Technology has become an integral part of our lives and is here to stay. With emerging innovations like artificial intelligence (AI), ‘the internet of things’, robotics and augmented and virtual reality inside our homes, workplaces, transportation facilities, financial/business transactions, education, and leisure, etc., we cannot afford to ignore the ‘new normal’. This ‘new normal’ has also inevitably changed the dynamics in contractual relationships and contract drafting.
This brief article examines the advancement of technology in commerce and why as a retailer, you need to understand the law on the capacity to contract in Uganda.
Uganda’s growing technology and wide use of the internet in its elite society is rapidly shifting the traditional commercial dynamics. Our middle-class economy now considers it prudent and standard practice for a business to have a vibrant online presence for various purposes ranging from convenience to operate, to growing a massive online presence with potential customers/clients. It is a fact that many SMEs embraced online marketing after the Covid-19 lockdown as an auxiliary way of operation. Most of these businesses reached out to a population of ‘minors’ (legally under the age of 18), and many of these potential customers made several purchases, window-shopping, business enterprises, etc. While traditional businesses operated remotely, some businesses, however, became wholly online based. This is now the future of e-commerce.
Different legislations regulate e-commerce differently.
Uganda, for instance, is yet to create explicit regulations to regulate e-commercial trading. However, presently, traditional laws such as the Contracts Act, Sale of goods and supply of Services Act, Electronic Transactions Act, Electronic Signatures Act and Data Protection and Privacy Act, et al, regulate the e-commerce platform.
Why e-commerce and why the need to beware when entering e-contracts?
E-commerce is the selling and buying of goods and services over an electronic network. These transactions occur either as business-to-business, business-to-consumer, or consumer-to-consumer. The latest available estimates released by the UN’s trade and development body, UNCTAD, show that e-commerce sales hit $25.6 trillion globally in 2018. It is a large global market with enormous growth potential. This potential also means improving and transforming to e-contracts to create contractual and business relationships. The age groups in such e-relationships in Uganda’s online economy have spiked and created the need to understand certain obligations when dealing with e-contracts.
E-contracts are like traditional business contracts. The main distinguishing factor between e-contracts and traditional contracts is that parties commit to their obligations through a digital mode of communication in the former contracts as opposed to the latter contracts. The most common means of concluding electronic contracts include via e-mails, exchange of messages via social interaction platforms such as (WhatsApp, Twitter, Facebook), phone calls, or a click on the website having terms and conditions.
Contracts, whether electronic or traditional, all conform to similar legal standards of validity and formality to create legally binding obligations. One of the fundamental requirements for a valid contract is that the parties must have the contracting capacity as established by law. In Uganda’s spheres, Section 14 of the Electronic Transactions Act provides that a contract shall not be denied legal effect merely because it was wholly or partly concluded by means of a data message. This, therefore, gives electronic contracts equal legal effect as other contracts. The Act further provides that a contract by means of a data message is concluded at the time when and where acceptance of the offer is received by the person making an offer.
The Challenge with E-Commerce, E-Contracts, and Minors
Section 11 of Contracts Act 2010 provides that a person has the capacity to contract where that person is (i) eighteen years or above, (ii) of sound mind, and (iii) not disqualified from contracting by any law to which he or she is subject. According to UNICEF, it is estimated that one-third of internet users are children. With minimal safeguards and age confirmatory tests on various websites, apps, and social platforms, it can be said that minors are entering into contracts daily. While the law regards minors as contractually incompetent, save for exceptional circumstances, online retailers are in constant engagement with them (probably unknowingly) through their platforms to conclude business contracts.
Prof. Juanda Lowder Daniel of the University of La Verne, San Bernardino, California noted that it should be apparent that the minors of today are not the same wide-eyed, unsophisticated tots imagined by crafters of the minority incapacity doctrine. Over forty years ago, a scholar noted; “The minor has long remained a special charge of the law. But in our fast-moving and rapidly changing society, the ancient time-worn cloak of protection thrown over him has long since lost its real need for a useful purpose. The technologically oriented and knowledgeably mature youth of our hectic age is not at all comparable to the minor of even five or six decades ago who needed the solicitous attention and protection the law so thoughtfully afforded him.” This situation is alive to Uganda’s internet usage and commercial transactions today.
Despite the increased sophistication of minors in engaging in electronic transactions, they continue to enjoy significant legislative protection. The objective of the capacity doctrine in contracts is to protect the minor against his inexperience and to disenable an adult from taking unfair advantage of him or her to enter the contract which in itself is unfair. It also protects adults who deal fairly with minors thus avoiding unnecessary hardship to the adults. In the advent of e-commerce where there is no physical interaction to ascertain the age of the customer, the online retailer deserves equal protection to guard against unjust enrichment.
There’s a general rule in contracts law that says a contract made by a minor is voidable at his or her option. Certain contracts are voidable in the sense that they are valid and binding on him unless he or she repudiates them before or within a reasonable time after attaining majority age. Other contracts are voidable in that they are not binding on the minor unless ratified by him or her when he or she attains majority age. The law, however, imposes an obligation on a minor to pay for ‘necessaries’ that have been supplied to him. ‘Necessaries’ are defined as goods or services suitable to the condition in life of such an infant and to his or her actual requirements at the time of the sale and delivery. Whether goods amount to ‘necessaries’ is a question of mixed law and fact. The onus of proving that the goods supplied are capable of being ‘necessaries’ lies on the supplier. ‘Necessaries’ include food, clothes, lodging, etc.
A contract will be fully enforceable by and against the minor who has entered into the contract with his parent or guardian, or where his parent or guardian acted on his behalf. It is noteworthy that where the minor enters into a contract with the assistance of his parent or guardian, the parent or guardian will not be personally liable towards the other party. It is therefore important to examine the intentions of the parties at the time of agreeing to determine who will be liable.
So, why the need for vigilance on e-contracts with minors?
Online retailers must determine who will be liable for the goods supplied or services rendered where the minor is assisted by a parent or guardian or even ascertain the age of the client prior to the agreement. If the minor has no money or property, the parents or guardians cannot be forced to pay and the other party will get nothing if the minor is unable to fulfill his or her side of the agreement.
For example, if an order reaches Jumia for 5 mini-crates of Guinness via its Jumia App and upon delivery, the order is received and the beer is consumed by a group of friends. Upon inquiry, the deliveryman realizes that the order was made by a minor aged 14 years who is now unable to pay for the goods delivered. In law and under such circumstances, the parent(s) or guardian is not personally accountable towards Jumia for the e-contract between the retailer and their son/daughter. Bearing in mind that a minor has no legal capacity to contract for items that fall outside the scope of ‘necessaries’, the retailer makes a loss in this transaction. This is a very likely scenario since most online retailers have no measures to ascertain their clients’ capacity/age to contract or subject them to standard terms that may form a basis for a claim.
In the case of Marshall v National Wool Industries Ltd, a boy and his father each bought shares in a company. His father was present during the conclusion of the agreement and he was aware that the shares were being bought by his son. The boy however could not pay the full amount of purchase of shares and an action was brought against him as a result. He relied on his minority as a defense as he was a minor when the contract was concluded. The company withdrew the action against him and brought an action against his father instead. The appellate court held that the father was not liable for the contract entered into by his son purely because he was present and consented to the contract. It was stated that the intention was for the contract to be concluded between the company and the minor son individually and not as an agent of the father. This case illustrates that the parent/guardian is not always bound by the minor’s contract merely because he or she is aware of it.
What should a retailer consider when entering an e-contract?
- Find out the contractual capacity (age) of the person making an order. Many Apps have different provisions to prove that an order has come from a human and one within a certain age group. These options allow the retailer to rely on when claiming their payment. A minor cannot easily deny their obligation to pay when he/she represented himself/herself as an adult online.
There are differing legal positions on a minor’s liability in misrepresentation cases; however, the case of Wisconsin Loan & Finance Corp. v Goodnough, created a good precedent. Court, in this case, enforced the minor’s transaction with the plaintiff, holding that a minor can be held on a tort liability for misrepresentation and deceit. This position is more sound, equitable and there is less opportunity to afford the infant to defraud innocent merchants.
- Choose brief, direct, and clear words when entering a contract with an online customer. If the words are easy for a minor to understand, it is easy to establish they understood what they were entering into. In other words, the contract must be clear, precise, and unambiguous.
- The contract should identify the duties, responsibilities, and rights of the parties to the contract.
- Ensure due diligence on the identity of the online customer. (See 1 above)
- Ensure the online customer is acting independently. If it is an e-contract for goods or services to be consumed by a minor, ensure the customer is acting with consent or full knowledge. We cannot over-emphasize this.
- Immediately after providing the identity of the customer and the goods or services to be supplied, state the terms and conditions and create a provision where the customer agrees to the terms and conditions before they click ‘submit’. Common online pages have the ‘I agree’ button; use it.
E-commerce is a fast-growing mode of conducting business, and the unprecedented commercial and legal challenges should encourage online users and businesspersons to cope up accordingly. As precautionary measures to ensure the legality of one’s trade online, the due diligence on e-contracts must surpass traditional contracts and online retailers have the first and major obligation to secure their businesses as with traditional businesses.