Online Contracts; the Use of Electronic Signatures



The purpose of a contract is to establish the agreement that the parties have made, and to fix their rights and duties in accordance with that agreement (Dr. Matteu, 1998). An online contract is a contract created and signed online. In other words, no paper or hard copy is involved. An electronic contract can also be in the form of ‘click to agree’ button, which is most prevalent in contracts for the purchase of software (Shmuel, 2008). E-commerce is defined as commercial dealings carried out through electronic networks including the publicity, marketing and supply, order or delivery of goods and services [Australian Guidelines for Electric Commerce]. Online contracts are becoming more prevalent in the modern world. This can be seen as a result of globalization where one can contract with another who is probably even on another continent through the internet. By contracting online, businesses are able to improve efficiencies, reduce paperwork, and streamline their operations (Elizabeth Macdonald, 2011).

However, the flipside of this is that this advancement in technology creates various challenges on the law of contracts applying specifically to online contracts (Noah, 1998). Therefore, there is a need to establish clarity on what may qualify as a legally binding contract and its elements. Online contracts are essentially not different from the regular contracts on paper. The requirements, in order to qualify as valid contracts, are the same only that the signature is electronic as opposed to hand signature. For the validity of a signature, all the other aspects of a valid contract must be present. This research will briefly look at the requirements of a valid contract before embarking on the signature. The law that deals with electronic contracts in Australia is the Electronic Transactions Act 1999. There is also the Australian Guidelines for Electronic Commerce.


Offer versus invitation to treat

In Australian law, the conclusion of a contract is normally broken into three: an invitation to treat, an offer, and acceptance. The mere display of an item on a window shop is not the offer itself, but just an invitation to treat. An invitation to treat in legal terms comes before the offer, and it is an indication that the seller may be prepared to enter into a contract with any potential buyer (Collins, 1999). The offer is made only when the buyer walks into the shop and expresses an intention to buy an item. It is not necessary that the offer needs to be accepted, and the seller may refuse to accept for any various reasons. Only when the seller agrees to sell the item is when the issue of contract comes into play.

This analysis of a normal contract gives an overview of the process in online contracting. The display of items on the website may be compared to the display of items on a window shop, which is merely an invitation to treat. The offer is made when the buyer places an order, and the seller at that point will still have the discretion of either accepting or refusing the offer. That is why there is a proposal that all the sellers online should put an indication in their terms, and conditions that the display of their items is just an invitation to treat.

Acceptance in online contracts

As the law stands, it is not clear when acceptance in online contracts can be held to have occurred. However, the general rule is that acceptance must be at all times communicated. The question, therefore, is when it can be said that acceptance has been communicated, for instance, if an offer is made online by the buyer and the seller processes the acceptance by Email, if the acceptance made when the seller presses the ‘send’ button, or when it leaves the seller’s email server, or when it reaches the buyer’s email server, or when the buyer reads his email. There are two ways of signifying acceptance online: either through email or through the website. The exchange of emails is essentially similar to the exchange of correspondence in normal signatures. The email containing the acceptance should contain the same terms as the email containing the offer. In normal correspondences, the date of acceptance is the date of posting the letter. Regarding the online transactions, acceptance is held to have occurred when it becomes available for the addressee to retrieve it [Electronics Transactions Act, section 9A].

Legal validity of electronic signatures

The parties to a contract have to agree to all the terms and conditions. Placing the terms and conditions on the agreement does not signify that they are obligatory. The parties must expressly agree to the terms either before or at the time of contracting in order for them to be bound legally (Robert, 2006). The best practice in online contracts is for the seller to indicate the terms as well as conditions preferably on a different page, and require that the buyer agree to the terms and conditions before signing the contract. This may be achieved by requiring that the buyer click the ‘I agree’ button before signing the contract.

For most transactions from a website, the client will key in his or her names and contact information before sending the order. Sending this information – by hitting ‘send’ – in effect is creating an electronic signature, and this mark will be given the same legal legitimacy as if the client signed a written deal and mailed it.

In 1996, the United Nations (UN) adopted a model law regarding electronic commerce, and in 2001, the UN adopted a model law on electronic signatures. These model laws have been used to implement the legal principles inherent to electronic signatures in a number of countries. In Australia, for instance, there is the Electronic Transactions Act of 1999. Section 10 of this Act requires a signature of a person under Commonwealth Law, and that signature be held to have been made if there is a system to recognize the person, and to establish his intention as regards the signature. The method used should be reliable as effective for the purpose, which the electronic communication was granted in the light of all circumstances including any relevant agreements.

In light of these mentioned trends, it is clear that electronic signatures are legally valid, and they involve a person affixing a mark alongside their names within a contract with the intention of indicating their willingness to enter into that contract. For this purpose, contracts for the goods sale can be held to be enforceable after the buyer presses the ‘I agree’ button [I. Lan Systems, Inc. vs. Net scout Service Level Corp]. In this case, the court found out that the party to a deal was bound by the terms and conditions of the contract between it and the website owner.  Clicking of the ‘I agree’ button at the bottom of the contract was held to be an indication that the buyer was willing to be legally bound.

There are also some circumstances that do not relate to the sale of goods contracts but under which a contract may be made. These are such as agreeing to be a member of a certain website or even agreeing to be bound by other agreements contained in the website. In such situations, a binding contract can be inferred if a signature is affixed. However, the test is that of whether the terms and conditions are displayed in a conspicuous manner, in such that any prudent buyer, affixing a signature would be able to take notice of (Robert, 2006). If the terms and conditions are not conspicuous, then the buyer cannot be bound [Pecht vs. Netscape Communications Corp] In this case, the issue was whether the buyer of software agreed to be bound by the contractual terms of the software. The court found that the contractual terms had been placed below the purchase button; therefore, even a reasonable and prudent buyer would not have foreseen the existence of such. It was held that the buyer could not be bound by inconspicuous terms and conditions that he is not aware of.

In contrast, where the terms and conditions are clearly displayed, the contract will be held as valid if a signature is affixed [Groff vs. America Online]. In this case, the terms and conditions of a certain site were presented in a way that guests to the site should scroll through them first and agree to be bound before he could proceed to the site itself. The court found that there is no any way one could have enrolled to the site without pressing the ‘I agree’ button placed next to the ‘I disagree’ button. The subscriber was bound by the terms therein.

In some scenarios too, even when the user has not expressly signed to be bound by the terms and conditions, his consent may be implied from his conduct (Mark, 2006). These are essentially implied contracts. If the conduct is in such a way as to suggest that the subscriber or buyer holds himself to be bound by the terms and conditions, then he can be held to be so bound just as if he had put a signature to be bound. [, Inc. v. Verio, Inc] The court found that the terms and conditions on a certain site were binding on the person even though he did not pass through the screen, and signify its intention to be bound. The user had gone ahead and submitted a document through the site without first agreeing to the terms and conditions, and it was found that its conduct implied consent.

On the contrary, though, if the site does not mandate the user to approve the terms and conditions first, then his conduct cannot be said to imply consent [Ticketmaster Corp., et al. v. Tickets.Com, Inc.]. The issue in this case was whether in situations where the site does not mandate the user to agree to the terms and conditions first, such can be binding on the user. It was held that such terms and conditions are not held as mandatory; therefore, they are not legally binding.


Although the use of paper contracts is still prevalent, current trends signify to the fact that, in the future, the use of online contracts will be more rampant than ever before. It is, therefore, important to establish guidelines, which will enable enforcement of the same in the future to be clear. Both parties to the contract should establish authenticity in the contract before signing to ensure that issues of fraud are reduced (Allan, 1991). Accuracy of the information contained in the contract has to be established too to make sure that it has not been interfered with in any way through the channels it goes before finally being published. This will prevent one from signing an un-enforceable contract.

In in addition to the requirement, the author of the contract should not repudiate the information or even deny the contents of the contract. Before signing, contracting parties should have mutual consent as to the contents of the contract without any contradiction at all. It is, therefore, evident that, with clear legal guidelines on how to create an online contract, such contracts, when signed, can be of a great value to the economic growth and advancement in the wake of globalization.









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  1. Collins, H. (1999).Regulating Contracts. New York: Oxford University Press.
  2. Dr. Matteu, Larry, A. (1998) Contract Theory: The Evolution of Contractual Intent; East Lansing Michigan State University Press.


  1. Groff vs. America OnlineFile No.C.A. No.PC 97-0331, 1998 W L 307001 (R.I. Superior Ct., May 27, 1998).
  1. Lan Systems, Inc. vs. Net      scout Service Level Corp; 183 F.Supp.2d 328, Civ. Act.No. 00-11489-WGY, 2002      US Dist.


  1., Inc. v. Verio, Inc,126F.Supp 2.d at 248.(S.D.N.Y 2000).
  1. Specht vs. Netscape      Communications Corp;306 F.3d 17(2nd circ.2002).


  1. Ticketmaster Corp., et al. v. Tickets.Com, Inc.[2000] U.S. Dist. Lexis 12987 (C.D. Ca., August 10, 2000)


  1. Electronics Transactions Act, 1999, Laws of Australia

The Australian Guidelines for Electronics Comme

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