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, Im 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, were 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.


 
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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.

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