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Sale contract negotiation: The laws of e-commerce
A contract usually comes about without much formality. It essentially just requires two declarations: The first is the offer, the second is the acceptance of the offer. The simple construct is the same which is used to buy bread from the baker in the morning or to purchase a car at a dealership. The same principles apply in e-commerce for the conclusion of contracts. But before drawing up a legally binding purchase agreement, there are some things to consider. Here we will outline the best way to sign a contract on the internet.
Concrete offer vs. nonbinding presentation of goods
Fundamentally, a sale contract online follows the same rules as an offline one, but there are differences when it comes to the offer. Online shops present their goods, just like retail stores do in their physical shops. But instead of wandering through the store, customers can click through online product pages and choose the ones they want.
The problem: The customer could interpret the simple presentation of goods as a binding offer with the aim of contract conclusion. Theoretically, they could accept the offer with one click and cause a contract to come into existence. But what if the merchant is unable to deliver, for example, if the selected product is sold out? That would constitute a breach of contract, and in some cases a customer could file a claim for damages.
The solution: The mere offer of products or services is, in most cases, not a concrete offer or contract conclusion. The online shop shows an unbinding presentation of goods, similar to a shop window or catalogue for a retail store.
The shop owner presents nothing more to a customer than a non-committal invitation to submit an offer (“invitation at offerendum”). The customer submits the offer themselves by clicking the order button. The merchant accepts the offer or rejects it if, for example, the goods are no longer available or the requested service is already booked. This process is defined in U.S. law by freedom of contract. Offers do not have to be accepted; everyone is free to choose their own contract partner.
Whether an offer to a customer is a concrete offer or simply an unbinding invitation depends on the concrete circumstances of the individual case. For example, the contents of the offer page, explanations, and references in the GTC (General Terms and Conditions) are taken into account. In individual cases where, for example, the merchant declares an unconditional commitment or a legal obligation in connection with the offer, it is a binding offer. But in a majority of cases with online shops, it is not this way. Those who want to be absolutely sure can include phrases like “while supplies last” to make the lack of legal obligation clear.
Accepting the offer
The customer has filled their shopping cart, and their contact and payment information has been entered. By submitting the order, they also submit a binding offer to the merchant. What is still missing is the acceptance of the offer, or the second necessary declaration of consent, so that a legally binding online sale contract is born.
An online declaration of consent, such as the offer by the buyer to the merchant, is legally valid as a declaration between absentees. The merchant must accept this offer within a particular deadline. The deadline for the acceptance is given by the respective circumstances. Depending on how much time is spent on transmission, processing, and review, the merchant has time to accept or reject the offer.
Most processes for online commerce are automated and run in real time, which makes the time span relatively short. Generally, acceptance is possible within a matter of seconds. If the merchant extends this period and accepts the application only after a disproportionately long time, then the customer may not be bound by the offer and may rescind their declaration.
In online trade practice, freedom of contract law also supports the acceptance of the application without declaration of acceptance, though it relies on the accepted practice. In order for the law to take effect, an explicit declaration of acceptance must not be expected in the accepted practice. In e-commerce, the customer assumes that the transmission of their order means that their offer has also been accepted. A notification is only expected in the event that an order cannot be processed, such as when the product is sold out. An official declaration of acceptance is not expected according to the accepted practice of online commerce – and so the contract is effective without it.
Online auctions: How is a sale contract negotiated on eBay?
On auction platforms like eBay, merchants auction their goods or offer a buy-now option, and on sites like MyHammer merchants can also offer services. In these examples, slightly different regulations are in effect, because the customer acts as the bidder. The process is similar to a classic online transaction: The merchants offer their goods on the platform, and open an auction. They determine a minimum starting bid to keep from selling their goods for less than they’re worth, and determine the length of the auction. By offering the goods, the merchant has made a binding offer. They must later recognize the highest bidder as a contractual partner.
The prospective buyer now makes an offer within the auction period. If they are the highest bidder at the end, then they become the official contractual partner of the merchant. The transfer of the maximum bid serves as a binding acceptance of the offer, and a further declaration of consent is not necessary. Many auction platforms also offer a buy-now option: the merchant sets the item at a fixed price, and no auction takes place. In these situations, an online sale contract is negotiated normally: coming through the merchant’s offer and accepted by the customer.
The auction house, in this case an online platform, behaves as an intermediary between merchants and buyers. They only provide the platform and technical capabilities; they are not directly involved in the actual contract conclusion.
Invalid contract conclusions: When is a contract valid?
Of course, not all contracts run as smoothly as the ones described above. On a regular basis, users sign online contracts even though they are not legally qualified (e.g. by being a minor), or sign contracts that they did not want to, by clicking something incorrectly. In such cases, is a legally binding contract still created? When is a contract valid? When can the buyer withdraw and when are they obliged to accept and pay for the goods?
Case 1: The buyer is underage (a minor)
U.S. law considers all those under the age of 18 to be minors and therefore not have a full range of rights or abilities. This means that they may also only conclude contracts on the internet with the consent of their legal representative. When a minor orders something online, the online sale contract is potentially void. If the legal representative does not give their consent, then the contract is invalid. The seller has no claims for damages, e.g. shipping or packaging costs. This also applies if the minor has given false information about their age, as the merchant enjoys no protection with regard to the signee’s viability.
Case 2: Incorrect data entry or transfer by the buyer
Almost all people make mistakes, including when we make online purchase contracts. Typing quickly, it’s easy to accidentally enter an 11 instead of a 1 and suddenly order 11 items instead of the 1 intended. With luck, the buyer will have the opportunity to appeal their declaration and undo the order, but the seller can always assert a claim for damages. If unnecessary shipping or packaging costs arise due to the incorrect order, then the buyer has to reimburse them.
There are still exceptions, namely if the order mistake is the fault of the seller. That is the case if an order form is confusing or ambiguous, or when a faulty order can be linked backed to input errors. The last points are covered by the special obligations, which each merchant that handles online commerce has to fulfill (see below).
Case 3: Incorrect data transmission by the seller
The vendor can also make input errors or have faulty software that leads to the incorrect determination of prices. But just because a computer incorrectly wrote the price in the online shop, the customer doesn’t automatically have a claim. As described above, the goods offered in an online shop are not a binding offer.
If an incorrect price is displayed in the online shop, a buyer has no claim to receive the goods at that listed price. If, however, the seller fails to correct the mistakes, a legally-binding purchase contract is made as soon as they deliver the goods at the stated price. But the possibility to challenge the contract on the basis of an error does exist.
Special obligations for electronic business transactions
The merchant in e-commerce – officially referred to as “electronic business transactions” – has special obligations to fulfill, as mentioned above. E-commerce guidelines are intended to provide effective protection for customers by providing, for example, standardized rules on transparency, or information requirements for purchase contracts on the internet. The law regulates certain information which the merchant must provide. In addition, the merchant must also fulfill certain technical requirements.
- The customer must always have the opportunity to correct their input during the ordering process. The merchant must always make sure that errors can be identified using “appropriate, effective, and accessible technical means” and corrected. The established practice is to provide a customer with an overview of all important information at the end of the ordering process, followed by a confirmation.
- The merchant must display the technical implementation and all of the steps leading to the conclusion of the contract. Furthermore, they must inform the customer whether the contract text is saved following that conclusion, and where it is made accessible to the customer. The merchant is not obligated to save the contract after its conclusion, but the customer must be given the opportunity to save it for themselves.
- According to the law, the merchant is obligated to immediately confirm the order. An automatic confirmation e-mail is an option here. Merchants who choose this option must pay attention to the text of such an e-mail and make sure that it is formulated clearly. It is merely the confirmation of the order receipt, which is not the same as the binding acceptance of the offer which the customer submits. The law only requires a confirmation of the receipt of the order, not the confirmation of the order as it is. Therefore, online merchants should avoid talking in the “customer” mail address, which could lead to false assumptions.
- The customer must have the opportunity to retrieve and save all relevant documents at the conclusion of an online contract.
The laws of e-commerce differ more in some place and less in others from the laws of traditional trade. Some e-commerce rights only contain small differentiations, but if not carefully implemented, these differences can cause great damage. New founders and fresh entrepreneurs in e-commerce should not shy away from legal advice when starting out their online business. This article does not constitute that legal advice, but instead serves exclusively as general information.