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IAPM Articles > > Elective Modules > e-Contracts and Law

e-Contracts and Law

By IAPM Research

How can I ensure that an agreement made electronically is legally binding?

When parties enter into an electronic commercial contract, the contract is formed by one party making an offer and the other party accepting this offer. The exchange of consents will give legal effect to the contract without either party having to respect requirements of form, except in such situations where the law specifically requires that a contract be written in a specific form (e.g., for the sale of property, settlements, etc.), or where the national law requires a written document (e.g., for the sale of a business, maritime bills of lading, etc.). Nevertheless, for day-to-day transactions, the main legal problem concerns the question of evidence. The existence of a contract can be disputed if you do not have evidence of its formation. Thus, a simple electronic message which is not signed can be called into question. Consequently, a message representing an offer or the acceptance of an offer runs the risk of being considered as simply a beginning to written evidence and not complete documentary evidence. A vast legislative change is taking place on a global level, recognizing that writing in the electronic medium is the functional equivalent of traditional writing on paper. The legal effect of electronic records is recognized in Articles 6, 7, and 8 of UNCITRAL's Model Law on Electronic Commerce, which is the standard reference for countries wishing to adapt existing laws or create new laws to deal with electronic transactions. In practice, if you use an electronic medium (such as e-mail) during the process of contracting, it is wise to forestall potential problems of evidence by incorporating a reliable, recognized electronic signature into your electronic correspondence. This makes it possible to identify the parties as signatories of the contract so that they cannot later repudiate the contract on the basis that the agreement was not signed; then the integrity of the contract can be guaranteed. In case of doubt, it may also be wise to confirm the acceptance of an offer by sending a confirmation document by mail, such as an acknowledgment of receipt.

If a buyer accepts, online, my online offer for the sale of goods, are we then legally bound by a contract?

In countries with a common law system (e.g., the United Kingdom, Nigeria, India, New Zealand, etc.) when a seller offers products for sale, he is, as a rule, entitled to revoke his offer at any time before it is accepted by a buyer. This applies to online and offline offers for sale. In countries with a civil law system (e.g., Germany, France, Brazil, Indonesia, etc.), when a seller offers products for sale, he is bound to maintain his offer open (i.e., he cannot revoke his offer, so long as he has sufficient stocks of his products to meet any orders). This principle applies to online as well as offline offers for a sale. In view of the above, a potential buyer may wish to provide evidence of his/her order. The best means for him/her to do this are: to electronically sign the order, to print a copy of the acceptance of his/her offer, or perhaps even store the exchanges electronically (e.g., by saving them in a folder or database). A crucial text for business-to-business transactions is Article 14 of the Vienna Convention on the International Sale of Goods of 1980, which defines the terms "offer" and "invitation to make offers," and specifies that an offer must be made to the persons concerned and "1)... constitutes an offer if it is sufficiently definite and indicates the intention of the offerer to be bound in the case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. 2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. " On the basis of Article 14, a fundamental question arises as to whether an offer should be considered as binding where a seller makes a general offer (i.e., not to a specific person or group of persons) on his web site and a foreign buyer accepts the offer. With regard to this issue, the United Nations Center for the Facilitation of Procedures and Practices for Administration, Commerce, and Transport (UN/ CEFACT), in Article 3.2.1 of its "Electronic Commerce Agreement" (see Appendix VI), which was approved in March 2000, provides an answer which can be incorporated into contracts: "A message constitutes an offer if it includes a proposal for concluding a contract addressed to one or more specific persons which is sufficiently definite and indicates the intention of the sender of the offer to be bound in case of acceptance. A message made available electronically at large shall, unless otherwise stated therein, not constitute an offer."

How do I sign a contract electronically? Is an electronic signature as binding as a written signature?

The majority of countries recognize that it is perfectly valid to sign a contract electronically, especially when this occurs in a closed electronic system, such as an Electronic Data Interchange (EDI) system. Today, in practice, the digital signature (a process based on public key cryptology) is the most frequently used technology for electronic signatures. This technology, as well as being the most widespread, is also the most secure. It allows signatories to be identified by recipients through the intervention of a trusted third party, known as the Certification Authority (C.A.). The technology involves the signatory generating a pair of asymmetrical digital keys: a private key which is kept secret between the signatory and the C.A. and a public key, which, as the name indicates, allows a recipient to verify through the C.A. that the signature has actually come from the person identified with the private key. The C.A. creates a digital identification certificate which establishes a link between the person of the signatory and his pair of keys so that the signatory cannot later disclaim the signature. This certificate is signed by the Certification Authority. The signature consists of an encrypted message of the kind normally used in real signatures, which is attached or logically joined to the main message. The intervention of a third party is indispensable in establishing confidence and security in electronic exchanges, since the contracting parties are never physically present to sign. The development of eCommerce relies, to a large extent, on the trust and security that users feel in electronic communications. Applications related to or requiring electronic signatures are numerous, for example: payments of contracts, administrative declarations, procurement operations, etc. Since 1981, the Council of Europe, and, as of 1985, the United Nations Commission on International Trade Law (UNCITRAL), have been recommending countries to take all necessary measures to eliminate legal requirements imposing paper-based documents and handwritten signatures to the detriment of their data-processing or electronic equivalents. Article 7 of UNCITRAL's Model Law on Electronic Commerce of 1996 specifies that: "Where the law requires a signature of a person, that requirement is met in relation to a data message if a method is used to identify that person and to indicate that person's approval of the information contained in the data message; and that method is as reliable as was appropriate for the purpose for which the data message was generated or communicated, in the light of all the circumstances including any relevant agreement." The above applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for the absence of signature.

How can I guarantee that the terms I agree upon electronically are those I actually see on my computer (i.e., those that the other party has issued on his or her side)?

To our knowledge, there is no absolute guarantee, from a technical point of view, allowing for certainty that what one party sees on its computer screen is identical to what was issued by the other party on its site. Each web browser has its own way of reading pages written in HTML language on any given web site that is visited. Moreover, as the sources of word processing software (market standards) are not freely accessible, macrocommands could be implemented in a file, marking the contract which one intends to sign: hence the signed text may not be the one which has been examined on the screen. The only method which would appear to give some guarantees in this respect consists of the labeling of the site by a third, independent organization (e.g., an auditor, a Chamber of Commerce, etc.). If the web site does not have a label, it is advisable to carry out, before each transaction, a capture of the page on the screen (generally, any purchase orders to be filled in by the buyer are in standard form) and to print out the form in order to have evidence in the event of litigation.

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