Business Law - Contracts Created By Electronic Means - Assessment Answer

January 10, 2017
Author : Ashley Simons

Solution Code: 1AEAI

Question:Business Law

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Business Law Assignment

Case Scenario

Contracts created by electronic means

Assignment Task

To study and understand the creation of contracts made by electronic

means. In your essay you are to address the following issues:

Make a comparison to the formation of a contract by electronic means to that of contract made by other means

Explain whether ‘offers’ and displays on the internet are actual offers

Explain how offer and acceptance may take place between the parties

Explain whether a party can withdraw a mistaken offer

Refer to appropriate legislation and case law in your explanation Whether there is any regulation or legal assistance available to parties in a

dispute

Make appropriate observations on whether there are any existing problems or

issues regarding the creation of contracts by electronic means.

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Solution:

Introduction

In today’s digital age, the creation of electronic contracts have become highly necessary. This is due to the fact that many businesses have adopted online business and many of those businesses have to create legally enforceable agreements with their suppliers or customers for trade purposes. The globalisation of business has also necessitated the formation of electronic contracts that cover these trade activities, Although the functionality of the electronic contracts doesn’t vary greatly from the physical contracts, there are some visible differences that make electronic contracts significantly different from their physical counterparts.

An electronic contract is described as any legally enforceable agreement that parties make in trade or any other agreement via electronic means. In this case, the main distinguishing factors of this contract from the other types of contracts are the fact that it has to be created and signed electronically. As such, if one party drafts a contract and sends it via email to the other party and the other party affixes an electronic signature and emails it back, it will be referred to as an electronic contract. Further to this, unlike other types of contracts, electronic contracts generally exist in soft copies.

The main distinguishing factors in this case are how these elements are applied when the respective contracts are being drawn. For instance, in electronic contracts, acceptance is done differently. This is due to the fact that the communication is done via post, fax or email which could be fraught with unreliability. This made it necessary for the courts to determine when acceptance is deemed as being provided. It was established that a contract is only deemed as created when the offeror receives acceptance from the offeree.

In electronic contracting, invitations to treat are the main components of the contract formation. Therefore, when the invitation to treat is made and the offeror makes an offer based on the information displayed on the website, the seller can accept the offer and at this point a contract will be deemed as existing between the offeror and the offeree. From this point, the issue of consideration comes up and there is an allowed time period in which either party can revoke the offer or the acceptance7.

Acceptance is a fundamental part of contract formation in both the electronic as well as the traditional contracts. Acceptance implies that the offer made has been agreed to with the stated terms. The vital part of acceptance in electronic contracts is acceptance. In electronic contracts, acceptance is done electronically via email or post. In an event that acceptance is via email, acceptance could be deemed as made when the seller clicks send on email. However, if the email disappears in cyberspace, the buyer will not have received acceptance 10

Unlike physical contracts that depend on traditional ink signatures as a sign of acceptance of contract terms, electronic contracts depend on electronic signatures. Such signatures could be made in form of typing the name of the person signing the contract, affixing a previously scanned signature or clicking on an “accept” button. Once the party does any of these on the contract, it will be an indication of acceptance of the contract terms.

Question 2

Advertisements or displays of items on websites are not actual offers .This is due to the fact that an according to contract law, an offer refers to an expression made of willingness to enter in to contract on pre agreed upon conditions or terms. Therefore, displays made on websites are simply invitations to treat. An invitation to treat comes before an offer in the process of creating online contracts because it is simply an invitation that has been made by the offeree for the offeror to make an offer. Therefore, the information that is offered n websites only constitutes an invitation to treat.

On viewing the invitation to treat, the offeror will make a decision whether or not to place the offer. When they place the offer on the invitation to treat, the contract formation process is declared as being in process. Further to this, when the seller accepts the offer, a legally binding contract is created where both parties are bound to the terms until one party either fulfills the terms or leaves the contract due to any circumstances.

Question 3

In electronic contracts, an offer is made when the offeror expresses their willingness to enter into an agreement within stated parameters or terms. However, an offer is made after an invitation to treat is established. This is because in electronic transactions, information or advertisements will be placed on websites informing buyers of the availability of products. This is referred to as an invitation to treat and it avails the buyer an avenue to make an offer for a product they have seen.

Once the buyer views the invitation, they make their offer on the products they have seen. In such a case, the offer can be communicated via different means of communication ranging from phones, emails or word of mouth. Once the offer becomes accepted, the two parties are deemed to have entered into an agreement that is legally binding and enforceable.

Acceptance in online contracts sometimes proves difficult because of time differences and other factors. This necessitated the courts to determine at what point a contract is declared “formed”. It was therefore decided that the contract is declared formed when the offeror receives notification that their offer has been accepted. On acceptance, the aspect of consideration and performance is addresses. Consideration refers to the fulfillment of the terms of contract in terms of delivering the goods or services that led to the creation of the contract12.

Question 4

There is a provision in place for an offeror to withdraw an offer that had been place erroneously. This is referred to as revocation and it can be used to terminate an offer made. In such a scenario, the most important aspect is communication. As such, the offeror has to communicate to the offeree that they have revoked their offer. In addition to this, once communication is done, it cannot be declared as revoked immediately. Instead, the offeror has to wait until the communication about his revocation is received by the offeree15.

This is vital because contracts depend on electronic means of communication which are not always reliable. Due to this, a revocation can be made via post but the mail gets lost or delayed. The offeree may not know this and may assume that the offer is still valid and may proceed with performance. By placing this condition, the offeree is protected from such scenarios. Further to this, revocation can be done due to any number of reasons and the offeror is not obligated to reveal the reasons why they are revoking the offer they had initially placed.

Question 5

Due to the complex nature of e contracts, dispute resolution mechanisms were made necessary for all the parties. In Australia, the consumer act has safeguards and dispute resolution avenues to deal with any legal issues that may offer in electronic contract formation, acceptance or performance. Further to this, the fact that electronic contracts have been recognised by law as legally binding contracts and enforceable, Violation of the contract terms can be dealt with using court fines or other penalties. This has made dispute resolution possible and easy for all parties.

Due to the global nature of online commerce, the European commission and other global bodies had to come up with online resolution mechanisms that can resolve disputes that occur between traders and consumers who do not necessarily reside in the same geographical place. The ODR platform was an initiative by the European commission and it is a multilingual platform that assists in resolving any online disputes that occur in the process of ecommerce.

Further to this, the European commission established a web based platform that can be utilised for dispute resolution. It is referred to as the online dispute resolution solution. It aims at availing a platform to online traders and consumers that they can use to lodge complaints and resolve any disputes they may have regarding online contracting.

It has been instrumental in ensuring that both consumers and the sellers are well protected while they undertake online trade. Further to this, they have made it mandatory for all online business to offer links to the ODR platform on their websites so that if a customer feels dissatisfied by services or products that they have obtained online, they can lodge their complaints directly and have the issue resolved11.

This platform has also been instrumental in ensuring fast resolution of online trade disputes where any party is in breach of the terms that they had both agreed to. For instance, if a buyer expected a certain quality of product but end up receiving a product that falls way below his expectations, they can have their dispute resolved without necessarily resorting to the courts. This is vital especially if the two parties of the contract reside in different continents.

Question 6

In spite of the necessity of electronic contracts due to the technological advancements and the prevalence of online business, fundamental issues exist that make people apprehensive of these types of contracts. Information security is a major concern for any person especially with the increasing possibilities of data interception over the internet. This creates a vulnerability especially of a person is going to send their signatures electronically8.

Signatures have always been the main security issue of concern in the making of electronic contracts. For instance, people who use scanned signatures are at high risk of identity theft because of a person intercepted their signature; they can use it to enter into fictitious contracts at the expense of the signature owner. Due to this, the introduction of cryptography has been made necessary. However, in spite of this, some hackers are sometimes able to get past the encryption and access the encrypted signatures or contracts.

The issue of how an offer is made and how to determine if an offer has been made is also a core issue in e-contracting. This is due to the fact that sometimes it is hard to decipher if an offer has been made especially online. For instance, in an offer that requires one to click accept or hit any button to continue if making an offer, an element of ambiguity occurs.

The validity of electronic contracts in certain areas has been highly questioned and in certain government matters, they are deemed as unenforceable due to their susceptibility to abuse. For instance, constitutionally, divorce, marriage, court orders and many other state related contracts are only enforceable if they are on paper. Such cases increases doubts on the legitimacy of electronic contacts due to the fact that they are not accepted by governments.

Although electronic contracts are steadily gaining popularity, they have not been adopted as widely as the paper contracts. For instance, in state contracts or court documents, electronic contracts are deemed as being legally unenforceable as compared to their paper counter parts. This is mainly because of the issue if verifying identity and the increasing possibilities of forgeries. In documents like marriage and divorce documents as well as fines, physical verification of the people being awarded these documents is necessary and electronic contracts are not able to avail that verification.

Further to this, paper contracts have been found to have lesser security risks as compared to the electronic contracts. This is due to the fact that electronic contracts have to travel through cyber space from one party to another. This makes them inherently susceptible to interception a misuse by malicious third parties. Such issues make paper contracts more preferable than their electronic counterparts.

In spite of the risks associated with electronic contracts, they cannot be wished away. Globalisation and digitalisation have made them necessary for the millions of transactions that people undertake over the internet daily. Therefore instead of wishing them away, it’s imperative that they become more accepted. In acceptance, it will be possible for organisations to come up with more secure ways of transmitting and verifying these contracts14.

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