Most people now sign contracts by clicking a button. They accept terms to open a bank account, download an app or buy a phone, usually without reading them. The law asks whether such a click is enough to make a contract. The answer in the syllabus is that the ordinary rules of contract apply, with a few peculiarities that make e-contracts different.
The topic is short, but the exam asks for it almost as a pure list question, so the types of e-contract and their features must be known exactly.
This topic covers the meaning of an e-contract, how offer, acceptance, consideration and liability work online, digital signatures, the requirements for a valid electronic contract, the three types of e-contract (click-through or click-wrap, shrink-wrap and browse-wrap), and the problem of jurisdiction.
The rules on proving electronic evidence are in the topic on bribery, money laundering and expert witnesses. The laws that protect e-commerce are in the last topic of the course.
In 30 seconds
An e-contract is a contract modelled, specified, executed and deployed by a software system. The ordinary principles of contract apply: offer, acceptance, consideration and intention. A website advertisement is probably an invitation to treat. The usual rule is that acceptance is effective when received, but no conclusive rule has been settled for e-contracts, so it depends on reasonable certainty that the message was received.
The three types are click-through (the user clicks “I agree”), shrink-wrap (terms inside the packaging, accepted by tearing the wrap or using the product) and browse-wrap (terms on a web page, binding the user merely by visiting or downloading). A digital signature authenticates the sender and the integrity of the message and cannot be repudiated. A validly made e-contract is enforceable, but jurisdiction is a difficult question for the courts.
What an e-contract is
An e-contract is a contract modelled, specified, executed and deployed by a software system. It is very like a traditional paper-based commercial contract, and there is usually an offer, an acceptance, consideration and an intention to create legal relations. The other principles of contract also apply. Some peculiarities set it apart, and the syllabus deals with them in turn.
May 2015 Section A asked what an e-contract validly entered into is, and the answer was enforceable.
The law recognises contracts formed by facsimile, telex and other similar technological means. An agreement is legally valid if it satisfies the legal requirements for formation, that is, if it shows that the parties intend to create a contract.
Formation of an e-contract
Offer
- It has been argued whether a website advertisement is an offer or an invitation to treat. Because it is aimed at unspecified persons, it is probably an invitation to treat.
- The test of a party’s intention in an e-contract is whether, by supplying information in an online form built into a web page, the person intends to make an offer by which the seller is legally bound.
- A consumer may accept the offer by replying by email or by filling in the form, either by express confirmation or by conduct.
Acceptance
The offeree must accept the terms of the offer. The critical question is when acceptance takes effect, because that decides where and when the contract comes into existence. The general rule is that acceptance is effective when received. For e-contracts no conclusive rule has been settled. The applicable rule depends on the reasonable certainty of the message being received and the actual point of receipt of the acceptance.
This contrasts with the postal rule in the first contract topic, under which a posted acceptance takes effect on posting.
The Nigerian position is that an offer sent by email and received does not by itself amount to an acceptance. A reply saying that the offeree will communicate acceptance later does not suffice either. The law views acceptance in the general sense, so the ordinary rules apply to e-commerce, with some inhibitions.
Consideration and performance
A contract results only when one promise is made in exchange for something in return. The rules of consideration apply to e-contracts: it must move from the promisee, be sufficient, and not be past, illegal or vague.
Liability and damages
A party who breaches an agreement may face various types of liability. Because of the systems and networks businesses use in e-commerce, a party may be liable for a contract that technically originated with it through a programming error, an employee’s mistake or deliberate misconduct, or that was executed and released without its actual intent or authority.
A business cannot assume that an automated or erroneous message will bind only the sender who meant it.
Requirements for a valid e-contract
Because electronic transactions are a space where trust is low, the law requires clear evidence of the ingredients of a valid contract. The syllabus lists seven:
- an offer for sale or contract;
- acknowledgement of the offer must be established;
- consideration must be furnished;
- the legal intention must not be in doubt;
- the ability (capacity) of the parties to contract;
- the consent to contract must not be in doubt; and
- the subject matter must be legal.
Digital signatures
A digital signature on electronic documents functions like a handwritten signature on printed ones. It is an unforgeable piece of data that asserts that a named person wrote or agreed to the document to which it is attached. It gives greater security than a handwritten signature, because the recipient can verify:
- that the message came from the person whose signature is attached; and
- that the message has not been altered, intentionally or by accident, since it was signed.
A secure digital signature cannot be repudiated, so the signer cannot later disown the document by claiming that the signature was forged. In other words, digital signatures enable authentication, assuring the recipient of both the sender’s identity and the integrity of the message.
The fundamental drawback of online contracts is that if the only way of identifying the other party is a digital signature or a public key, it is possible to misrepresent one’s identity and pass off as somebody else.
An electronic signature in the sense of the Evidence Act may be an electronic sound, a symbol or a process attached to a record and adopted with intent to sign. It may be proved in any manner (section 93(3)). Typing a name can serve. The evidence topic gives the cases.
Types of e-contract
Online transactions usually fall into three types. May 2017 asked for three types (3 marks), November 2017 Section A asked which is a type of e-contract, and November 2023 asked for two of the three to be explained (5 marks).
| Type | How it works | Points to note |
|---|---|---|
| Click-through (click-wrap) | The person is shown the terms and conditions, often in a software licence, and must scroll through and indicate acceptance by clicking a button (“OK”, “I accept”, “I agree”) or ticking a box at the end | The purchaser loses bargaining power: it is take it or leave it. He may not take the time to read the terms. In Moore v Microsoft (2002), clicking the “I agree” icon made the terms of the end user licence valid and binding |
| Shrink-wrap | Purchase terms are attached to shipped products, usually inside the plastic wrapping, with a clause that once the buyer tears the wrap to see the product he is bound to accept and pay. It is common in software end-user licence agreements. It may include terms on licences, fees, forum, warranties and limits of liability | Its enforceability is controversial. Some courts say that once a buyer has paid for and taken possession of the product he is bound by the terms. Others say a person cannot be bound merely by removing the wrap when he has had no chance to read the terms |
| Browse-wrap | The terms of use are listed on a page of the website. The provider presumes to bind the user to the licence terms merely by his visit to the site or by downloading software from it | The user may never see the terms, so the rule on notice of terms is the main difficulty |
Jurisdiction
Jurisdiction over online breaches and related offences has always been a difficult question. The Internet is everywhere and transactions are completed in real time, so it is hard for a court to take a case that looks foreign when seen through the Internet.
In ordinary law a contract needs a meeting of minds, even a physical one. But these contracts are completed by clicking buttons, often without the parties seeing or knowing each other. The syllabus points students to the Hague Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters for further guidance.
The syllabus also notes that the lack of a settled law on jurisdiction and on e-commerce has left the subject undeveloped in Nigerian law.
In practice a business that sells online should put a jurisdiction clause and a choice of law clause in its terms. Make sure the user must act (click) before he is bound.
Working through the rules
Which type of e-contract?
| Facts | Type |
|---|---|
| A user scrolls through a software licence and clicks “I agree” before the download starts | Click-through |
| A disc is sealed in plastic with a notice that opening it means acceptance of the licence | Shrink-wrap |
| A website states at the bottom of every page that using the site is acceptance of its terms | Browse-wrap |
| A shopper fills in an order form online and presses “Confirm order” | Click-through. The order is the offer, and confirmation by the seller is acceptance |
Which rule on acceptance?
| Method | Rule |
|---|---|
| Letter | Postal rule. Effective on posting (Adams v Lindsell) |
| Email or online message | No settled rule. General rule is effective on receipt, if there is reasonable certainty of receipt |
| Click on a button | Effective when the click is registered and the message received |
Comparing the three types
| Click-through | Shrink-wrap | Browse-wrap | |
|---|---|---|---|
| Acceptance shown by | A click or ticked box | Tearing the wrap or using the product | Visiting or using the site |
| Does the user see the terms first? | Yes | Often not until after purchase | Often not |
| Strength | Strongest. There is a clear act of assent | Controversial | Weakest |
Worked problems
Problem 1: the software licence
Scenario. A buyer downloaded accounting software. Before the download, a window showed the licence terms, which included a limitation of the seller’s liability for data loss, and the buyer clicked “I agree”. He later lost data and claims that he never read the terms. Advise.
- The type. This is a click-through (click-wrap) agreement.
- The rule. Clicking “I agree” is a plain, unequivocal act of acceptance. In Moore v Microsoft the click made the licence terms valid and binding.
- The weakness. The buyer had no bargaining power and may not have had time to read the terms, but that does not by itself make the contract invalid.
- Advice. He is likely to be bound by the limitation clause. The clause is still subject to the rules on exemption clauses, which cannot exclude a fundamental breach.
Problem 2: the website price error
Scenario. A shop’s website listed a laptop at ₦9,000 instead of ₦900,000 because of a programming error. A customer ordered one and received an automatic message saying “Order received”. The shop refuses to deliver. Advise.
- The advertisement. A website display is probably an invitation to treat, not an offer.
- The order. The customer’s order is the offer. An automatic acknowledgement is not necessarily an acceptance.
- The risk. The syllabus warns that a party may be liable for contracts that originate in a programming error. If the shop confirms the order, a contract may exist.
- Advice. Because the shop has not accepted the order, it is probably not bound. It should state in its terms that a contract arises only on dispatch confirmation.
Problem 3: the cross-border sale
Scenario. A Lagos company buys goods from a seller abroad by clicking through the seller’s website. The goods are defective and the buyer wants to sue in Nigeria. Advise.
- The contract. A click-through contract made by clicking is valid and enforceable.
- The issue. Jurisdiction. The seller may say the contract was made where its server is, and it may not be easy for a Nigerian court to take the case.
- Advice. Check whether the terms contain a jurisdiction or choice of law clause. If not, the court will have to decide where the contract was made and whether it has jurisdiction, with guidance from the Hague Convention.
Questions that have been asked on this topic, and how to answer them
| Question theme | What a full answer contains |
|---|---|
| Three types of e-contract (May 2017 Q4(b), 3 marks) | Click-through, shrink-wrap, browse-wrap |
| Explain two of click-through, shrink-wrap and browse-wrap (November 2023 Q6(c), 5 marks) | Two types explained with how acceptance is shown and the point of controversy, at about 2½ marks each |
| Which is a type of e-contract (November 2017 Section A Q17) | Shrink-wrap |
| An e-contract validly entered into is (May 2015 Section A Q14) | Enforceable |
| A customer’s online transaction as evidence (May 2017 Q6(d)) | Section 84 of the Evidence Act. See the evidence topic |
Common mistakes in the exam
- Saying an e-contract is not enforceable. A validly formed one is.
- Describing shrink-wrap as a web page contract. That is browse-wrap.
- Applying the postal rule to email as if it were settled. The rule for e-contracts is not settled.
- Saying a website advertisement is certainly an offer. It is probably an invitation to treat.
- Forgetting that a digital signature authenticates the sender and the integrity of the message.
- Giving two types when three are asked for.
- Ignoring jurisdiction when the parties are in different countries.
Quick revision
- E-contract: contract modelled, specified, executed and deployed by software. Enforceable if validly made. Ordinary contract rules apply.
- Website advert: probably an invitation to treat. Acceptance: effective on receipt, no conclusive rule. Liability for programming error or employee mistake.
- Seven requirements: offer, acknowledgement, consideration, intention, capacity, consent, legal subject matter.
- Digital signature: authenticates sender and integrity, cannot be repudiated. Drawback: identity may be misrepresented.
- Types: click-through, shrink-wrap, browse-wrap. Jurisdiction: difficult, Hague Convention.
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Section A style: multiple choice
Question 1. An e-contract validly entered into is:
- Enforceable
- Unenforceable
- Void ab initio
- Voidable
Show the answer
A. The ordinary rules of contract apply.
Question 2. Which of these is a type of e-contract?
- Shrink-wrap
- Hire purchase
- Bailment
- Lien
Show the answer
A. The others are not e-contract types.
Question 3. A contract in which the user agrees to terms by clicking “I agree” is:
- Browse-wrap
- Click-through
- Shrink-wrap
- A deed
Show the answer
B. Also called click-wrap.
Question 4. A contract whose terms are inside the packaging and bind the buyer when he tears the wrap is:
- Click-through
- Shrink-wrap
- Browse-wrap
- Oral
Show the answer
B. Its enforceability is controversial.
Question 5. A contract whose terms are on a page of a website and bind a user by his visit is:
- Browse-wrap
- Click-through
- Shrink-wrap
- A deed
Show the answer
A. The user may never see the terms.
Question 6. A website advertisement is probably:
- An offer
- An invitation to treat
- An acceptance
- A counter-offer
Show the answer
B. It is aimed at unspecified persons.
Question 7. The general rule is that acceptance of an e-contract is effective:
- When posted
- When received
- When read next week
- When the goods arrive
Show the answer
B. But no conclusive rule has been settled.
Question 8. A digital signature gives the recipient assurance of:
- The sender’s identity and the integrity of the message
- The price only
- The sender’s address only
- Nothing
Show the answer
A. It cannot be repudiated.
Question 9. The main drawback of online contracts is that:
- They are always void
- A party may misrepresent his identity
- They need a seal
- They have no consideration
Show the answer
B. Where only a digital signature or key identifies the other side.
Question 10. A guide on jurisdiction over internet contracts named in the syllabus is:
- The Hague Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters
- The Criminal Code
- The Partnership Act
- The Sale of Goods Act
Show the answer
A. Students are advised to read more on it.
Section B style: written questions
Question 11 (10 marks). (a) Define an e-contract. (2 marks) (b) State THREE types of e-contract and explain TWO of them. (5 marks) (c) State the rule on when acceptance takes effect in an e-contract. (3 marks)
Question 12 (10 marks). (a) Explain a digital signature and its advantages. (5 marks) (b) State the requirements for a valid e-contract. (5 marks)
Question 13 (20 marks). A retailer, Orion Ltd, sells goods through its website. The page shows prices, and the customer fills an order form and presses “Confirm”. Terms and conditions appear in a link at the foot of each page. A customer in Ghana ordered a phone priced by error at ₦5,000 instead of ₦500,000, and Orion refused to deliver. (a) Explain whether the website display is an offer.
(4 marks) (b) Advise on whether a contract was formed. (6 marks) (c) Explain whether the terms at the foot of the page bind the customer. (5 marks) (d) Explain the jurisdiction problem. (5 marks)
Model answers
Show the model answer to Question 11
(a) Definition. An e-contract is a contract modelled, specified, executed and deployed by a software system. The offer, acceptance, consideration and intention to create legal relations of an ordinary contract usually appear.
(b) Types. Click-through, shrink-wrap and browse-wrap. A click-through contract requires the person to scroll through the terms and indicate acceptance by clicking a button or ticking a box at the end, so he cannot bargain and may not read the terms.
A shrink-wrap agreement is attached to shipped products and binds the buyer when he tears the wrapping to see the product. Its enforceability is controversial because the buyer may have had no chance to read the terms.
(c) Acceptance. The general rule is that acceptance is effective when received. For e-contracts no conclusive rule is settled, and the rule depends on reasonable certainty that the message was received and the actual point of receipt.
Show the model answer to Question 12
(a) Digital signature. A digital signature on an electronic document works like a handwritten signature on a printed one. It is an unforgeable piece of data that asserts that a named person wrote or agreed to the document. It gives greater security than a handwritten signature, because the recipient can verify that the message came from the signatory and that it has not been altered since it was signed.
The signer cannot later disown it by saying that it was forged. It therefore authenticates the sender’s identity and the integrity of the message.
(b) Requirements. An offer; acknowledgement of the offer; consideration; a legal intention that is not in doubt; the capacity of the parties; consent that is not in doubt; and a lawful subject matter.
Show the model answer to Question 13
(a) The display. A website advertisement targets unspecified persons and is probably an invitation to treat, not an offer. The customer’s order, made by filling in the form and pressing “Confirm”, is the offer.
(b) Formation. Orion has not accepted the order. Acceptance is generally effective when received, and there is no settled rule for e-contracts. An automatic acknowledgement may not be an acceptance. A party may be liable for a contract that technically originated in a programming error, so Orion should avoid confirming. Since Orion refused to deliver, it is probably not bound to sell at the wrong price. Its terms should state that a contract arises only on dispatch.
(c) The terms. A link at the foot of each page is a browse-wrap approach, which binds a user merely by his visit. But the user may never see the terms. The customer would be bound more securely if he had to click “I agree” to the terms before ordering, as in a click-through contract.
(d) Jurisdiction. The customer is in Ghana. Internet transactions are completed in real time, parties may not know each other, and courts find it hard to take cases that look foreign. The syllabus refers to the Hague Convention on Jurisdiction and Foreign Judgments, and the lack of settled Nigerian law on the question. Orion should include a jurisdiction and choice of law clause.
Pathfinder on e-contracts
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
State three types of e-contract. Revise the types of e-contract.
Revise first: Types of e-contract
Explain two of click-through, shrink-wrap and browse-wrap. Revise the table of types.
Revise first: Types of e-contract
Which is a type of e-contract (shrink-wrap), and an e-contract validly entered into is enforceable. Revise the meaning of an e-contract.
Revise first: What an e-contract is
The condition for admitting a customer’s online transaction in evidence. This is dealt with in the topic on electronic evidence. Start here with formation online.
Revise first: Formation of an e-contract
Source: ICAN Pathfinder, Corporate and Business Law. Diets covered: November Diet, 2014 to May Diet, 2024.
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