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Online Contracts and e-Signatures

Since the advent of the Internet, companies have been looking for ways to monetize the revolutionary connective power the new technology provides. In the earliest days, one obstacle was a lack of uniformity that made contracts made online as legally enforceable as paper contracts. This all changed with the federal legislation Electronic Signatures in Global and International Commerce Act (ESGICA) passed in 2000.

Electronic Signatures in Global and International Commerce Act (ESGICA)

The ESGICA’s main goal is stated in the first section 101.a when it notes that a contract or signature “may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” This simple sentence opened up the Internet to a new world of contracts being formed online and electronically signed by the parties. The act gave contracts in electronic form just as much validity as contracts made in other forms.

It is important to remember that a contract is not the piece of paper an agreement is written on, but the agreement itself. The ESGICA merely mandates by federal statute that agreements made online have the same effect as contracts made in the traditional sense.

Online Contracts and e-Signatures

An electronic contract is simply an agreement made online and “signed” electronically using some method of e-Signature. When dealing with online sales, companies often use “form” contracts when entering into agreements with customers. A “form” contract, both online and in paper, is a standardized agreement that contains general terms for an agreement used to make contracting more efficient.

Form contracts are hardly the only way to contract online. Contracts of a non-form nature, drafted for a particular agreement, may also be sent back and forth between parties during the negotiation process. When business to business deals are being worked out, a “battle of the forms” often ensures. The “battle of the forms” is the process by which parties in a similar bargaining position (i.e. two businesses) make offers and counteroffers to each other by exchanging revised versions of agreements between them until a consensus is reached and the parties enter into a contract.

No matter what time of agreement is entered into—a form contract with a customer or a custom agreement with another business—the e-signature is an acceptable method by which a contracting party manifests their assent to an agreement. Manifesting assent is simply legalese for agreeing to the terms of a contract and finalizing the agreement, making it binding. Parties show their assent through “click to agree” contracts or secure cryptographic encoding technology.

While the law has certainly expanded to allow electronic signatures to make binding agreements, it is important not to assume online transactions will also have the same effect as traditional hand-signed contracts. For one thing, electronic signatures may more easily be challenged for authenticity is a disagreement arises. In addition, one should not forget that other legal rules apply in certain arrangements, such and land contracts, where  problems may arise if everything is conducted online.

Legal Help with Online Contracting

With any contract issue in our area it is always prudent to consult with a local Burlington County business attorney. A legal professional can ensure that you are in compliance with any federal and state laws governing the formation of contracts online as well as with the statute of frauds.