Freedom of Contract in Click Wrap Agreements in Malaysia and the United States of America

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1 International Journal of Cyber Society and Education Pages 47-54, Vol. 4, No. 1, June 2011 Freedom of Contract in Click Wrap Agreements in Malaysia and the United States of America Maryam Rafiei National University of Malaysia Nazura Abdul Manap National University of Malaysia ABSTRACT Technological advancement in the communications industry, particularly over the last decade, has given rise to consumers and commercial providers who want to form their own business or contractual agreements via the Internet. The mark of such technology can be seen in a new form of contract called click wrap. Keywords: Electronic Contract, Click Wrap Agreement, Elements of Contract, Consent, Free Consent and Malaysia INTRODUCTION For many years it has been part of human society that people are strictly bound by their contracts, promises, and obligations and that the promises to do or not to do the specific things that are the subject of that agreement must be kept. However, it is clear that the situation of a person who is clicking on a contract via the Internet is not the same as that of a person who is entering into a contract in a face-to-face transaction. Examining the issues in the contract form related to the freedom of such contracts will determine the validity of the transaction. It is common that the end users of an Internet-based contract do not read or examine the conditions laid down in such contracts and are unaware of any adverse conditions that may be involved.

2 International Journal of Cyber Society and Education 48 The term click wrap -also known as "click through" -agreement or click wrap license derives from the shrink wrap that was commonly used in boxed software; the software s user agreement was written inside the shrink wrap or printed on the outside of the box, and the agreement stated that, by tearing or removing the shrink wrap, the user assented to the terms of use enclosed within. Removing the shrink wrap was considered the explicit acceptance of the agreement In that situation, the end user has the choice of take it or leave it. However, when a user wishes to download or install software online, the user must enter into an agreement by clicking on the agree button; there is no paper form contract and no element of force involved in signing the agreement. Inevitably, this new situation is giving rise to the issue of void or voidable contracts (Contracts Act of Malaysia 1950). THE POSITION OF MALAYSIA In Malaysia, according to general principles, the parties to a contract are bound when a legally enforceable agreement is concluded (Koffman & Macdonald, 2007). However, the main question is whether all of the contracts that are acceptable and enforceable are consistent with section 10 of the Contract Act of The free consent, which is a necessary element of a contract agreement, is one of the important components of a valid contract. Consent means that the parties must have agreed to take the same view in doing or not doing something. For a contract to be valid, it is necessary that the consent of parties to the contract be free. According to section 14 of the Contracts Act of Malaysia (1950) consent is free when it is not obtained by coercion, undue influence, fraud, misappropriation, or mistake If the consent of either of the parties is not free, then the agreement cannot become a contract (Singh, 1978). The principle of freedom of contract rests on respect for individual rights, and freedom of contract entails at least three related concepts of freedom. First, is the positive conception involving the liberty of individuals to make their own choices. In contracts, this is the freedom to identify a possible exchange, to bargain for terms, and to enter an agreement based on mutual assent. The second concept of freedom is a negative concept, that is, the freedom from governmental constraints or interference while engaging in contracts. Finally, freedom of contract entails the ability of individuals to access the power of government to enforce their agreements. In each of these concepts, freedom of contract has always embodied factors.

3 International Journal of Cyber Society and Education 49 In the electronic context, consent can be given in many different ways (Gautrais, 2003/2004), but currently there are many circumstances in which there is neither freedom nor equality in matters of contracting. People are forced to make certain contracts, such as the compulsory insurance or software agreement (click wrap), before installing software on their Personal Computers (PC). It is unrealistic to suppose that the consumer can renegotiate the terms of such a contract. The use of a standard form contract is a fact of commercial life and has been for a long time (Koffman & Macdonald, 2007). The situation surrounding the consent in doing a click wrap agreement is vague in some legal systems, and its validity is different in different countries. However, some authors believe that nothing has changed in this type of contract nothing, that the only thing that is different is the method by which the contracts are formed. They contend that, in both instances, the buyer is in communication with the seller and that the only difference is the venue of the transaction: the buyer s desk instead of the seller s store. These disagreements indicate that the process of contract formation in the online world is not as straightforward as it is in the physical world. Nevertheless, many countries have attempted to resolve these issues by incorporating the old acts and regulations to suit into the new situation (Reed, 2000). Of course, the Contract Act of 1950 does not make provision for the online environment. The Electronic Commerce Act 2006 (ECA) (1998) recognizes online contracts as all electronic transactions and requires that they shall not be denied legal effect, validity, or enforceability on the ground that they are wholly or partly in an electronic form (Manap, 2008). However, there have been no cases in Malaysia regarding click wrap or consent in click wrap, and there is no act in existence for click wrap situations. While the Contract Act of Malaysia 1950 s list of the elements required for a true contract can be employed in the click wrap contract, the elements within the existing Act are not sufficient for use by either the commercial parties or end-users. There is a need for a specific act that can provide support for both parties involved in forming electronic contracts in cyber space. Although in emergency cases, the Malaysian courts can refer to the English cases, the increasing popularity of the Internet and its increasing usage by the younger generation makes it imperative that the Malaysian legal system create an independent act to resolve the new legal problems that will arise from the increase in click wrap and shrink wrap contracts.

4 International Journal of Cyber Society and Education 50 Central to the legal concept of contract is the idea of consent. Parties that enter into contracts by way of free consent are legally bound to them, and in the absence of free consent, the deal is void or voidable. A party who is coerced, under pressure, or forced to make such a contract can seek relief. Depending on the circumstances under which the consent was improperly obtained, parties are entitled to relief on the grounds of duress, undue influence, or unconscionability (Kit-Way, 1998). Section 14 of the Malaysian Contract Act 1950 states that a contract is voidable by coercion; consent is said to not have been given in the existence of coercion, undue influence, fraud, misrepresentation, or mistake. Coercion under the Act necessarily involves some element of unfair practice on the part of one party with the aim of inducing consent to the contract from the other party to the extent that the presence of such coercion belies the consensual nature of the purported agreement. Naturally, coercion under the Act gives the coerced party access to remedies that can affect his or her contractual rights (Shariff, 2001). Coercion is viewed as duress, particularly in the English system, where a contract is said to have been made under duress when a party enters into contract as the result of another party s coercion or force that he could not reject or ignore. The nature and concept of pressure and duress is particularly meaningful when there is a violence or threat of violence to the person. In English law, the traditional justification for giving relief for threats can be found in the context of the common law of duress, which applies in cases where there is no true consent or where the promise s will is overborne so that the promise is not a genuine act of free will (Smith, 1995). The test for duress the property, the economic interest, or the person of a party is not whether the coerced party s action in entering the contract was involuntary or whether his consent was violated; it must be established that there was pressure that was so great that it effectively gave him no choice but to act as he did. However, pressure alone is not enough to establish duress. It must also be shown that the pressure exerted was illegitimate (Shariff, 2001). The Malaysian Contract Act of 1950 s position on coercion or duress in click wrap agreements is vague, but a general view or circumstances where coercion may happen is clarified in Ss 14, 15. The sections cite the case where an end user who intends to buy software has to accept the terms and conditions laid out by the supplier. By and large, a person who enters into a contract via the Internet and makes a click wrap contract is not under any kind of duress, coercion, or force to do so, according to the Malaysian Contract Act Ss14, 15. Consequently, this type of contract is enforceable

5 International Journal of Cyber Society and Education 51 according to the Malaysian Contract Act of 1950 since it is not void or voidable on the grounds of coercion or duress. POSITION OF THE USA The Uniform Commercial Code (UCC) is the main body of law that governs transactions involving goods. It was developed by the National Conference of Commissioners on Uniform State Laws and the American Law Institute, a non-profit legal research organization. A new act relating to e-commerce is the Uniform Computer Information Transactions Act (UCITA). This Act applies to computer-information transactions, defining such a transaction as "an agreement or the performance of it to create, modify, transfer, or license computer information or informational rights in computer information" (UCITA, 1999). The provisions of the UCITA that have effect in validating most shrink-wrap licenses and web contracts involve creation of a new category called "mass-market" transactions. Mass-market transactions are defined as being directed to the general public and having substantially the same conditions and information. According to Radin, Transactions come within this definition if they are at retail, whether the customer is a businessman or a consumer. The notion of consent is embodied in and metamorphosed into a concept of manifesting assent (Radin, 2000). Manifestation of assent can include breaking the shrink-wrap, clicking on a link, or using information. It certainly seems that the UCITA's definition of manifestation of assent stretches the ordinary concept of consent (contested as it was). That stretching starts with the substitution of the word "assent" for the word "consent" (Radin, 2000). Consent is one of the meanings of assent, but assent has connotations of acquiescence, of simple failure to remove oneself from a process; consent, on the other hand, has connotations of voluntary involvement in a process. Section 2B-112 of the UCC provides that a contract is not enforceable unless the consumer agrees or manifests assent (Harrison, 1998). Assent requires an opportunity to review an affirmative conduct, not mere retention without objection. According to the UCITA, sections 209 and 112, shrink-wrap and click-wrap agreements are generally enforceable (Robertson, 2003), as long as the agreements meet basic requirements regarding the users opportunity to review the terms and conditions and manifest their assent to be bound. According to a comment in the UCITA, an opportunity to review requires that the record be made available in a manner that ought to call it to the attention of a reasonable person and in a form that readily permits review (UCITA, 1999). Assent

6 International Journal of Cyber Society and Education 52 may be registered by a signature, a handshake, or a click of a computer mouse transmitted across the Internet. Formality is not a requisite; any sign, symbol or action, or even willful inaction, as long as it is unequivocally referable to the promise, may create a contract (Rowland & Campbell, 2002). The question is whether terms and conditions that are brought to the attention of the purchaser only after completion of the contract can be legally enforceable and whether a contract has been formed with coercion or under free consent. It is necessary to analyze the transaction by examining whether the necessary legal steps have been completed. For the formation of a contract, it is necessary to show there was an intention to create a legal relationship and consideration and that a valid offer and acceptance are in place. In a situation like click wrap, there will be both an intention to create a legal relationship and consideration, and a binding contract will have been created when the end user clicks on the agree button. UCITA specifically deals with these types of supply transactions in sections 201 to 207, which are concerned with the formation of a contract and which allow the terms of the contractual license to be incorporated into the supply contract. This legalization of post-payment disclosure of terms has been the subject of much criticism in the US, but legal safeguards are provided in the legislation since the US courts have already held that such contracts are enforceable with regard to section 209. CONCLUSION In the United States, any kind of electronic contract is as acceptable as ones that are done face to face. The click wrap agreement is accepted under both UCITA and UCC, and the courts are aware that click wrap contracts are enforceable since there is no coercion or unconscionability when the end-user enters into them, he or she is aware of the situations and terms surrounding the contract, and he or she has sufficient opportunity to read the conditions imposed before accepting them. Therefore, there is no relief or break of contract for any parties. In Malaysia, according to the Malaysian Contract Act 1950, click wrap agreements are acceptable and enforceable, even though there is no specific article that addresses them. Although the contract act can be applied, it is not sufficient for the end user who is creating this kind of contract via the Internet since all the processes are taking place in cyberspace. Consequently, it is time for Malaysia to revise the Contract Act of 1950 and the Electronic Commerce Act of 2006 to assure the end-users of a much more positive and clearer position when undertaking a click wrap contract. Malaysia can also follow the

7 International Journal of Cyber Society and Education 53 US by enacting a new act for electronic contracts specifically the click wrap agreements as the US reviewed the UCC and enacted the UCITA. The US s acts can be a good example and template for Malaysia to help and support its end users who enter into an electronic contracts. REFERENCES Contracts Act of Malaysia (1950). Electronic Commerce Act of Malaysia (1998). Section 6(1). Gautrais, V. (2003/2004). The Colour of E-consent. University of Ottawa Law & Technology Journal, 1(189), Harrison, Z. M. (1998). Just click here: Article 2B's failure to guarantee adequate manifestation of assent in click-wrap contracts. Fordham Intellectual Property, Media & Entertainment Law Journal, 8(907), 54. Kit-Way, L. (1998). Contract Law. London: Butterworths Asia. Koffman, L. & Macdonald, E. (2007). The Law of Contract. Chicago: Oxford university press. Nazura Abdul Manap (2008). Enforceability of database licensing agreement: A comparative study between Malaysia and the United States of America. Journal of Politics and Law, 1(3), 2. Nurre Tina Ahmad Shariff (2001). Contracts induced by threats: An overview. The Malaysian Law, 3(129), 6. O'Rourke, M.A. (2011). Copyright Preemption After the PROCD Case: A Market-Based Approach, Berekely Technology Law Journal,University of California. Retrieved March 9, 2010, form Radin, M. J. (2000). Humans, computers, and binding commitment. Retrieved April 5, 2010, form Reed, C.H. (2000). Internet Law: Text and Materials. London, Edinburgh: Butterworths, Dublin. Robertson, M. (2003). Note & Comments: Is assent still a prerequisite for contract formation in today's economy? Washington Law Review, 78(265), 3-7. Rowland, D., & Campbell, A. (2002). Supply of software, copyright and contract issues. International Journal of Law and Information Technology, 10(23), 8-9. Section 112Uniform Computer Information Transaction Act (1999). Singh, A. (1978). Contract Law of Malaysia. Malaysia: Quins Pte.Ltd. Smith, S. (1995). Atiyah s Introduction to the Law of Contracts. England: Oxford University Press. Uniform Computer Information Transactions Act (1999).

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