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TECHNOLOGY
CONTRACTS

CERTIFICATE COURSE

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DEVELOPED BY

MODULE - 1

INTRODUCTION TO CONTRACTS LAW

1.1 INTRODUCTION implies the absence of free consent, and hence, such
a contract is rendered voidable at the option of the
The law of contracts, in India, is governed by the party who had not freely consented. Further, it is
Indian Contract Act, 1872 (“The Contract Act”). It imperative that parties have consensus ad idem, or
contains the general principles of contracts, meeting of the minds, that is, both parties share a
contracts of indemnity, guarantee, bailment and common understanding or mutually assent to be
agency, and is not an exhaustive code of legislation. enforced by terms and conditions of the contract.
The Contract Act is largely based on common law
principles of English court. This does not however A valid contract must have an offer/proposal and
mean that the Indian Contract Act can usually be acceptance. As per the Contract act, “when one
interpreted by using the English common law person signifies her/his willingness to do or to abstain
principles but is permissible only when the Indian from doing anything to another person, with a view to
contract law is silent about any issue or does not obtaining the assent of that other person to such act
provide adequate clarity in a situation, and thus or abstinence, s/he is said to make a proposal.”iv
cannot be understood without applying the English Conversely, “when the person to whom the proposal
common law principles.i is made signifies his/her assent, the proposal is said to
be accepted. A proposal, when accepted, becomes a
The Contract Act defines a contract as “an agreement promise.”v The communication of an acceptance is
which is enforceable by law”.ii Section 10 of the complete, as against the offeror, when the acceptor
Contract Act enlists the essential elements of a valid has put the acceptance in transmission to be sent to
contract. Parties must enter into a contract with ‘free the offeror, such that it is out of the power of the
consent’, meaning that parties must not have entered acceptor; and as against the acceptor, when the
the contract by mistake, coercion, undue influence, acceptor’s acceptance comes to the knowledge of the
fraud or misrepresentation.iii The presence of any one offeror.vi
of these elements in the formation of a contract

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A valid contract must have a valid consideration. sound mind for the purpose of making a contract, if, at
According to the Indian Contract Act, “when, at the the time when he makes it, he is capable of
desire of the promisor, the promisee or any other understanding it and of forming a rational judgment
person has done or abstained from doing, or does or as to its effect upon his interests.”xUnsoundness of
abstains from doing, or promises to do or to abstain mind could result from idiocy, lunacy or insanity and
from doing, something, such act or abstinence or drunkenness and similar factors. The Act provides
promise is called a consideration for the promise.” that a person who is usually of unsound mind, but
The above definition implies that Indian contract law occasionally of sound mind, may enter into a contract
allows consideration to flow from a third party, unlike when s/he is of sound mind, that is, the Act considers
the English law. The Indian law also recognizes past contracts entered into by usually unsound persons
and future considerations. A consideration, to be during their lucid intervals as validxi. Persons
valid, need not be adequate but it should be real. disqualified from entering into a contract include
However, it is pertinent to note that an inadequate alien enemies, accredited representatives of foreign
consideration is an adverse inference in cases where sovereign, convicts et cetera.
undue influence or coercion is alleged. An agreement
without a valid consideration is considered void, A valid contract under the Indian contract act must
except when the agreement is made between near have a lawful objectxii, in the absence of which the
relatives out of natural love and affection; when it is contract is considered void. A contract is said to have
an agreement for compensation of voluntary unlawful object “if it is forbidden by law; is of such a
services; or when it is a promise to pay a time barred nature that, if permitted, it would defeat the
debt provided it is signed by the debtor or his provisions of any law; or is fraudulent; or involves or
authorized signatory.vii implies, injury to the person or property of another;
or the Court regards it as immoral, or opposed to
Parties must be competent to enter into a contract. public policy.”xiii
That is, parties must have attained the age of
majority, is of sound mind, and is not otherwise not There must be an intention to create a legal
disqualified from entering into a contract.viii In Mohiri obligation for a contract to be considered valid under
Bibi v. Dharmodas Ghoseix, the court held that a the Indian Contract Act. A seminal case about the
contract entered into a by a minor is void ab initio. matter is Balfour v. Balfourxiv. The defendant husband
The Contract Act states that “a person is said to be of who was employed in Ceylon, went for a vacation

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with the plaintiff wife to London, where the wife fell place when a party fails to fulfil its promise or
sick and was unable to return to Ceylon with her obligations under the contract, either on the specified
husband. Subsequently, the husband promised the date of performance (actual breach), or before the
wife a maintenance of 30 pounds every month. When time agreed for performance (anticipatory breach). In
the husband failed to stand by this promise after their the event of a breach of a contract, the party injured
relationship turned sour, the wife sued the husband can claim damages for compensation or loss suffered
for restitution. The court held that there was no valid as a result of the breach, from the other party.
contract between the husband and wife as there was
no intention to create a legal obligation by the The Indian Contract Act does not expressly mention
defendant. Hence, the husband was not obligated to about software contracts or information technology
pay for the wife’s maintenance. contracts. However, it does not contract the validity
of such agreements per se. Since section 10 of the Act
The Contract Act explicitly declares certain contracts reads that, “All agreements are contracts if they are
to be void. They are agreements without made by the free consent of parties competent to
considerationxv, agreements in restraint of contract, for a lawful consideration and with a lawful
marriagexvi, agreements in restraint of tradexvii, object, and are not hereby expressly declared to be
agreements in restraint of legal proceedingsxviii, void. Nothing herein contained shall affect any law in
agreements whose meaning is uncertainxix, force in India, and not hereby expressly repealed, by
agreements to do an impossible actxx, and which any contract is required to be made in writing
agreements by way of wagerxxi. or in the presence of witnesses, or any law relating to
the registration of documents”xxv, it can be inferred
Parties to a contract are obliged to perform their that an electronic contract, or an information
obligations under the contractxxii, except when the technology contract, can be considered lawful as long
contract has been rescinded, altered, or a new as it possesses the requisite elements for validity as
contract has been substituted for the old contract.xxiii per section 10. Courts of law across jurisdictions
Obligations under a contract may be discharged by have, time and again, observed that general principles
parties, either by performance of the contract, by of contract law apply to all forms of contract. This
mutual agreement, by impossibility of implies, that contracts entered into via the computer,
performancexxiv, by lapse of time, by operation of law, or technology contracts, are also governed by the
or by breach of contract. Breach of a contract takes

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standard laws of contract. Technology contracts have document on a webpage, and often eludes the eyes of
been discussed in detail in the following chapters. regular customers. This is especially true in cases of
technology contracts like clickwrap, browse wrap or
1.2 TECHNOLOGY CONTRACTS AND THEIR end user license agreements. Another major concern
TYPES is intellectual property infringement. Most software
licensors retain their intellectual property rights in
With the advent of technology, and its growing the software and only licenses the software to users
prevalence and influence in our daily lives, it is only for using the software as per the terms and conditions
natural that information technology contracts are a laid down in the software license agreement. Further,
rapidly developing sector in the field of contracts. proprietary licensors generally do not allow creating
Variably called software contracts or electronic any derivative works using the licensed software.
contracts, technology contracts are legally However, most of the times, users exceed their usage
enforceable agreements between a software rights in the software, by unauthorized use or
developer or vendor, and an user of the software. A redistribution, in clear violation of the software
technology agreement is usually entered into by an licensing terms. Also, technology contracts are often
user by clicking on an “I agree” or “I accept” icon, held unenforceable due to their automated nature
which indicates their consent to be bound by such and are considered as adhesion contracts where the
contracts. software developer is in a superior bargaining
position and the users are not presented with any
One of the most important concerns regarding opportunity to negotiate the terms of such
technology contracts is their enforceability. Although agreements, which tantamount to unconscionability.
information technology contracts are treated as Issues plaguing the various types of software,
regular contracts across jurisdictions, their unique including the aforementioned concerns, have been
nature poses certain enforcement issues. Users tend discussed in the following chapters.
to circumvent obligations or exceed the rights
afforded by these contracts, on grounds that they Most common types of information technology
were not adequately aware of the terms and agreements include software development
conditions of the electronic contract, since they were agreements, software licenses, software
buried deep within the e-contract, which is presented maintenance and support agreements, open source
as an inconspicuous hyperlink or a scrollable

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software licenses, cloud computing agreements, agreements, e-commerce agreements, among
information technology outsourcing agreements, various others. Some of these agreements have been
click-wrap agreements, browse-wrap agreements, dealt with in detail in the following chapters.
shrink-wrap agreements, end user license

iWest Bengal v. M/s B.K. Mondal and Sons, [1962] 1 supp xiii ibid
SCR 876 (India) xiv [(1919) 2 KB 571]
ii S. 2(h), The Indian Contract Act, 1872 xv S. 25, The Indian Contract Act, 1872
iii ibid at s.14 xvi ibid at s. 26
iv S. 2(a), The Indian Contract Act, 1872 xvii ibid at s. 27
v ibid at s.2(b) xviii ibid at s. 28
vi ibid at s.4 xix ibid at s. 29
vii ibid at s.25 xx ibid at s. 56
viii ibid at s.11 xxi ibid at s. 30
ix [(1903) 30 I.A. 114 (P.C.)] xxii ibid at s. 37
x S.12, The Indian Contract Act, 1872 xxiii ibid at s. 62
xi ibid xxiv ibid at s.56
xii S. 23, The Indian Contract Act, 1872 xxv bid at s.10

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