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E-contract

The internet in the era of e-commerce

It is hard to believe that the internet has existed for less than 30 years. It was not, however, until 1991 that the World Wide Web was designed as a part of the internet through which it gained incredible popularity. It is mostly used for the purpose of e-mail communication. The greatest advantage of this form of communication is that an e-mail can be sent to a number of recipients without the demand for additional time or expenses. The greatest advantage in business communication is that a short e-mail message can be drafted more time-efficiently than for instance a traditional letter or a facsimile. At the same time, however, it is highly important that an e-mail is an insecure means of communication. It is not an “electronic letter”, but rather an “electronic postcard”, and thus anyone concerned with its distribution can read it. Since up-to-date technology does not allow for sufficient security yet, commercially sensitive data should not be transferred via e-mail. Not even coding mechanisms provide for the desired security, either. Moreover, it is impossible to predict the route an e-mail will take - for instance, an e-mail sent from one district in Hanover to another one can “travel” via Frankfurt, the USA and Berlin, before arriving at its destination in Hanover. The sender of an e-mail can control neither the period of delivery nor the number of countries through which his e-mail is going to pass. Moreover, it should be taken into consideration that the content of a particular e-mail must comply with the laws applicable in all countries through which the e-mail is transferred (for instance, issues relating to copyright law, data protection, defamation, etc.) – such are the current legal regulations in most countries, including Europe and especially Germany.

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Apart from e-mail communication, the internet is increasingly used for purposes of information distribution, for the purchase and sale of products and services as well as for marketing purposes. The ideal address for a German company would be www.companyname.de. Depending on the purpose such a home page is to serve, numerous legal issues emerge which should not be underestimated and which can be solved in advance - but most definitely must be solved in the long term since the dogma of “lawless cyberspace” is plainly false. What this dogma is correct about is only that there is no separate act relating to the internet. Nonetheless, regulations applying to “traditional” areas of law, such as the law on competition or trademark law, must be complied with when setting up an activity in the internet.

For instance, according to the German law on competition, even if company’s home page contains only information on that company, this information must be neither unfair nor misleading. Regulations relating to trademark law must already be taken into consideration when choosing a domain name. Furthermore, whenever information is published, an imprint is required by law (Impressum requirement, § 6 of the Teleservices Act), as is the case for newspaper and magazine publishers.

Those wishing to use the internet to trade with products and offer services must take into account numerous additional legal requirements. For instance, if the written form is required for a certain business transaction by law or even by the terms of business, an e-mail or an online form is not considered to be “written” since it is lacking a signature. Moreover, in the existing legal practice an e-mail has hitherto not had document status, which means that an e-mail can in no case be admitted as evidence.

Terms of business can be applied with regard to individuals provided that they have been “included” in the contract, which in practice means that placing an order via the internet must be preceded by an explicit reference to the terms of business which have to be accessible and emphasised.

A considerable advantage of an internet presentation for middle-sized enterprises is connected with the fact that all enterprises have equal chances of setting up a similar representation in the internet for advertising purposes. For this, neither worldwide subsidiaries in top locations are necessary, nor expensive high quality equipment and furnishing. All you need is a professional home page.

The e-contract

According to German law, the essential elements of a binding contract include an offer by one party and its acceptance by another party. The offer must be binding. Therefore it must be more than a simple request to make an offer. In many cases clicking the Order button does not at all mean that the ordering party has accepted a specific offer, but that it was he, who has made an offer of his own.

The contract is concluded when the offer is accepted without any reservations. When concluding a contract via the internet there is usually no doubt as to reservations, since the ordering party cannot make any changes, but only fill in predefined dialogue fields. This raises the question about when the contract is concluded - this question is important since this is decisive for the last point of time when the contract can be resigned from. Under German law this depends on the means by which the contract reaches the contractual partner. In case of a traditional contract, for example by regular mail, there is no problem. In case of an internet contract there is no such definite answer to the time question as with a regular mail. For instance, in case of an internet transaction there is a possibility that when both contractual partners are online simultaneously the transaction can be handled within a few seconds. The contract is then effective from that point on. It is, however, also possible that the recipient reads the ordering e-mail later and thus gets the order at a later point of time.

In addition, a contract obliges the contractual partners to mutual services. The ordering party typically has to pay a certain amount of money. In many cases the consumer chooses to pay in a conventional way due to a lack of security of internet payments. Here, it is important to know that the contract is concluded independent of the time of payment.

In case of a legal dispute before a court, proof of the offer and of its acceptance has to be given. Presently, most courts do not accept the ordering e-mail as sufficient proof. In business communication a subsequent written confirmation of the order helps solving this problem.

Future Prospects

The European directive on distance selling and electronic commerce (the latter being still merely a proposal) which has not been implemented in German law as yet is going to bring about numerous changes. Both directives aim primarily at protecting consumers. For instance, a consumer will be entitled to demand – prior to concluding an agreement - certain information relating to goods or services or to the company itself. Furthermore, consumers will have the right of withdrawal, i.e. they will be able to withdraw from the contract concluded via internet within a period not less than seven days. Moreover, suppliers will be obliged to carry out an order within 30 days at the most.

According to the directive proposal of the EU Commission concerning electronic business transactions, the existing regulations relating to the validity of agreements in member states, especially those demanding the written form, will be extended to include electronic signatures as proof for internet agreements.

In spite of the above and other attempts to provide for legal security, some uncertainties still remain even within this guideline. The situation presented above concerning the question who initiated the offer, is not going to be regulated. Since there is no uniform approach to that matter in the member states, cross-border legal relations are likely to meet considerable hindrances. For a French customer it is unclear whether a German supplier merely gives an opportunity to place an offer or if he is supposed to place a binding offer. Whereas the French consumer believes that the contract is binding - according to French law - the German supplier might not yet consider the offer placed by the customer binding - according to German law.

In essence, it can easily be seen that the risks resulting from lacking legal regulations must not be underestimated. The benefits, however, clearly outweigh the risks, since the legal risks can be reduced to a minimum at a fair price, with the only risk remaining being the general risk in any business undertaking. Another point in favour are the nearly infinite opportunities of worldwide international transactions.

 

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© German Lawyer Dipl.-Ing. Michael Horak LL.M  2002-2018

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