The Ins And Outs Of Digital Contracts

The Ins And Outs Of Digital Contracts

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digital-contracts

The use of technology in law has impacted the way we do business. Electronic contracts, in particular, have become more common, and this initially caused great uncertainty as to how and whether they could be recognised as valid and enforceable agreements.

The passing of the Electronic Communications and Transactions Act (ECT Act) in 2002 initiated the basic understanding that digital communications are just as valid as paper based communications. According to section 11(1) of the ECT Act, information is not without legal force and effect merely on the grounds that it is wholly or partly in the form of a data message.

It is now possible to contract by means of data messages and parties may even sign agreements using digital signatures.

What you Need to Know about Digital Contracts

The basics are in place: Electronic contracts must meet the common law requirements of contracts in order to be valid and enforceable. The minimum requirements for a valid contract under South African law include a valid offer and acceptance; or consensus between the parties. All contracting parties must have contractual capacity.

For example, a minor does not have sufficient capacity to enter into a contract without assistance or consent of their guardian.

The contract must be legal, and be capable of performance for it to be valid. Finally, formalities are set for certain contracts, such as the sale of land, and must be met for the contract to be enforceable.

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Some agreements cannot be executed electronically:

In the case of Spring Forest Trading CC v Wilberry t/a Ecowash and Another 2015 (2) SA 118 (SCA), the Court ruled that “…when there are formal requirements of writing and signature imposed by statute or the parties to the transaction, these can generally be satisfied through electronic transactions. There are, however, exceptions where agreements may not be generated electronically. These are the agreements for the sale of immovable property, wills, bills of exchange and stamp duties.” Consequently, most agreements (except those listed above) can be concluded electronically by data messages.

Email and SMS:

In the case of Jafta v Ezemvelo KZN Wildlife 2008 JOL 22096 (LC), the Court held that “(E)-mails and smses and the language of text messages they carry may seem informal, but treating them as having no legal effect would be a mistake.” It is thus possible, in terms of the ECT Act and case law, for a contract to be concluded, varied and cancelled by email or SMS.

Businesses should take note of this and consider excluding the right to vary or cancel an agreement by way of electronic communication in some instances. Staff should also be made aware of the risks and consequences of emails and SMSs, particularly when dealing with contractual provisions.

Time and place of conclusion:

The time and place of conclusion of contracts are important as they relate to jurisdiction and applicable law. The ECT Act adopts the reception theory for receipt of electronic communication, meaning that contracts are formed at the time when, and place where, the offeror receives acceptance of the offer, but acceptance of the offer does not have to come to the knowledge of the offeror for a contract to arise. This theory prevents any disadvantage to the offeree by not knowing when the offeror knows about the acceptance.

When clicking on ‘I accept’ or ‘I agree’ on a website that offers goods for sale, a contract is concluded. However, this acceptance of the offer may not come to the attention of the seller if the thing sold is packaged and delivered automatically or through a dispatch service.

Therefore, an email or SMS will be regarded as having been received even if the addressee has no knowledge of it being in his inbox. The data message merely has to have the capability of being retrieved.

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Digital signatures:

The ECT Act defines an electronic signature as data attached to, incorporated in, or logically associated with other data and intended by the user to serve as a signature. This may include things such as typing your name at the end of an SMS or email or clicking on an icon on a website to confirm your acceptance of terms and conditions.

Should a contract require something to be ‘signed’, the requirement would be met if the mark inserted into the document or data message is capable of demonstrating the intent of the signatory to authenticate the document.

In conclusion

In a technologically advancing era, businesses are relying on electronic communication to a greater extent. It is now possible to enter into agreements (including their amendments or notices thereunder) not only through email, but through other data messages such as SMSs. In light of the above, businesses should consider whether there are steps that can be taken to protect themselves and avoid dispute.

Monisha Prem
Monisha is a corporate advisor, admitted attorney at M. Prem Inc, and author with over 14 years deal-making experience. Monisha litigated for several years before joining an investment banking firm specialising in mergers and acquisitions. Monisha has owned and operated several businesses, is passionate about business development, commercial and corporate law.