Online contracts

Before we consider the particularities of the online environment, we must take a step back and examine contractual formation in the offline environment which is the background against the relevant rules for contract making that have now been applied to the online environment.

In the traditional environment, it has long been clear when a contract had been concluded. It is when both parties put their signature in a physical document which sets out the agreed terms and conditions. It is true that a contract may be concluded orally but if either party subsequently denies the existence of the contract, there are often enormous evidential problems in establishing that the agreement actually did come into place.

As we consider the impact of the Internet on the contractual process, we need to consider the legal components which enable a contract to come into existence. They are:

consideration, the intention to create legal relations, offer and acceptance.

An example would be e-auction for marketing services conducted by Kodak in 2003. The buying company conducts an e-auction to identify who will be the supplier to print out one million marketing banners that will stand in photo related stores for the next marketing campaign.

The concept of consideration means that each party should derive something beneficial from the transaction, I offer a friend to buy my house so I can move for an apartment and my friend is looking for a similar house in that neighbourhood to buy it, both of us are getting our needs fulfilled with this transaction. The second component is the intention to create legal relations, which is usually understood to exist by virtue of the fact that the parties are in negotiations. The last two components are offer and acceptance, which will be explained in a more detailed way at the next two sections. 20

3.11.1 Offer

An offer is made when one party proposes to another that it can buy a particular item on particular terms, including the precise nature of the item, the price to be paid, the delivery terms, payment conditions and general applicable terms and conditions such as law.

3.11.2 Acceptance

Imagine the following situation, A offers B to sell him his car for USD10,000 plus delivery costs of USD250. Assume that this offer is acceptable to B; the question is how B can accept this offer?

Through the traditional method, this would usually be achieved by both parties signing a document containing these and other relevant terms or, possibly by an exchange of correspondence, once a contract is also a correspondence. The moment of acceptance would generally determine not only the time the contract was entered into but also, if nothing contrary were stated in the terms of the contract, the nationality of the laws that would apply to the contract and the jurisdiction that would be the appropriate forum in which any disputes would be decided.

This can become very important if the 2 parties are in different countries with different legal systems. Most contracts avoid the risk by expressly stating the choice of law and jurisdiction.

3.11.3 On-line Acceptance

With the advent of the online environment, the law of contract has not altered; rather it has had to apply the existing concepts to a new medium. There are two mainstream ways of concluding a contract online, via e-mail and through a website.

Exchanging contracts via e-mail is similar to the exchange of physical correspondence. As long as the email of acceptance does not vary the terms set out in the email of offer, a contract will be concluded by the second email. However, questions can arise as to when the acceptance is valid. This is especially so when there is a limited supply. For example, what happens if a computer company has a total of 5 PCs to sell and sends out emails to all of its clients on 2nd January notifying them of the PCs and their price? If 6 of the company's customers send emails of acceptance on 3rd January, which customer loses out? In the offline environment to cover the equivalent situation, the first letter to be posted is the one which is deemed to be the successful acceptance even if it happens to arrive on the desk of the offeror after the other letter has already arrived. In the online environment, it has not yet been unequivocally determined as to what constitutes the equivalent of posting in a letter box - is it the moment of transmission of the email, the moment it arrives in the addressee's inbox or the moment that the addressee opens that email.

The particular circumstances will usually dictate the answer. To avoid doubt, the company should specify in its terms and conditions how, in the event of competing emails of acceptance, it will determine which email has been deemed to arrive first.

To conclude a valid online contract on the legal basis, the company must ensure that the terms and conditions:

• Have been adapted properly to the online environment - certain changes are necessary to reflect legislation which only applies to online transactions;

• Clearly set out whether the site constitutes an offer or invitation to treat;

• States what will constitute valid acceptance.

The following chapter gives a brief insight of the EU regulations towards e-procurement, the reason for it not being extensive is that it would change the focus and purpose of this thesis, once it is not intended to be a legal material but has a commercial and strategic purpose.