Electronic contracts (eContracts) are formed and signed electronically through e-mail or a computer program – no paper is involved. Although an eContract is typically formed with the click of an “I Agree” button or by entering one’s name into a signature box online, there is actually a complicated set of legal principles behind this relatively simple act.
Contract law basics
Since electronic contracts are nothing more than digital versions of paper contracts, the same laws govern both. The elements of a binding contract, whether electronic or on paper, include:
- Offer – The expression of a desire to enter into a contract that is beneficial to the parties involved
- Acceptance – Both accepting the terms of the offer
- Meeting of the minds – The parties’ mutual agreement to enter into the obligations of the contract
- Consideration – The items of value that are to be exchanged pursuant to the contract
- Capacity – The legal status of the persons entering into the contract
- Legality – the legal intent of each of the parties
- Writing requirement – an occasional obligation that a contract be in writing to be enforceable
Federal law allows parties to a business contract to elect to use paper contracts, and consumers must have the ability to opt-out of using eContracts. Before a consumer can consent to the formation of an eContract, a business must notify them that paper contracts are available. Should the consumer consent to eContracts and eSignatures, they can still revoke that consent and require that a paper document be sent to them.
How eSignatures impact contracts
Many documents are now sent, shared, and stored electronically, and the electronic signature (eSignature) has streamlined an otherwise cumbersome process by allowing the parties to an agreement to sign the document electronically. In the U.S., all states have enacted either the Uniform Electronic Transactions Act (UETA) or their own e-signature laws that determine the legality of electronic signatures and contracts. The combination of federal and state laws helps ensure that most eContracts and eSignatures are valid regardless of where the parties live or execute the contract, provided that the signature complies with the following requirements:
- Consent – the person signing must agree to provide an electronic signature, typically after certain disclosures regarding the signature have been made to them.
- Intent – Just as is the case with a physical signature, the person providing the eSignature must have the intent to sign the document.
- Record – An eSignature is required to be supplemented with some sort of record that indicates that the signature is an electronic and not a physical one.
- Integrity – Documents that have been electronically signed need to be kept secure from tampering, alteration, and data loss.
Some official documents require a “wet signature” and cannot be signed electronically. These include marriage contracts, adoption and divorce agreements, court orders and notices, contracts to buy and sell real estate, and wills and codicils. Nevada and Indiana are currently the only states in which wills can be signed electronically, although Florida and Arizona are considering such legislation.
Best practices for eSignatures
To avoid the risk that an eSignature won’t be considered valid, legal professionals need to take the following precautions:
- Create a secure signature site that uses user authentication to ensure the identity of the person signing.
- Establish an audit log to support the validity of the signature.
- Offer an easy way for the signer to download and save a copy of the document.
- Utilize third-party software that complies with disclosure regulations.
- Store the document in a secure storage site that prevents tampering with the signature itself.
Electronic contracts and electronic signatures can save the parties to an agreement a significant amount of time and are usually much more accessible than paper documents. They can also hold the same legal standing as documents signed with pen and ink, as long as the requirements and guidelines for usage are followed, and the executed documents are stored in a secure manner – on-premises, off-site, or in the cloud.
Do you know of other ways to optimize electronic contracts? Tell us about them in the comments!