Online Contracts and Electronic Signatures

Contracts established online are as legal as those created on paper when electronic signatures are utilized.

Every day, thousands of business transactions take place over the Internet with no face-to-face connection between the parties involved. Electronic transactions include purchasing insurance, signing real estate contracts, utilizing credit cards, and entering into financial agreements, to name a few.

Despite the widespread use of electronic transactions, many individuals are confused if electronic signatures (e-signatures) and electronic contracts (e-contracts) are safe, valid, and legal. The good news is that e-contracts and e-signatures are, for the most part, safe and trustworthy methods of doing business for both enterprises and consumers. However, parties to e-contracts and e-signatures need to take specific precautions to guarantee that their agreements are legal

Electronic Transactions Laws at the Federal and State Level

The Electronic Signatures in Global and National Commerce Act (ESIGN), passed by Congress in 2000, rendered most e-contracts and e-signatures as valid and enforceable as traditional paper-and-ink contracts and signatures.

All states have either adopted the Uniform Electronic Transactions Act (UETA) or their own e-signature legislation that establishes the legal validity of electronic signatures and contracts in the same way that the federal law does (ESIGN). Most e-contracts and e-signatures are legitimate regardless of where the parties live or execute the contract, thanks to a mix of federal and state rules.

What Is an Electronic Contract?

An e-contract is a contract that is created and "signed" electronically rather than on paper. A contract that you draft on your computer and email to a business associate, who then responds with an electronic signature signifying acceptance, is one example.

A "click to agree" contract, which is typically included with downloaded software, is another type of e-contract: Before completing the transaction, the user must click a "I agree" button on a page showing the software license terms.

Making an online purchase also entails an e-contract. Even if the buyer does not sign anything, he or she agrees to pay the seller a set sum in exchange for the seller's commitment to provide a product.

What Is an Electronic Signature?

A digital file or symbol—such as a scanned pen-and-ink signature or a typed name—that someone attaches to or places on a contract or file to demonstrate that person's desire to sign the contract or file is known as an e-signature.

People e-sign documents in a variety of ways, including typing the signer's name into the signature area, pasting a scanned version of the signer's signature into the signature area, clicking a "I accept" button, or utilizing cryptographic "scrambling" technology.

Some of these methods of electronic signature are more secure than others. Most people use the term "electronic signature" to refer to all types of e-signatures, including those that are untrustworthy. The signer's name typed into the signature space and a scan of the signer's pen-and-ink signature are two insecure signature methods. Although these formats are still legally binding, they virtually eliminate any possibility of verifying that the person who signed the document is the person you wanted to sign it with.

Digital signatures, on the other hand, are more advanced and secure electronic signatures. To authenticate the signer, they use digital identification. The signature is then encrypted and electronically attached to the paper. To produce a digital signature, you don't need to be a computer expert—software tools like DocuSign, HelloSign, Adobe, Eversign and SignNow make drafting and e-signing e-contracts simple and economical.

Requirements for E-Signatures and E-Contracts

Individuals and corporations must take particular steps to make e-contracts and signatures legal and enforceable under ESIGN, UETA, and most state laws. The following are common examples of these procedures, but you should check all applicable legislation for any extra or unusual requirements.

• Obtain signers' permission. Signers must express their willingness to use an e-contract or e-signing. Signers can usually demonstrate their agreement in an email or by simply e-signing an emailed contract. However, the law may demand an explicit consent to conduct business electronically in particular cases.
  
• Make sure signers understand what their signature represents. When signing a document, signers are meant to receive a clear indication that they are willing to be bound by its provisions. They must clearly declare that they are not signing to signal that they have only received or studied the document.
  
• Allow signers to choose from a variety of possibilities. Although e-signature regulations have rendered paper obsolete in many cases, some consumers and businesses may still prefer to utilize it. Most e-signature regulations stipulate that anyone who prefers to use paper can opt out of e-contracts.
  
• Notify signers that they have the option to withdraw their consent. Signers should be told that they can opt out of using e-signatures or e-contracts at any time. They also require an explanation of the withdrawal of consent method.
  
• Make duplicates of the papers. The party who drafts the contract is responsible for keeping electronic or paper copies of the signed documents and either providing copies to the other party or informing the other party how to obtain copies.
  

    
Businesses and individuals who frequently use e-contracts should check their electronic practices and disclosures with a knowledgeable attorney to ensure that they are complying with the relevant law.

Government Filing

The Government Paperwork Elimination Act (GPEA) regulates citizen-federal government interactions. The GPEA mandates and incentivizes the federal government to make electronic copies of its forms available on the internet. Many government consumer transactions, such as paying taxes and registering trademarks, can now be completed entirely online. Most state governments have followed the federal government's lead and now allow customers to electronically file and sign documents related to company and automobile registration.


Contracts that must be written down

Under ESIGN, not all contracts can be executed electronically. To put it another way, certain contracts require traditional paper and ink signatures. The following items are specifically excluded by ESIGN:

• wills, codicils, and testamentary trusts
  
• documents relating to adoption, divorce, and other family law matters
  
• court orders, notices, and other court documents like pleadings and motions
  
• notices of cancellation or termination of utility services
  
• notices of default, repossession, foreclosure, or eviction
  
• notices of cancellation or termination of health or life insurance benefits
  
• product recall notices affecting health or safety
  
• documents required by law to accompany the transportation of hazardous materials.
  

Despite the fact that ESIGN prohibits e-signatures for some papers, some state laws may allow them in specific circumstances. Many courts, for example, accept e-signing of pleadings and motions if the parties follow certain court procedures. Also, the e-contract exclusions in ESIGN are subject to change—ESIGN allows federal regulatory agencies to allow e-signatures if they determine that the relevant exclusion is no longer necessary for consumer protection and that eliminating the exception would not increase the risk of harm to consumers.

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