bizEDGE New Zealand logo
Story image

Is it legal?

01 Jan 2011

When we think about contracts, the tendency is to think of a multipage document with clauses, headings, and two signatures at the end. However, a contract doesn’t necessarily have to take that format and in our digital age it is becoming increasingly more common for contracts to be formed in a variety of ways – all of which are "legal”.What the law requiresThe law says that there must be three essential elements present for a contract to exist. They are: offer, acceptance and consideration. The concepts of offer and acceptance are fairly straightforward: an offer is made by someone to do something and the other party accepts. In a retail situation the offer comes from the customer to buy the product, and then the merchant accepts the offer by accepting the payment. The advertisement of the goods for sale is called an ‘invitation to treat’, which isn’t necessary for the formation of a contract but is often present as a precursor to the contract being formed.  The consideration in a retail transaction is the passing of money. However, it also could simply be two people exchanging promises to do something for each other.When is the contract formed?The contract is formed as soon as there has been an offer and an acceptance. Consideration need not pass immediately, but can pass later. Note that the law does not require a signature for most contracts. The exceptions are contracts which must by law be in writing. Examples of these include contracts for the sale of land and deeds. Deeds are contracts where there is no consideration present, so to make them enforceable they must be witnessed. Most commercial agreements, however, do not require a witness, so a signature is not necessary either and you could look at other, more practical ways to get an agreement. That’s because all a signature does is provide evidence that two parties are in agreement. However it is equally possible to have a verbal contract without a signature, providing the three elements of offer, acceptance and consideration are present. Similarly, it is possible to form a contract by exchange of emails where one email contains an offer and another email contains an acceptance. An agreement will be assumed unless a party makes it clear that they do not intend to be bound by legal relations. The use of words such as ‘subject to contract’ can prevent a contract coming into being.How to demonstrate an agreement existsIn the digital age, there are numerous ways to prove an agreement. For example, for software which comes in a shrink-wrap box it is possible to get the consumer to agree to a licence agreement by making it clear to the consumer that breaking the shrink-wrap constitutes acceptance. The licence agreement would need to be visible through the shrink wrap. More common nowadays is a tick box on a website which must be ticked before you can download your digital product or subscribe to a website. By ticking the box, the user signifies acceptance of the licence and terms (whether the person has read them or not). Digital signatures are also recognised as evidence of an agreement, and some application developers are now developing the means to capture real signatures in digital format using a stylus and a touch screen. Providing such a signature represents an agreement to the terms of business which the merchant wishes to enforce, then that’s a valid way of proving an agreement exists.What is the agreement?Once you have the three elements of offer, acceptance and consideration present, then you have an agreement. However, what the terms of that agreement are is a separate question, and to ensure that all your terms of business or your licence agreement are incorporated into your agreement with your customer, you must ensure that whatever method you choose to capture evidence of the agreement, it is clear the customer is actually agreeing to all your terms. That means the customer must have the ability to read all your terms before they tick the box, sign the touch screen, or confirm acceptance in some other way. Any terms which you attempt to incorporate after the customer has confirmed acceptance will not be ‘legal’.