Contracts

Contracts may be used to minimise the risk associated with online operations with overseas companies. To be able to mitigate the risks of contracts, the elements of a contract and the types of online contracts must be understood.

The six essential elements of a contract are:

1. Intention to create legal relationship refers to whether or not the parties intend the contract to be legally bound in court. The general rule of contracts is that business relationships are assumed to create legal relationship, whereas social arrangements between family do not.

2. Offer and acceptance are required to have a valid contract. The rules of an offer are; may be made to one or more parties, must be communicated to the offeree, all the terms of the contract are communicated and specify necessary conditions and may be revoked prior to acceptance. The rule of acceptance are; must be communicated to the offeror, be unconditional, cannot be revoked unless allowed by the offeror and must be made in a reasonable time.

3. Form or valuable consideration must be given for a contract to occur. The rules of consideration are; must be valuable but not have to be adequate, must not be illegal, must be definite, should be present or future but not past, be possible to perform and must be more than existing obligation. Consideration may involve a monetary return for goods, or service performed.

4. Legal capacity refers to the capacity of the parties to be able to legally sell and purchase goods. Minors and persons of unsound mind or under the influence of drugs are not permitted to sell or purchase goods. The risk of selling goods online involves the possibility of selling to minors, where the contract would be voided. To mitigate against selling to minors and entering into a void contract, companies can develop checks such as the use of age restrictions and credit cards to ensure the age of their customers.

5. Genuine consent involves all parties having equal standing and concent to enter into the contract. Elements which remove genuine concent from parties are; mistake of fact, fraudulent misrepresentation, innocent misrepresentation, negligent misrepresentation, duress, undue influence and unconscionable conduct.

6. Legality of objects refers to the owners legal ability to sell the goods and to ensure that the buyer is not buying something illegal.


The essentials of an online contract is to determine the terms and conditions of the use of website or the use of software, allocate the risks the company may face and to deal with the rights of the company and the users. The two types of online contracts are;

1. Click-wrap agreements are where the user has the option to agree or disagree to the terms before using the website or software. This type of contract is easily enforced as customers must first read the terms and conditions and click agree to continue.

2. Browse-wrap contracts are where the terms and conditions of the website are outlined under a hyperlink on the website, which the user is required to read. The enforcability issues with browse-wrap is that users are not immediately presented with the terms and are not given a chance to agree or disagree. However remedies are available due to the case of Register.com Inc v Verio Inc (USA) which states that a browse-wrap contract is enforced depending on the regulity of use by its users.

(AYB115, Lecture 5)