As businesses embrace the efficiency and convenience of the digital world, electronic contracts, or e-contracts, have swiftly replaced their traditional paper-based counterparts.
But here's the burning question: Are electronic contracts legally binding?
The answer is a resounding yes! In fact, governments worldwide are recognizing the validity and enforceability of e-contracts, taking significant steps to integrate them into their legal systems.
Take, for instance, the recent announcement by Minister of Communication Technologies, Nizar Ben Néji, who unveiled an electronic signature service for contracts related to vehicle sales and purchases in Tunisia.
However, it’s crucial to understand the fundamental principles and best practices that ensure their legally binding nature. That’s exactly what we’re going to cover in this blog post!
What are e-contracts?
E-contracts, or electronic contracts, refer to agreements formed and executed electronically, without the need for physical documentation or traditional paper-based signatures.
These contracts are created and exchanged in digital formats, typically through electronic means such as emails, online forms, or electronic signatures.
Key elements of a legally binding contract
For an e-contract to be considered legally binding, it must contain certain essential elements that are universally recognized under contract law. These key elements include:
#1 Offer and acceptance
An e-contract must involve a clear offer from one party and an unequivocal acceptance of that offer by the other party. The terms of the offer and acceptance should be specific, definite, and communicated in a manner that both parties understand and agree upon.
It’s also important to clearly identify all parties involved in the e-contract, including their legal names and relevant contact information.
In cases where a party represents an organization or entity, ensure that the individual has the proper authority to bind the organization to the e-contract. This may require verifying their position, reviewing internal bylaws or policies, or obtaining explicit authorization.
#2 Mutual consent
Mutual consent, also known as a "meeting of the minds," is fundamental to the validity of a contract. It means that both parties willingly and knowingly enter into the agreement, understanding the rights and obligations outlined within it.
In the context of e-contracts, consent can be established through explicit actions such as clicking an "I agree" button or by electronic signatures.
#3 Consideration
Consideration refers to something of value exchanged between the parties as part of the contract. It can take the form of money, goods, services, or promises to perform certain actions. For an e-contract to be legally binding, both parties must provide consideration, indicating that they are each receiving something of value in return.
Unconscionable contracts, where one party significantly benefits at the expense of the other, may be challenged in court. It is important to maintain fairness and balance in the contractual obligations and benefits.
#4 Legal purpose
An e-contract must have a lawful purpose and cannot be used for illegal or fraudulent activities. The agreement should comply with the laws and regulations governing the relevant jurisdiction. If an e-contract involves illegal actions or goes against public policy, it will likely be deemed unenforceable.
#5 Capacity to contract
Both parties involved in an e-contract must have the legal capacity to enter into a contract. This means they must be of legal age, mentally competent, and not under any duress or undue influence. Some contracts, such as those involving minors or individuals with limited mental capacity, may require additional considerations or legal safeguards.
#6 Intention to create legal relations
An e-contract should demonstrate an intention to create legally binding relations between the parties involved. This intention is typically presumed in commercial transactions, but it may require explicit language or circumstances in other types of agreements.
To make sure your electronic contract is legally binding, include language that indicates the parties' intention to be legally bound by the terms and conditions. This can be expressed explicitly or implied through the nature and context of the agreement.
A clear statement of intent to create legal relations helps establish the enforceability of the e-contract.
Both parties must also understand the distinction between legally binding and non-binding agreements. Non-binding agreements, such as letters of intent or memoranda of understanding, may not carry the same legal weight as e-contracts. Clearly express the intent to create a legally binding relationship within the e-contract itself.
#7 Contract laws and regulations
The e-contract must comply with the contract laws and regulations applicable to the relevant jurisdiction. Different jurisdictions may have specific requirements regarding contract formation, electronic signatures, consumer protection, or industry-specific regulations. Familiarize yourself with these legal requirements to ensure compliance.
If your business operates within a specific industry, be aware of any industry-specific legal requirements that may affect the formation and enforceability of e-contracts. For example, healthcare, finance, and intellectual property industries may have additional regulations or standards that need to be considered.
Also read: How to Convince Clients to Sign Contracts Electronically
4 Best practices to ensure legally binding e-contracts
You need to that your e-contracts are enforceable and valid. For that, there are key considerations and practices you need to adopt and implement them religiously.
#1 Ensure clear and precise contract language to avoid confusion
Nobody wants their e-contracts to be confusing. So, the key is to keep things crystal clear. Avoid using complex legal jargon that sounds like it came straight out of a Shakespearean play.
“Unless you are preparing a resume to work at the summer Shakespeare festival, lose the “Olde English” and Latin phrasing when drafting a contract. While not always possible, try to write a contract like a normal person would write something. Avoid unnecessary complexity and shoot for short sentences.”
~ Sterling Miller, CEO of Hilgers Graben PLLC
Ten Things: Making Contracts Easier to Sign
Instead, opt for language that even your grandma can understand. After all, if your contract resembles a cryptic puzzle, it's bound to cause disputes and make it harder to enforce.
Clearly define any technical or industry-specific terms used in the contract. Consider adding a glossary to provide definitions for any specialized vocabulary. Also, leave no room for ambiguity or vagueness. Use precise language to clearly outline rights, obligations, and responsibilities. Provide specific details, such as dates, quantities, and requirements, to avoid any confusion down the road. The more specific you are, the better.
Finally, don’t forget to proofread and edit your contract thoroughly.
Interestingly, SpotDraft’s integration with MS Word now makes redlining more productive by providing robust editing features alongside powerful security layers and automated review functionalities to ensure that legal teams complete contracts faster and worry less about contractual risks.
Also read: 4 Basic Contract Terms & Conditions
#2 Create a robust contract formation process for foolproof contracts
You don't want your contracts to be as flimsy as a house of cards, right? That's why it's crucial to establish a rock-solid contract creation process.
Incorporate consent mechanisms such as electronic signatures, which provide a reliable method to demonstrate agreement and intent.
“We can and should do better by the business with contracts. If you agree with me that the highest and best value the legal department can provide is getting good contracts done faster, then in-house lawyers are likely not devoting enough time to making their contracts easier to sign.”
Sterling Miller, CEO & Senior Counsel, Hilgers Graben PLLC
Ten Things: Making Contracts Easier to Sign
SpotDraft supports secure electronic signatures, streamlining the contract creation process and ensuring compliance with e-signature laws.
It’s also important to retain evidence of the contract formation process. SpotDraft automatically generates an audit trail that captures the entire contract lifecycle, including changes, approvals, and signatures, providing a comprehensive record of the contract formation process.
Also read: Everything You Need To Know About Contract Creation
#3 Implement authentication and non-repudiation measures for integrity
First up, authentication measures are your secret weapon. Make sure those signing parties are who they say they are!
This includes ensuring that the identities of the signing parties are verified and using secure authentication methods.
Now, let's talk about non-repudiation. Non-repudiation is crucial in establishing that a party cannot deny their involvement or agreement with the contract.
SpotDraft also offers robust security features and uses advanced encryption protocols to protect the confidentiality and integrity of your e-contracts.
Also read: Contract Security: Hacks and tips for safeguarding your contracts
#4 Stay updated with e-signature laws and regulations and ensure compliance
Familiarize yourself with e-signature laws and regulations applicable to your jurisdiction to ensure compliance.
When it comes to e-signatures, different countries and regions may have specific requirements and guidelines. Some jurisdictions might have comprehensive legislation in place, while others may follow international standards or have specific industry regulations.
Start by digging into the statutes and regulations governing e-signatures in your jurisdiction. Look out for laws such as the Electronic Signatures in Global and National Commerce Act (ESIGN) in the United States, the eIDAS Regulation in the European Union, or similar legislation in your own country.
“Also, take inputs from legal heads of various jurisdictions. The more you talk to them, the better you understand changing laws and regulations.”
~ Bhavna Singh, GC & DPO, Subex Limited
Elevating Legal: Fostering Transparency and Accountability in Large Tech Enterprises
Pay attention to key aspects such as the types of e-signatures that are acceptable, the consent and authentication requirements, and any specific procedures or documentation that may be necessary for certain transactions.
SpotDraft adheres to global e-signature standards and provides a secure and compliant environment for e-contract signing.
“We've been using SpotDraft for most of our contract flow and signing. It has made getting agreements out for signature much easier.”
Source: G2
It offers a variety of customizable templates and workflows tailored to specific legal requirements, streamlining the contract execution process while maintaining compliance.
Also read: A Quick Introduction to eSignatures
Seal the deal: Ensure legally binding e-contracts with SpotDraft
All in all, ensuring that your electronic contracts are legally binding requires careful attention to key elements, adherence to relevant laws and regulations, and the implementation of best practices.
With the right knowledge, tools, and practices in place, you can confidently navigate the world of e-contracts, ensuring that your agreements are solid, enforceable, and ready to withstand any legal challenges that may come your way.
Want to see how SpotDraft’s AI capabilities help ensure that your contracts are legally binding? Request a demo!
