Business Law Basics: the Online Contract

Introduction to business online contracts

The business world is a world that is dominated by contracts. Without them, I believe that this area would grind to a halt. They do not have to be written. They can be implied, they can be oral; but most of them are written. In the United Kingdom, there are certain elements that need to be in place before a contract is formed; and, more importantly, legally binding. So what are these things? Well, for a contract to be formed, there has to be an offer, an acceptance of the offer, consideration and intent to create legal obligations. This has been enshrined in British Law although it can be difficult sometimes to determine what each of these look like and how to enforce them.

The introduction and prevalence of trading on the Internet means that these laws are tested to the limit. Trading online is sometimes considered less formal than other methods of trading, and sometimes the problem is exacerbated by the fact that the parties to the contracts never see each other face-to-face and are sometimes thousands of miles apart. When it all goes pear-shaped, which laws apply? There have been some regulations put into place to ensure that contracts that have been formed and executed online are binding and enforceable in Europe.

So what do I need to know about this area? Firstly, are the contracts that I make online binding?

Yes--unless there are some unenforceable terms and conditions that have been included, or it has been concluded based on fraud; or if there has been coercion.

So tell me about the components of a contract . . .

Ok, there is the offer. This is when both parties agree to enter into a contract. For example, by making an offer to buy goods. Then of course the offer has to be accepted. If there is no acceptance, there can be no contract. There must be some consideration which basically means that there is something that you get in exchange for the goods, usually a monetary payment.  Finally, and perhaps the most important, is the intention for the contract to create a legal obligation--i.e. wanting the contract to be legally binding on both parties.

Does a contract have to be in writing?

Funnily, enough no. There is no legal requirement for a contract to be written. It can be verbal and/or implied, and they are just as binding although a little more difficult to prove sometimes.

When is a contract formed?

When dealing with online contracts, having an advertisement on a website on a shopfront does not constitute a formal offer. Having stuff on your website to sell does not mean that you are making an offer.  A contract is only formed when a customer places an order and a supplier accepts the offer. This should be made clear in the terms and conditions.

Are there any terms that I must include?

This depends on your type of business. But the crucial things that must be covered include:

* What is being supplied

* The price, and how it is to be paid

* How it is to be delivered

* The rights of the parties to end the contract

* Which country's laws are applicable when enforcing the contract

* If the contract is of a sensitive nature, any confidentiality issues (such as intellectual property, trade secrets, sharing of proprietary knowledge, etc.)

* Liability provisions - limitations (Unfair Terms and Consumer Contracts Regulations 1999 and Consumer Protection from Unfair Trading Regulations, 2008). These are the cause of some debate.

What issues must I consider?

* Data Protection for both yourself and the parties involved

* Distance selling and the regulations covering this

* Intellectual Property

* Legality of selling goods - what is legal to sell in one country may be illegal in another, so check this

* Security of data that is being passed between parties - this is especially important when dealing with transactions online

How are consumers protected?

The law states that the supplier must sell goods that match their description/match the quality of any samples and have the same quality as the goods that are described. The consumer has two years from delivery to seek redress for any faults of the product at the time of delivery. However, the product must last this time.

If the two parties do not meet, that does not mean that there is no protection. The Distance Selling Regulations cover all online correspondence and contracts such as email, telephone and mail order. The Regulations also put in place a cooling-off period of 7 days.

What's all this about Distance Selling?

This just means selling when the two parties are in different parts of the world (or in different parts of the country). If you want more detailed information, read this factoid

What if something goes wrong?

Inevitably, despite the best efforts of both parties, things go wrong. At the first stage, try to meet and sort things out. This usually does the trick. The one thing about distance selling is that being miles apart can lead to communication breakdown, which leads to problems in the future. Make sure things are clear. If you need to sort something out, try to meet face-to-face and iron out any differences. If this does not work, then mediation is a possibility. If that does not work, then it is the courts. But think long and hard before going down this route. Is it really worth it?

So there you have it. Some things you need to know about online contracts. The Internet is there to make things easier, especially in the area of business and commerce. However, things do go wrong and systems have to be in place to minimise thei occurrence and limit the negative effect they may have on business relationships.

Take care and God bless readers...

© Ngozi Nwabineli - September 2009


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Ngozi Nwabineli
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Posted on Oct 2, 2009
Ngozi Nwabineli
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carol roach
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Posted on Sep 29, 2009