Vitiating factors and online contracts!

Online digital contracts are now the standard engagement in society, and at general law, if vitiating factors occur, this may make an online contract unenforceable, as a consequence of mistake, duress and unconscionability. Where unilateral mistake occurs rescission may be available subject to the knowledge and conduct of the mistaken party. If duress occurs due to unacceptable economic pressure, the obligations under the contract may be ceased. If there is unconscionability in a transaction, where a stronger party has taken advantage of a weaker party, the contract may be rescinded. Each situation on the vitiating facts of mistake, duress and unconscionability will depend on the circumstance of each case.

An example of unilateral mistake in an electronic contract of sale is the case of Chwee Kin Keong v Pte [2005] in Singapore. In this case the respondent on 8 January 2003 advertised a printer mistakenly for $66 online, when in fact the printer was $3,448. On the 13 January 2003 the appellants who were university students purchased 300 of the printers at $66 online. On the same day the respondent realised the error of advertising for the printer. The respondent removed the advertisement that was online, and issued notification to the university students that the contract for 300 printers would not be honoured. The students then raised a claim against the seller.

The High Court held in this case, that as the students had carried out an online search for the printer type, and knew that the correct selling price was higher than $66 and too low, they would be considered as holding constructive knowledge of the mistake of the seller. The court said the contract would be void on this basis.

Duress with online transactions may be seen from the case of AV v iParadigms LLC (2008) Virginia United States. The plaintiffs in this case were students, and they were required to submit their work through a website called Turnitin. The website Turnitin was owned by iParadigms. The students argued that they were required under duress by their education provider to submit their work through the website Turnitin. The purpose of this argument was that the students wanted to avoid iParadigm’s contract governing the use of the website as the students sought to claim their rights to their intellectual property held by them.

The court held in this case that the students could not raise the argument on the basis of duress by a third party, which was the educational institution. The students claim failed.

In Situational Duress and the Aberrance of Electronic Contracts (2014) 89(1) Chicago Kent Law Review pages 265-287 the writer, Nancy Kim, argues that the defence of situational duress should be available to consumers on the internet. Kim argues that with the change of Facebook and Googles user policies, which allows these parties to use the names and likeness of registered members for commercial purposes, the argument of duress should be permitted, especially when the registered member is forced to agree to a policy, or alternatively delete their account. There was no option of the registered member to agree to the commercial use of their name or likeness, they either had to accept it or delete their account. Therefore Kim argues that a form of duress has been forced on the registered member, as there was no choice. However, this argument by Kim, will likely fail in most legal jurisdictions. This is because the user in the circumstance of the above has the option to delete their account.

Unconscionable conduct occurs where a stronger party takes an unfair advantage of a weaker party to a transaction. The notion of unconscionability can be put into 5 categories: (1) exploitation of vulnerability or weakness; (2) abuse of positions of trust or confidence; (3) insistence upon rights in circumstances which make that insistence hard or oppressive; (4) inequitable denial of legal obligations; (5) and unjust retention of property. These categories show the range of situations unconscionable conduct may be found.

In terms of unconscionability with online transactions the case of Shroyer v New Cingular Wireless Services Inc (2007) in the United States demonstrates this issue. The appellant’s in this case complained that the respondent’s had failed to provide a quality online service after the respondents had merged with another company. The respondents claimed that if the appellant’s entered into a new contract with the respondent the service would improve. The appellants signed a new contract digitally through the internet. The service did not improve and a claim was commenced in court against the respondent. The court held the contract entered into by the appellant was a contract of adhesion, drafted by a party with superior bargaining power; made in a setting where disputes involve small amounts of damages; and that the respondent had carried out a scheme to deliberately cheat large numbers of consumers for small amounts of money. The court held on appeal that the contract entered into by the appellants was unconscionable and void.

Where an online vendor makes a mistake with an online contract that goes to the root of the contract, and an online user unconscionably takes advantage of the mistake, equity will come to the aid of the vendor and make the contract void at the election of the mistaken party. The courts are less likely to set aside contracts on duress and unconscionability when the online user is not being forced into the contract and their are sufficient alternative options that may be chosen by the user. The law has a long way to develop in regards to the governing rule of online transactions. However, when there is uncertainty by a user to an online contract, its prudent to get that legal advice to protect your legal rights and interests.

The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799

Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”