Is it legal to sign contracts electronically?
That’s a question that comes up a lot. The short answer is “yes.”
Digital contracts or electronic signing has been going on for quite a while. Of course, you are by now familiar with signing the credit card display at the grocery store. And you pay for gas by just swiping your card at the pump. And it is pretty hard to avoid the “buy now” button when shopping online. Electronic transactions are very common today.
So what about your business? What should you know about signing contracts electronically?
The requirements for making digital contracts legal are minimal. You only need two things: (1) the terms of agreement; and (2) acceptance by both parties. The acceptance can be in the form of an email exchange, a checkbox, a scanned image, a mouse click, typing a name, or tapping the screen. Almost any computer device or online action can be used to form a contract.
What makes it legal?
Electronic contracts were perhaps always legal as long as two parties agreed on specific terms and confirmed their acceptance. But to remove any doubt about the validity of electronic contracts, Congress passed the Electronic Signatures in Global and International Commerce Act in 2000. Contracts signed online have the same effect as contracts signed with ink on paper.
Of course, you do not have to accept an electronic contract if you prefer to have the agreement documented with ink and paper. And, for sales to “consumers“, the e-signature law requires that the vendor disclose: (1) whether a paper copy is available and any fees for such copy; (2) any right to withdraw electronic consent or terminate the contract; and (3) any technology required for access or retention of electronic records.
The Old Fashioned Way
Despite broad legislation validating electronic contracts, there are still some exceptions. Documents that must still be created on paper and signed by hand include:
- wills, codicils, or testamentary trusts;
- documents for adoption, divorce, or other matters of family law;
- contracts governed by the Uniform Commercial Code (other than Secs 1–107 and 1–206 and Articles 2 and 2A);
- court orders, notices, and other court documents;
- notices of cancellation or termination of utility services;
- notices of default, acceleration, repossession, foreclosure, or eviction relating to a person’s primary residence;
- cancellation or termination of health insurance, life insurance or related benefits;
- product recall notices that affect health or safety; and
- documents required to accompany the transportation or handling of hazardous materials.
E-Signature vs. Digital Signature
There is a difference between an electronic signature and a digital signature. The former is any method of signing an electronic contract, while the latter typically refers to some method of encrypting the document or signature in a way that technologically verifies the authenticity of the signer.
Really, the bar for electronic signing is quite low. Almost anything will do, as long as it is clear what the parties are signing and they actually signed it. However, proving the specific terms of an electronic contract or that the contract was actually signed may be difficult after the fact. To avoid having electronic contracts tampered with or modified, the document can be encrypted or authenticated by a third party service provider. Popular e-signature applications include Docusign, Echosign, RightSignature, e-SignLive, HelloSign, CoSign and Digital Ink.
Roger Glovsky is a business lawyer who believes legal documents should be accessible, affordable and comprehensible. As author of ContractsGuru.com, Roger coaches business owners how to draft and negotiate their own contracts through workshops, teleseminars and online programs. As founder of LEXpertise.com, he plans to make it easier for business owners to find the right legal documents when they need them. Originally from Massachusetts, he now lives in Boulder, Colorado.