Contracting Online: Forming the Agreement

Making sure that your online contract with customers will stand up in court as evidence, if required, is an essential component in the business-customer relationship.

A contract which is made via the Internet or by other electronic means is legally binding and enforceable providing that the following four legal conditions are met.

This article explains the key elements involved in forming the online contract and some things to avoid. Technical teams need to understand the legalities of the contracting process which providing standard terms and conditions of sale that the customer has irrefutably accepted.

Components of contracting online

e-contract, infrastructure contracts, online contract, contracting online1. An Offer

One party must contract with the other, e.g. offer to buy goods.

2. An Acceptance

The other party must expressly accept the offer.

3. Intention to create legal relations

Both parties to the contract must intend the contract to be legally binding.

4. Consideration

There should be some consideration being exchanged between the parties, e.g. money paid in exchange for goods.

When is the online contract formed?

Important legal rules for contracting online are set out in The E-commerce Regulations 2002. These regulations require organisations to provide relevant information to customers as well as set down the technical steps to completing the contract.

In addition to The E-commerce Regulations, organisations should also consult with The Consumer Protection (Distance Selling) Regulations 2000 if providing products and services to consumers online

The terms and conditions of sale should be clear about when the contract is formed. The event might be time-driven such as in contracts for car insurance or upon clicking a button.

Advertisements and 'invitation to treat'

Generally a website advertisement will not constitute a formal offer to contract (although care should still be taken).

Suppliers should ensure that online customers are invited to make an offer to purchase their goods and services. This is known as an 'invitation to treat'.  The supplier then accepts the offer. The contractual relationship is structured this way to avoid legal action if, for example, a supplier is unable to provide a product for whatever reason e.g. no longer in stock. but has already accepted an offer from the customer.

Automatically generated confirmations

Automatically generated confirmations of orders can potentially cause confusion about when the contract is formed. So you should ensure that you word them in such a way that they are not legally an acceptance of a customer's offer.

Electronic signatures

Although a contract can be made orally, it is usually done in writing for evidential purposes and signed by all parties concerned. For contracts formed online, electronic signatures are used in a variety of formats including ’click-wrap’ and digital signatures. Please read our article on The Electronic Signatures Regulations 2002 for further information on how electronic signatures are used, as well as finding out about how digital signatures work.

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