There are three fundamental requirements for the formation of a legally enforceable contract, and they are as applicable online as offline.
- First, the contracting parties must agree on the terms of the contract, through the issue and acceptance of a contractual offer.
- Second, they must intend to create a legally binding agreement.
- Third, the contract must be supported by consideration: an exchange of value.
This post is concerned with the first of these requirements, a familiar subject to all law students, and known simply as “offer and acceptance”. It considers the online application of the traditional principles of offer and acceptance.
The basics are these. An offer has been defined as an “expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed” (Treitel, The Law of Contract, 12th Edition, p9). An offer must be sufficiently clear, certain and communicated to the offeree (the person to whom the offer is made). The acceptance from the offeree must be equally clear, unequivocal and in response to the offer. And the acceptance must mirror the terms of the offer and be communicated to the offeror (the person making the offer).
Websites as advertisements
The general principle is that adverts or displays of products do not constitute an offer. Instead, they are said to be “invitations to treat”. An invitation to treat precedes an offer in the contract formation process; it is an invitation to make an offer. By contrast, an offer is capable of binding the offeree if it is accepted. Websites used to market products and services may be considered as analogous to offline advertisements. Generally speaking, such websites will communicate an invitation to treat, not an offer.
Internet transactions typically require the completion of web order form by the customer followed at some point by the clicking of a “complete order” button or link. Regulation 11 of the Electronic Commerce (EC Directive) Regulations 2002 requires online traders to acknowledge receipt of an order by electronic means. After the submission of an order, the customer will usually be taken automatically to a new web page confirming whether or not the order has been placed successfully. A confirmation email may also be sent. In the absence of any factors to the contrary, there is a risk that the contract may be formed once the confirmation page is displayed or the confirmation email is sent or received. An online trader’s T&Cs of sale may distinguish a confirmation page or email from a contractual acceptance. In these circumstances, the buyer’s order will typically be categorised as a contractual offer. Accordingly, the trader will not be obliged to fulfil the order until after acceptance. This approach recognises that an online trader’s stock will be limited, and also that a trader may wish to retain some discretion over the persons with whom he contracts.
The trader’s T&Cs should specify what acts will constitute the offer and the acceptance. For instance, in relation to the sale of goods, the T&Cs may specify that acceptance will only take place (and, consequently, a binding contract be formed) once the customer is notified that goods have been shipped. However, a statement in the T&Cs may not be conclusive in all circumstances. If the order process has been configured in such a way that a reasonable customer would consider that a contract of sale has been formed, then a statement to the contrary buried away in the T&Cs may not assist a seller trying to avoid a contract.
Manufacturer-suppliers need to take particular care here. In some circumstances an “advertisement” from a supplier who is also a manufacturer may amount to an offer. Accordingly, sellers who are also manufacturers should be particularly careful to make it clear on their websites and in their T&Cs that the “advertisement” of products is merely an invitation to treat.
An example: £2.99 televisions
In 1999 Argos accidentally advertised Sony televisions for sale on its website at £2.99 instead of £299.99. Subsequently, orders were placed and confirmed by Argos at the £2.99 price. However, since a website is generally construed as an invitation to treat, no binding contract had arisen between Argos and customers whose orders had not been expressly accepted.
Incorporation of T&Cs into contract
To be effective, a website’s T&Cs of sale must be agreed by both parties and incorporated into the contract. The T&Cs should be available to the customer before the placing of an order. The usual way to ensure that T&Cs are incorporated into an online contract is to prevent the submission of an online order form unless the customer has positively indicated acceptance of the T&Cs, for example by clicking on an ‘agree’ button. T&Cs assented to in this way will usually bind the customer. Less explicit forms of consent may sometimes be sufficient. A statement proximate to an “order” button that the sale is subject to the online trader’s T&Cs, posted on another webpage and accessible through a hyperlink, may amount to sufficient notice.
T&Cs governing website use
The use of websites by casual visitors is (for usability reasons) not usually made subject to active acceptance of the website’s T&Cs. Usually such T&Cs will provide that they are accepted by virtue of the visitor’s use of the website. Whether they actually create a binding contract will depend upon the specific circumstances, but in many circumstances there will be no contract. This does not mean that such T&Cs have no value: they may act as valid licences, and the disclaimers of liability they contain may still be enforceable. Of course, to serve these function the T&Cs still must be brought to the attention of the users.
There is no difference of principle between the process of offer and acceptance online and the process offline. The main practical points to take away from this post are these:
- traders should take care to ensure that they are not prematurely bound by contract;
- to avoid being prematurely bound, traders should specify the acts that constitute the offer and acceptance in their T&Cs, and ensure that those T&Cs are properly brought to the attention of users and accepted by customers;
- traders should also ensure that the structure of their checkout process (usually dictated by shopping cart software) and statements on their websites generally do not imply that a contract is formed before time; and
- where particular caution is needed (e.g. because a seller is also a manufacturer) then a clear an unambiguous statement that the advertisement of products on the website does not constitute a contractual offer should be included on the website.
This article was researched and written by Jola Hajri.