ONLINE TERMS AND CONDITIONS: BINDING NATURE

This article is written by Ananya Saren, Surendranath Law College, Calcutta University, 4^th year BALL.B student during an internship at LeDroit India.

KEYWORDS 

• Online terms and conditions
• Digital platforms
• Legally binding contracts
• User consent
• Clickwrap contracts
• Browsewrap contracts
• Shrinkwrap contracts

INTRODUCTION

In today’s digital world, online terms and conditions play an important role in defining the rights and responsibilities of users and service providers when they interact with websites or mobile apps. These agreements outline the rules for using digital platforms and, if users agree to them, can become legally binding contracts. Although electronic contracts are recognized under the Information Technology Act, 2000, their validity and enforceability often raise questions due to limited judicial precedents. Governed by principles of contract law, particularly the Indian Contract Act, 1872, these agreements rely on user consent, which can be given either explicitly or implicitly. This article examines the legal framework for online contracts, how these agreements are formed, the different ways they are presented, and the importance of user consent in making them enforceable.

LEGAL FRAMEWORK GOVERNING ONLINE TERMS AND CONDITIONS

In India, the Indian Contract Act, 1872 and the Information Technology Act, 2000 primarily governs the legal framework for online contracts. Under the Indian Contract Act, a valid contract requires an offer, acceptance, consideration, and free consent between competent parties for a lawful object. In online transactions, users accept the terms either by explicitly agreeing (e.g., clicking “I Agree”) or by continuing to use the platform, thereby forming a valid contract. Section 10 of the Indian Contract Act ensures that all agreements made with free consent and lawful consideration are enforceable by law. The IT Act, 2000, further validates electronic contracts, with Section 4 recognizing the legitimacy of electronic records, and Section 10-A confirming the validity of contracts formed through electronic means, provided they meet the basic elements of a contract. 

• In Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas (1966) the court confirmed that acceptance through electronic communication, such as emails, is valid. 

• Similarly, the Supreme Court in Trimex International FZE v. Vedanta Aluminium Ltd. (2010) emphasized that online contracts are enforceable when they meet the essential criteria of a contract, whether in traditional or digital form. 

Although there is no specific law exclusively for online contracts, the IT Act offers procedural guidelines to ensure the legality and security of electronic transactions.

FORMATION OF A LEGALLY BINDING CONTRACT ONLINE

The formation of a legally binding contract online involves satisfying the same essential elements required in traditional contracts: offer, acceptance, and consideration, in accordance with the Indian Contract Act, 1872.

• Offer: In the digital context, the offer is typically made by the website or app owner when they present services, products, or access to content under specific terms. This offer is displayed clearly, often through terms and conditions, before the user engages with the service or makes a purchase.

• Acceptance: For online contracts, acceptance occurs when the user agrees to the terms of the offer. In traditional contracts, this acceptance might be verbal or written, but in the digital world, it often takes the form of actions like submitting an order, completing a registration, or clicking a confirmation button after reviewing terms. Under Section 13 of the Indian Contract Act, acceptance must be communicated. In online contracts, this communication is typically automated (e.g., clicking to proceed after being presented with terms or confirming an order). Once acceptance occurs, it cannot be withdrawn unless agreed upon by both parties.
• The IT Act, 2000 supplements this by allowing electronic records to constitute valid proof of offer and acceptance. This ensures that digital actions (such as clicks or form submissions) are legally recognized as valid expressions of acceptance.

• Consideration: Consideration is the exchange of value between the two parties. In most online contracts, this could involve the user gaining access to a service, content, or product in exchange for providing personal information, monetary payment, or compliance with specific terms. As per Section 2(d) of the Indian Contract Act, consideration must be lawful, real, and not illusory. For instance, subscribing to a streaming service in exchange for a monthly fee is lawful consideration, as is providing personal information for free access to certain features.

• Intention to Create Legal Relations: In online contracts, particularly those involving financial transactions or paid services, there is typically an inherent intention to create legal relations. Users agree to be bound by the terms when they actively engage with the service or product, and this is supported by both the Indian Contract Act and the IT Act, 2000.

• Capacity and Free Consent: Like traditional contracts, online agreements must be made between competent parties with free consent. Sections 11 and 12 of the Indian Contract Act stipulate that only individuals of legal age, sound mind, and not disqualified by law can enter into contracts. Free consent, as defined in Section 14, means that the agreement must be free from coercion, fraud, misrepresentation, undue influence, or mistake.

• Electronic Record and Authentication: Under the IT Act, 2000, electronic records (e.g., logs, screenshots, or email confirmations) serve as valid evidence of the contract’s formation. This provides a robust mechanism for tracking user consent and protecting the parties in case of disputes. Digital signatures or other authentication mechanisms further validate the user’s agreement to the terms.

METHODS OF PRESENTING TERMS AND CONDITIONS

The enforceability of online terms and conditions largely depends on how they are presented to users. Different methods of presentation have varying impacts on a contract’s validity, as they influence whether the user has effectively consented to the terms. The three main methods for presenting these agreements are clickwrap, browsewrap, and shrinkwrap (sometimes referred to as scrollwrap in digital contracts). Each has its own implications in terms of enforceability, particularly regarding how clearly user consent is obtained.

1. Clickwrap Contracts

Clickwrap contracts, also known as click-through agreements, are perhaps the most common and reliable method for ensuring the enforceability of online terms and conditions. This method requires users to actively click an “I Agree” or “OK” button, thereby explicitly indicating their assent to the terms before proceeding with the service, purchase, or installation.

• How it Works: Users are presented with a dialog box or pop-up window that contains the terms and conditions, often as part of a software installation process, an online registration form, or a purchase workflow. They must click “I Agree” to indicate consent to the terms, which makes this method particularly clear in terms of acceptance.

• Types of Clickwrap Contracts:

1. Type-and-Click: The user types “I accept” in a box before clicking “Submit” or a similar button. This additional step further solidifies the user’s explicit consent.
2. Icon-Clicking: The user simply clicks an “I Agree” or similar button to proceed.

Clickwrap agreements are highly enforceable because they leave little room for doubt about the user’s consent. The user must take affirmative action to agree to the terms, making it difficult for them to argue later that they were unaware of or did not accept the terms.

2. Browsewrap Contracts

In contrast to clickwrap contracts, browsewrap agreements are more passive in their presentation and rely on implied consent. These agreements are usually accessible through a hyperlink at the bottom of a webpage, and the user’s continued use of the website is considered acceptance of the terms.

• How it Works: Browsewrap agreements do not require users to explicitly agree to the terms and conditions. Instead, they rely on a statement that informs users that their continued use of the website or service implies consent to the terms, which are typically accessible via a hyperlink. Users are not required to click any button to demonstrate agreement.

Browsewrap agreements are often considered weaker in terms of enforceability because they rely on implied consent, which may not always be clear to the user. Courts typically look for evidence that the user had actual or constructive notice of the terms before determining if such agreements are enforceable. If the terms are not easily accessible or the notice is not prominent, the likelihood of enforcement decreases. The lack of affirmative action from the user makes it easier for them to argue that they were not aware of or did not agree to the terms.

3. Shrinkwrap Contracts

Shrinkwrap contracts are commonly used in the physical distribution of software and digital products but have also been adapted to the online world as scrollwrap agreements. These contracts bind users to the terms and conditions once they take a specific action, such as using the product or continuing with the service.

• How it Works: Originally, shrinkwrap contracts referred to physical agreements enclosed in the packaging of a product, and users would accept the terms by opening the package or using the product. In the online context, scrollwrap agreements require users to scroll through the entire set of terms and conditions before clicking “I Agree.” This ensures that the user has at least been presented with the opportunity to view the terms before agreeing.

Shrinkwrap or scrollwrap agreements offer stronger enforceability compared to browsewrap agreements but may not always be as clear as clickwrap agreements. The act of scrolling through the terms provides a degree of engagement from the user, which can bolster the argument for enforceability. However, these contracts are still subject to potential disputes if users claim they did not fully understand or review the terms before agreeing.

USER CONSENT AND AGREEMENT: KEY CONSIDERATIONS

The enforceability of online terms and conditions hinges primarily on obtaining clear user consent. In contract law, free consent (as defined in Section 14 of the Indian Contract Act, 1872) is crucial for the formation of a valid contract. For online contracts, this consent can be expressed in several ways.

• Explicit Consent: Explicit consent is the most secure form of consent in online transactions. In clickwrap agreements, when a user clicks an “I Agree” button, it constitutes explicit acceptance of the terms. Courts are more inclined to enforce contracts where explicit consent has been obtained, as it indicates a clear intent by the user to agree to the terms.

• Implied Consent: Implied consent occurs when a user’s actions suggest agreement to the terms, such as continuing to use a website after being notified of the terms (browsewrap agreements). However, courts are more cautious in enforcing browsewrap agreements due to the passive nature of acceptance.

Importance of Notice: For user consent to be valid, it is critical that users are given adequate notice of the terms and conditions. Courts have repeatedly emphasized that users must have had a fair opportunity to review the terms before agreeing to them. 

In India, the Information Technology Act, 2000 under Section 11 ensures that electronic contracts are formed by lawful consent. Additionally, Section 13 outlines the importance of communicating the offer and acceptance, which in the case of online contracts, can be done through electronic means.

Consequences of Non-consent: In instances where consent is not clear, or where it can be shown that the user was not properly notified of the terms, the enforceability of the contract becomes questionable. In Indian law, contracts entered into without free consent may be voidable at the option of the party whose consent was not free (Section 19 of the Indian Contract Act).

CONCLUSION

In today’s digital age, online terms and conditions are essential for regulating the relationship between users and service providers. The Indian Contract Act, 1872 and the Information Technology Act, 2000 provide a legal framework that makes these agreements enforceable, provided they meet the fundamental requirements of a contract, including offer, acceptance, and consideration. Among the methods of presenting terms, clickwrap agreements offer the strongest legal backing due to the user’s clear consent, while browsewrap and scrollwrap agreements face more challenges regarding enforceability. Courts have stressed the importance of ensuring users have adequate notice and the opportunity to consent freely. Without proper user consent, online contracts may be voidable.

As digital transactions continue to grow, service providers must prioritize clear communication of their terms and conditions to ensure their enforceability. Simultaneously, users should be vigilant in reviewing the terms before agreeing. The evolution of contract law is increasingly intertwined with technological advancements, and ensuring mutual consent is key to maintaining the legality of online agreements.

REFERENCES

• Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas (1966)
• Trimex International FZE v. Vedanta Aluminium Ltd. (2010)
• Indian Contract Act, 1872
• Information Technology Act, 2000