Insurance · 9 October 2017

How to ensure your electronic contracts are legally binding

Man using laptop computer
There are a few hidden dangers when it comes to signing contracts electronically

Agreeing contracts electronically can be a risky business if you don’t get the right process in place. Here, Grid Law founder David Walker advises readers how to ensure electronic contracts are safe and secure.

It seems to me that there’s less and less formality in all aspects of business these days. In most cases, I’m all for this (for example, I can’t remember the last time I wore a suit and tie to the office).

However, aided by advances in technology, this informality is creeping into the world of contract law, and this can cause problems if you’re not careful. The issue I want to look at in this article is the process of agreeing contracts electronically.

Very few of my clients print and sign paper contracts these days. Instead, they rely on a range of electronic methods to form agreements.

Some will type their name into a Word document or copy and paste a scanned version of their handwritten signature into it. Others will simply exchange emails, texts or use some other form of messenger app to record what they have agreed.

There’s no doubt that this has its advantages, particularly when it comes to speed and convenience, but what about the risks? What hidden dangers should business owners be guarding against when it comes to signing contracts electronically?

For the purposes of this article, we’re going to think about this in the context of everyday contracts that businesses are likely to encounter. Contracts like standard terms and conditions, rather than a lease or an assignment of intellectual property rights.

Before we think about the risks specifically associated with signing agreement electronically, we need to go back to basic principles and make sure we have all the constituent parts to form a legally binding contract.

This means that there must be an offer, acceptance of that offer and consideration (some sort of payment or exchange of value). Both parties must also be clear about the terms they have agreed and must intend to be bound by the contract.

If any of these elements are missing, there won’t be a legally binding contract that you can rely on or enforce. When it comes to electronic agreements, offer, acceptance and consideration rarely cause any problems. In my experience, it’s the final two criteria that lead to the most difficulties.

Typically, if an agreement is reached by way of an exchange of emails, and even more so by way of text or messenger, the contract will be very short and therefore light on details.

For anything other than the simplest contracts, if they’re lacking in detail then there may not be sufficient certainty and clarity over the terms agreed. This can mean that they’re not legally binding.

Often, you will find that the exchange of emails or texts just confirm the main points that were agreed in an earlier discussion. Then, you have a contract that is part written and part verbal.

These contacts can be legally binding (as I explained in my previous article: Does a handshake form a legally binding contract?), but they can lead to confusion later.

I normally find that troubles start when the relationship breaks down. This is when you find that the parties have different recollections of events or understanding of what they have agreed.

When you look back and try to find evidence of what was agreed, another problem arises. Often, texts and other messages are automatically deleted after 30 days and then any evidence of what was agreed is lost.

Assuming, there is sufficient certainty to form a contract, let’s look at the risks associated with signing electronic contracts.

There are proper electronic signature platforms, such as DocuSign or Adobe Sign, which eliminate many of the potential problems and these are becoming more popular. However, it tends to be larger businesses that use them, rather than small or micro businesses.

Many of the electronic contracts I see simply have a name typed onto a contract, or a scanned copy of a signature inserted into the document. So, is this legal? Is this enough to bind someone to a contract? The short answer is yes, it is.

The issue here is the intention to be bound by the contract. If both parties hand sign the same written contract, it’s absolutely clear that they intend to be bound by it. However, I once had to resolve a dispute where someone authorised his assistant to insert a scan of his signature into a contract.

The problem was that she “signed” the wrong version. She inserted the signature into an earlier version of the contract which didn’t contain some agreed amendments.

Nobody realised this until a dispute broke out between the parties and the party who had authorised his assistant to sign claimed that he had no intention of being bound by that particular version of the contract. As you can imagine, it all got very messy!

So, what should you be doing to ensure that your electronic contracts are legally binding and signing problems are avoided?

First, make sure that all of the elements of a legally binding contract are present. As much as you want to make reaching an agreement quick and easy, you must ensure there’s sufficient clarity of the terms you have agreed. This means you should probably avoid texts and messenger apps for agreeing electronic contracts.

When it comes to actually signing the contract, make sure you are absolutely clear about what you are signing and then sign it yourself.

Either type your name onto the contract yourself or insert a scan of your signature. Then, there’s absolutely no doubt that you intend to be bound by it.

If you have any questions about contract law, either how to prepare contracts or how to resolve any disputes arising from them, please feel free to email me at editors@businessadvice.co.uk and I’ll happily answer them for you.

How to value a claim for a breach of contract

Sign up to our newsletter to get the latest from Business Advice.


 
TAGS:

ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

Q&A

If you’ve found the article above useful, but have a more detailed and bespoke question, then please feel free to submit a query to our expert. We at Business Advice will get in contact with them on your behalf and arrange for a personalised response. These questions and answers will then be collated on the site for any other readers who have similar queries.

Ask a question

From the top