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.

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.

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.

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.

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.