Essay Effects of E-Commerce on the Formation of Contracts

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EFFECTS OF E-COMMERCE ON THE
FORMATION OF CONTRACTS

by
Zhen Quan Cheah, Jason
Student number z3348296

An essay presented to the Australian School of Business and the University of New South Wales in fulfilment of
Assignment 2B for
GBAT9124 Business Law and Technology and for the degree of

Masters of Business
&
Technology

Course Facilitator: Ronald Bartsch

The Internet began its existence with just two nodes between engineering institutions in California USA in the 1960s. With the standardisation of the Internet Protocol Suite (TCP/IP) in 1982, it subsequently evolved into a world-wide network of interconnected TCP/IP networks that we now recognise as the ‘Internet’. (A Wheen, 2011)

The “internet” that most of us frequent to perform daily activities such as reading the news, updating social media websites and even banking is actually the World Wide Web; a massive global collection of texts, pictures, audio and video accessible via a web browser.

The World Wide Web has fundamentally altered how we perceive the world, dramatically shrinking it as great distances evaporate between people around the world with modern technologies like instant messaging, emails, video calls and a boundless database of knowledge and information.

Understandably, the World Wide Web’s potential in product marketing and consumer reach is undeniable. Coupled with the significant reduction of overhead costs as compared to traditional shopfronts, it is no surprise that many sellers have jumped on the “e-commerce” bandwagon. (D Steinbock, 2001) But what possible issues does e-commerce inject into the retailing industry and the formation of contracts?

The formation of valid contracts usually has three basic elements; intention, offer and acceptance as well as consideration. However there are subsidiary elements that reinforce the legitimacy of that contract; capacity, real and genuine consent and finally legality of purpose. The dawn of e-commerce complicates the process with detached interactions, over-reliance of technology and unparalleled accessibility.

The e-commerce that most people are familiar with is business to consumer (B2C) based. Yet with generated revenue that is 50% more than the latter, it is business to business (B2B) e-commerce transactions that lead the way. (Oracle B2B E-Commerce Survey, 2012)

In terms of contract formation, B2B e-commerce is far less susceptible to complications as businesses are more inclined to safeguard themselves legally and usually have more legal capabilities than average consumers in terms of contract formation. B2C based e-commerce transactions on the other hand presents a more complicated scenario as compared to B2B based e-commerce or traditional retail dealings.

E-commerce can be categorised into two basic types; simple sales contracts (SSCs) and negotiated contracts. (K Mills, 2000)

There are several versions of SSCs, wittily coined as ‘click wrap’, ‘shrink wrap’ and ‘browse wrap’ contracts owing to their idiosyncrasies. Browse wrap and shrink wrap contracts pertain more to software downloads or licenses where consumers don’t actually “agree” to terms and conditions while most would be familiar with click wrap contracts which are titled aptly as the entire process for the formation of contract is achieved through clicking of the mouse by the purchasing party when shopping in an e-tailing website. Negotiated contracts are for all intents and purposes standard contracts with the negotiations and agreements achieved via electronic means such as email. (C Kunz et al., 2003)

The traditional retailing industry is straightforward as ‘face to face’ interaction or at least verbal interaction are used to form contracts between buyers and sellers. The formation of contracts is succinct and accomplished without uncertainty as all above-mentioned elements can be ascertained at the same time.

The formation of contracts in
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