not much difference and therefore unless the website is so designed as to be construed
as making an offer, in most situations, such displays would be treated in law as an invitation
to treat. The use of e-mails and website offers and acceptances also present fresh challenges
to current laws on determination of time and date of offer and acceptance. E-mails may not
be actually received, just like the post, or be delayed or even lie unopened. On the other hand,
web transactions more closely resemble telephonic and telex communications and offer and
acceptance may be instantaneous.
Electronic transactions are conceptually very similar to traditional (paper based) commercial
transactions. Vendors present their products, prices and terms to prospective buyers. Buyers
consider their options, negotiate prices and terms (where possible), place orders and make
payments. Then, the vendors deliver the purchased products. Nevertheless, because of the
ways in which it differs from traditional commerce, electronic commerce raises some new
and interesting technical and legal challenges.
These include –
1. E-contracts cannot satisfy the legal requirements of reduction of agreements to signed
documents.
2. Legal rules of evidence to such e-contracts cannot be applied and
3. Interpreting, adapting and compiling many other existing legal standards in the context of
electronic transactions.

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CONCERNED CASES.
 Entores Ltd. v. Miles Far East Corp., [1955] 2 Q.B. 327 (C.A.).
Facts: Entores was a London-based trading company that sent an offer by telex for the
purchase of copper cathodes from a company based in Amsterdam. The Dutch company sent
an acceptance by telex. The contract was not fulfilled and so Entores attempted to sue the
owner of the Dutch company for damages. The controlling company, Miles Far East Corp,
was based in the US and under English law Entores could only bring the action in the US
(serve notice of writ outside the jurisdiction) if it could prove that the contract was formed
within the jurisdiction, i.e. in London rather than Amsterdam.
There is no acceptance if a telephone line goes dead or an oral acceptance “is drowned by an
aircraft flying overhead”.

When a contract is made by post it is clear law throughout the common law countries that the
acceptance is complete as soon as the letter is put into the post box, and that is the place
where the contract is made. But there is no clear rule about contracts made by telephone or by
Telex. Communications by these means are virtually instantaneous and stand on a different
footing.

The problem can only be solved by going in stages. Let me first consider a case where two
people make a contract by word of mouth in the presence of one another. Suppose, for
instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply
because it is drowned by an aircraft flying overhead. There is no contract at that moment. If
he wishes to make a contract, he must wait till the aircraft is gone and then shout back his
acceptance so that I can hear what he says. Not until I have his answer am I bound.

 Adams v. Lindsell (18 18), 106 E.R. 250 - In Adams v Lindsell itself it was suggested
(at 683) that if the rule did not exist “no contract could ever be completed by the post.
For if the [offerors] were not bound by their offer when accepted by the [offerees] till
the answer was received, then the [offerees] ought not to be bound till after they had
received the notification that the [offerors] had received their answer and assented to
it. And so it might go on ad infinitum”.

 Brinkibon Ltd. v. Stahag Stahl- A Telex acceptance was sent from London to Vienna.
The England Company could only commence a claim for breach of Contract on the
Australian Company if the contract was made in England.
Holding- That the contracts question had been concluded where the telex acceptance
had been received, in Vienna.

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CONCLUSION.
To end with, it can be said that electronic contracts are almost same as other hard copy
contracts as far as its evidentiary value is concerned and in case of any discrepancy there are
certain prerequisites that fill the lacunae. All electronic contracts are valid contracts as they
are legalized by the Information Technology Act and one could be made liable if there is any
infringement with the terms and conditions. Subsequently many amendments have been made
in order to attain conceptual clarity.
Although we are still primarily dependent on the use of paper in creating contracts, the full
use of electronic or “cyber-contracts” is probably not far away. Such cyber-contracts will not
take the place of full scale negotiations but they will definitely speed up the end game of
signing contracts once the details are agreed to by the parties. As business and technology
race forward, the use of electronic contracts and digital signatures in the future will probably
seem as commonplace as sticking a piece of paper in a fax machine for someone far away to
sign does today.

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BIBLIOGRAPHY.
 Information Technology Act, 2002.

 Asian School of Cyber Laws, Study material on Cyber Laws, 2006, Pune India

 Avtar Singh, Law Of Contracts 90 (2001)

 Cyber and E-Commerce laws, P. M. Bakshi and R. K. Suri

 Indian Contract Act, Pollock and Mulla

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