Legal Problems in E-contract

5.1 Legal Problems in E-contract

E-commerce transactions include business activities among enterprises, sales of online businesses and digital processing of financial enterprises. Originally e-commerce transactions are in the form of electronic data interchange (EDI), which now, with the development of science and technology, has got rid of the old expensive network that are limited among companies, and is becoming a part of the Internet. In the new knowledge-based economy era, it has been the tide doing business by means of computer and computer communication network. Accordingly, e-contracts, an important tool and offspring of e-commerce have come into being. E-contract is an agreement that are negotiated through EDI value added net and clarifies the right and obligation of the parties. Sometimes they are also called “paperless contracts”, as distinct from traditional contracts. As provided for in Article 11 of the Contract Law of the PRC, the written forms of a contract may be electronic data messages, including such forms as electronic data exchange and e-mail. This new form of contracts, with its own legal characteristics, is quite different from the traditional contracts. However, faced with the traditional legal requirements for signature, seal and written forms in both domestic and international trade, e-contracts are still confronted with rigorous tests in many aspects.

Besides the common features of the traditional contracts, e-contracts, as a brand-new form of contracts, have the following uniqueness: the offer and acceptance of contracts are made and the transfer of the contracts are carried out through computer networks; no written forms are involved in the formation, alteration and cancellation of contracts; no traditional signature is required in the formation of the contracts.

1. True intentions

Laws in all nations require contracts reflect the true intentions of all the parties. The true intentions are one of the important conditions of the effectiveness of a contract. In case there is any misrepresentation or material misunderstanding of the parties’ intentions, the contract will possibly be cancelled as invalid. In terms of e-contracts, one of their important features is that the contracts are signed without direct interference from human factors. The decision-making process is automatic, which may add two possibilities: because of the lack of direct control of the machine, the machine might send a contract signing information that does not reflect the true intention of the machine owner; the mistake may exist until the wrong contract with misrepresented intention is executed. This sort of mistake might cause severe results than that in the traditional way. Now some countries and international organizations are seeking ways to solve this new legal problem.

2. The offer and acceptance in e-contracts

In the traditional commercial mode the offer can be withdrawn at any time, as

5 E-commerce and the Law

long as the communication means of withdrawing the offer is faster than that of sending the offer before the offer is accepted. For example, if the offer is sent by ordinary mail, the notification of withdrawing the offer should be sent via express letters, telegrams or telex. In contrast, it is a problem worth investigating whether the offer in e-commerce can be withdrawn. Since the information transfer in e-commerce is fairly fast, and the computer system of the offered will automatically process the transaction upon receiving the offer or electronic orders and send acceptance data message, it will be very difficult to withdraw the offer. So far no special regulations have been formulated in laws of any country concerning e-commerce.

3. The entry-in-force of the acceptance in e-contracts

Acceptance is a manifestation of intent by the offered that is willing to be bound by the conditions in the offer and agrees to conclude the contract. It means that the parties agree with the contract. It is an important issue concerning when the acceptance becomes effective, since, according to laws of all countries, the contract becomes valid as of the acceptance taking effective, and both parties of the contract shall be bound by the contract and undertake all the rights and responsibilities arising thereof. The venue of concluding the contract is of great importance for determining the applicable common practice, the court of jurisdiction in case of litigation and the applicable international private law. Corresponding international commercial laws prescribe that a contract takes effect at the time when the acceptance mail is putted into a postbox near the business location of the acceptance party, and the taking effect place is where the acceptance mail is putted into the mailbox.

The conclusion of e-contracts is completed among the computer systems in different locations. To e-contract, it is hard to apply the principle of taking effect in places of sending the acceptance letters, because the message of e-commerce can be sent at any locations. If the principle is applied, it will render great uncertainty to the locations where the contracts take effect. Comparatively, it is more suitable to follow the principle that a electronic contract takes effect when it is received by the recipient, because it is very easy to determine the place where the recipient receive the acceptance and thus facilitates the place where the contract takes effect.

An offer becomes effective when it reaches the offeree, and a contract is concluded at the moment when an acceptance of an offer becomes effective. An acceptance becomes effect when the recipient retrieves the acceptance. This rules the certainty of the time when a contract becomes effect. Both the time when an acceptance entered into the recipient’s information system and the time when the recipient retrieved the acceptance have record in corresponding computer information system. These two times have objectivity, certainty and provability. They can be used to determine the time when a contract becomes effect.

4. The signature

It is provided in the laws of many countries that the transaction certificates have

Introduction to E-commerce

to be signed to take effect. However, it is difficult to sign in person on an electronic document or certificate of e-commerce. To get over this legal obstacle, jurists and electronic experts from all countries have made active explorations and through their efforts the electronic signature comes into being. Since signature on a document is used to prove the authenticity of the document and the basic requirement for signature is to be unique, it is not necessary that the signatory signed his own name in person. Instead, some unique characters can be used for signature and the electronic signature has this function. With the official execution of The Electronic Signature Law of our country this problem has basically been solved.

The agreements between two parties in the e-transactions have generally no written forms or signatures. Concerning the problem of signature, it is provided in Article 7 of the Model Law on Electronic Commerce as follows: Where the law requires a signature of one person, requirement is met in relation to a data message if: a) a method is used to identify that person and to indicate that person’s approval of the information contained in the data message; and b) 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.

5. Paperwork problem

In many countries it is provided legally that certificates should be in written forms to prove the validity of the transaction, or else the contracts will be deemed as invalid. Yet in trade activities by means of e-commerce, what goes on between enterprises is the electronic data interchange. The principal articles interchanged are displayed on the computer screen, without any written forms in the traditional sense. Whether the electronic data can be deemed as documents in written forms and thus acquire the equal effect as other written documents, it is a pending legal question in all countries and has become a great barrier to the expansion of e-commerce.

The United Nations Commission on International Trade Law considers through long-term research that with the development of the electronic certificates between computers, the original intent to have both certificates and other records as required by law can be realized through setting up the same method as computer recording. Thus the foundation is laid that the electronic message in e-commerce is the same as other documents in writing in terms of function, in other words, anything with the function of written forms can be regarded as in written forms, no matter it is paper data or electronic data.

6. The evidence effect of e-commerce documents

Electronic documents are displayed on the computer screen after retrieving the information recorded in the disk. These documents exist in hard disks or magnetic media. Their essence is a series of electronic information, which has gone beyond the definition of traditional documents by law. Compared with traditional

5 E-commerce and the Law

paper documents, electronic documents are unstable to a certain degree in that any external interference on the network will lead to the loss, damage and modification of their information.

Now new security technologies have been developed that make electronic documents undeletable and unchangeable with the growth of computer technologies, so the counterfeit of electronic documents with magnetic media as a carrier is even more difficult than that of paper documents. Therefore, it is safely to say that electronic documents are easier to be reserved and replicated than paper documents.

7. Proof of computer records

There are generally three kinds of evidence regulations in terms of the proof standards: First, all relevant evidence can be freely provided; second, the list of admissible evidence is provided, in which the written certificates are always included as an admissible evidence; third, restrictions are imposed on the admissibility of hearsay evidence in common law countries. As it is difficult to prove the truthfulness of computer records, they are prone to be considered as hear-say evidence in the process of proof. To solve this problem, special terms and standards have been made in most countries to determine whether the computer data can be admitted as evidence for concrete facts in particular cases according to whether it is credible enough.

8. The admissibility of evidence in e-commerce

The admissibility of evidence in e-commerce means whether the records in e-commerce are admissible as legal evidence. It is not difficult to prove the correlation between the evidence and the relevant case under the circumstance of e-commerce, but may be hard to prove the reliability of the evidence. Reliability is concerned with two questions, one being the reliability of the electronic information, the other being that of the electronic information record.

Generally speaking, at least the following steps should be taken to guarantee the reliability of electronic real evidence: (1) Acknowledging the receipt of information to the other party and requesting its confirmation that the information which has been sent is true. (2) Confirming that the e-commerce communication system is reliable. It is generally agreed that the value-added network has been reliable.

9. The submission of originals

In many countries the evidence law requires that the original copy is submitted, which was an obstacle for the expansion of e-commerce. In e-commerce the electronic information is transmitted through computers and all the electronic data is recorded in computers, so it is difficult to tell which the original is. If the evidence law only admits originals and excludes the backup copies, all the data recorded in the computer should not be admitted as originals, which should impede the application of e-commerce.

Introduction to E-commerce