Online contracts are not specifically mentioned in the Indian Contracts Act, 1872 (hereinafter the Act). However, since the Act does not exclude online mode of communication of proposal, acceptance and revocation, online contracts are impliedly covered under it. Moreover, following the 2008 amendment of the IT Act, 2000, online contracts fall within its ambit under section 10A, which recognises the validity of electronic contracts.
Click-wrap contracts are online contracts in which to avail a specific service, the user needs to give his consent to certain terms and conditions (“T&C”) associated with that service. It usually takes the form of the user clicking on the ‘I accept all the T&Cs’ or ‘I agree’ option. Such contracts come under the category of ‘adhesion contracts’, also called ‘take it or leave it’ contracts, which are standardised contracts, having terms drafted by one party unilaterally which the other party is required to adhere to if it wants to avail that particular service. This creates the issue of unreasonably favourable terms for one party due to unequal bargaining power. Added to this, people do not have a practical choice, since in many cases they either do not have an alternative or the alternatives offer similar adhesion contracts. Hence, there is no freedom of contract in real terms since the choice is only between evils.
Consensus ad idem and Procedural and Substantive unfairness
Most people do not even read the T&Cs before entering into these contracts because of the time-consuming and incomprehensible nature of the terms. Further, the economic concept of rational ignorance comes into play, which is that people anticipate a low probability of the terms of the contract being invoked against them. Moreover, why would one want to read the terms when one has no negotiating power or any real alternative and clicking on ‘I agree’ is inevitable?
The hampering of freedom of contract and consensus ad idem leads to procedural and substantive unfairness in these contracts. Procedural unfairness results in a disadvantage to the weaker party (the user) due to the circumstances and the manner under which the contract is entered. Substantive unfairness takes place when the terms of the contract are unfair, i.e., they are one-sided or unconscionable. An unconscionable transaction takes place when a party intentionally exploits the other’s weak position or ignorance to form a contract which is unfair substantively. The Supreme Court in LIC of India & Anr v. Consumer Education & Research Center held that on finding a term in a contract grossly unfair and unreasonable (substantive unfairness), the parties’ bargaining powers have to be looked at (procedural unfairness). Hence, the courts do consider the procedural and substantive unfairness in contracts to protect the weaker party, even if the fairness is not in question under fraud, mistake, undue influence or other provisions of the Act.
Unfairness also questions the ‘free consent’ on the part of the user, which is a prerequisite for a valid contract. Section 13 of the Act defines consent to be consensus ad idem. When parties have not even read the T&Cs or when the procedure itself has been unfair, how can they be said to have consented? Such consent is neither informed nor free. This leads to the failure of the doctrine of ‘consensus ad idem’ since a party enters into a contract by clicking the ‘I agree’ button, without having knowledge of its T&Cs. Hence, there is no ‘meeting of minds’.
Still, many of these cases do not fall under the provisions mentioned in the Act which provide circumstances where consent is said to be vitiated. This has led to many authors terming consent in online contracts as a ‘legal fiction’, since there is the absence of ‘informed and free consent’.
However, I disagree with such opinions that say consent has become meaningless in today’s age of online adhesion contracts. Had there been no requirement of consent in contracts, then all the recourses defined in sections 15 to 33 of the Indian Contract Act would have collapsed, since these recourses are based on vitiation of ‘consent’. Consent has not been reduced to a legal fiction. However, there is a change in the test of evaluating it. The consent that governs contracts these days is an objective one, since it is difficult to determine subjectively if the consent which was given was ‘intended’, i.e., if it is an informed and free consent or not. The courts use the “objective manifestations of intent” test which considers that by observing the outward manifestation, what a reasonable man would understand about the intention of the party. This means that intent is to be understood from outward actions and signs. For instance, by clicking on ‘I agree’, it might be considered that the parties intended to form a contract. Although, this too poses a problem, since, consent’s overt manifestation need not imply the knowledge essential for real consent. However, if this problem is given weight, it would make the formation of online contracts extremely difficult since then no one could trust outward manifestation to mean consent, since the other person could always contend that his/her consent was uninformed and hence, invalid. This would result in instability and unpredictability due to unenforceability of many contracts.
Current legal position: Conspicuous terms and Reasonable notice
Even the Supreme Court has upheld the validity of such adhesion contracts, stating that “such transactions are nevertheless contracts notwithstanding that freedom of contract is to a great extent lacking”. This leads to the current position of law, also held in Henderson v. Stevenson, which mandates that click-wrap contracts would be legally enforceable if the T&Cs are “conspicuously visible” on the online platform used for making a contract, with reasonable notice to the user. The visibility and accessibility of the T&Cs are taken into consideration here. This is to ensure that the user has got a reasonable opportunity to read the terms.
Even after such notice, if the user does not read the terms, then the contract would be enforceable. Not reading the terms of a contract does not make the contract invalid, as ruled in L’ Estrange v Graucob. It may be contended that if the user does not read the T&Cs, consent is invalid due to the absence of consensus ad idem. However, this would have practical implications in day-to-day functioning, with everyone escaping the contract by not reading terms. Ignorance of the law is not an excuse. Agreeing to the T&Cs would presume that T&Cs have been read. Hence, such consent is deemed valid, since when a party agrees to the T&Cs, it “consents to be legally bound by the terms of that agreement”. This consent is sufficient, subject to other essentials of the contract, as mentioned in section 10 of the Act, being fulfilled.
The Way Forward
Though there is a disconnect between consent in reality and in contract law, still consent continues to play an important role even in online contracts. In standardised click-wrap contracts, consent is legally valid if the T&Cs are conspicuous and brought to notice of the user and if the T&Cs are not grossly inequitable or unconscionable.
However, consent should not be the sole criterion for evaluating unfairness. The Act should be amended to include the Law Commission’s recommendation that unconscionability (substantive unfairness) be assumed for terms of contracts exempting liability from “consequences of negligence” and “willful breach of contract”. This would bring about more fairness in the way contracts are concluded. The Courts also need to use the defence of ‘unconscionability’ in the widest sense possible to undo contracts with no meaningful consent.
Many people habituated to not reading T&Cs must be careful since click-wrap contracts can be legally enforced against them. The right to contract can be used in an advantageous way only if reading the T&Cs is seen as a duty by the parties.
ABOUT THE AUTHOR
Shivi is an undergraduate law student at the National Law School of India University, Bangalore.