Everything You Need to Know About eContracts
by Jessica Alden on May 14, 2019
An eContract, or electronic contract, is a legal document created and signed online. It is essentially a digital version of a traditional paper contract. As with paper contracts, eContracts are agreements signed by two parties. They are enforceable and legally binding documents that are typically used regarding employment, sales, services, or tenancy. With a typical paper contract, one party drafts an “offer” and the other party reads over it. If both parties agree to the terms and conditions listed in this initial offer, they will each sign the document and it becomes a valid contract. Each party must hold up to their end of the agreement or they face the risk of legal recourse. This is no different with an eContract. Although a paper copy is not presented, a digital signature still enters both parties into a legal agreement.
How to Create eContracts
There are several ways that a business or individual can create an eContract. They may use specialized software, e-mail, word processing, or any number of other methods. Most commonly, businesses use contract management software. So, what is contract management software? It is an all-inclusive system that allows them to create and manage all their contracts and contract related data in one place. Regardless of which service they choose to use, all of them use similar methods to create eContracts. The process typically starts with a contract request from someone in the business.
The request is often entered into an electronic request form using the contract management software system. This form will capture of all the information needed to create an eContract. The granular details of the contract creation process can vary quite a bit, however there are 2 very common scenarios.
The first scenario known as a self-service contracting, involves automatic assembly of the eContract. The contract is generated using the information from the initial request form, using your business rules and pre-approved clauses established within the application. After the contract is generated, the contract is then sent back to the initial requester.
The second scenario involves using an authorized individual to review and assemble the contract. Generally, the individual creating the eContract will begin with a pre-approved electronic template as a starting point. From there, they have access to a clause library and can add relevant pre-approved clauses and reference a clause playbook on an as needed basis. The individual will then send the completed contract to the requester.
Both result in an accurate and legally secure eContract and in many cases, the method used is driven by the needs of the business.
Why Use an eContract?
Typically, eContracts exist when the two parties do not meet face-to-face on a regular basis. A lot of individuals and businesses have taken to using digital communications and contracts simply because of their low cost, quick turnaround time, environmentally friendly nature, and enhanced security.
In the past, many businesses relied on contract lawyers to draft all contracts. This is a costly process for a large business. Today, with pre-approved templates and contract management software services to handle contract creation; it is simply more cost-effective.
Because an eContract can be e-mailed, it only takes a few minutes for the other party to receive it. They can quickly sign and get started on the project without waiting for a paper copy to arrive in the mail or using a fax machine/scanner to send the signed documents back to the business.
Some businesses opt to use eContracts to reduce their carbon footprint and decrease the amount of paper used by their business. This is often part of a "going green" initiative. It is a helpful choice, as contracts are nearly always several pages long. Similarly, some businesses find that it is easier to organize and manage numerous contracts when they exist in a digital form instead of on paper.
Another big reason some businesses choose digital contracts is because they offer enhanced security. If a contract is stored in a filing cabinet, nearly anyone can access the details. When stored online, only those who have access to the e-mail or contract management software service will be able to view the intricate details of a contract. This is a bonus for businesses with notable clients where privacy is a top concern. This is especially true for those in the medical industry. Be sure to explore healthcare contract management software reviews for this specific use.
How Do I Sign an eContract?
One of the most common questions about eContracts is how a person is able to sign them digitally. They might believe they need a special pen or program to provide their official signature. Fortunately, this is not the case. Generally, when an eContract is ready for review, the email directs readers to a program designed for creating digital signatures. Depending on the program used, there are different options available to sign. Some programs may ask the signer to provide their Ssocial Security number, while others may only need you to click a box. More advanced programs may even allow you to “adopt” a digital signature. To do this, you simply type your name and choose from a list of signatures that appear hand-signed. While you will not find your exact signature, you can find one that is close to how you would sign your name on paper.
Is a Digital Signature Legally Binding?
In 2000, a federal law known as the ESIGN Act passed. This law states that no contract, signature, or record is invalid for the sole reason that it exists in an electronic format. This means that digital signatures are just as good as traditional ones today. Despite this, however, there are four requirements to meet to make the digital signature legally binding.
1. Intent to Sign: Both parties must be aware that they are signing.
2. Consent to Conduct Business Electronically: Both parties must consent to conducting business online instead of in person.
3. Association of Signature with the Record: A record must exist that indicates creation of the electronic signature.
4. Record Retention: The digital signatures kept on record must be able to be accurately retained and reproduced.
This offers protection to those who are victims of identity fraud or who have unknowingly signed an eContract. Because they would have had no intent to sign, the eContract is legally invalid.
What Are My Options If the Other Party Breaks the Contract?
eContracts offer the same legal recourse as paper ones. Signing online does not release either party from their obligations. If the opposing party is not fulfilling their end of the agreement, seek the advice of a lawyer who specializes in contract law. Although eContracts are a newer concept, a skilled contract lawyer is well-versed in digital contracts. They will not see a digital contract as a complication or an invalid agreement and will work diligently to ensure that the situation is remedied to your satisfaction.
What Can I Do If I Prefer a Traditional Paper Contract?
If you need to sign an eContract and prefer a paper copy, note that you can always print a copy of the eContract. This is vital for personal records after signing an eContract. Printing a copy can also be more practical if you would like to have a lawyer or trusted friend review the terms and conditions before signing. If you are uncomfortable with the process of signing a contract online, you can also ask the business to send a traditional paper contract through the mail. In most cases, they will be happy to oblige. Although eContracts are reliable and secure, sometimes it comes down to a matter of personal preference.
Tips for eContracts
As with traditional paper contracts, eContracts apply the same principles and remediations of typical contract law. While a digital contract may seem more relaxed than one presented in person, they require the same level of consideration. With any contract, you want to ensure that you understand exactly what you are signing. If something does not sound quite right, do not sign until you have discussed your concerns with a lawyer or the business directly. If this puts your concerns to rest, you can proceed and sign the eContract. If not, request revisions to the eContract. Only after the contract accurately reflects an agreement you are comfortable with should you proceed to sign. Afterwards, make sure to print a copy and retain it in your records. When stored on a digital platform you do not use frequently, it can be difficult to relocate the contract should you need to access it later.
While paper contracts are still the most popular method, eContracts are gaining popularity. By understanding eContract creation and the legality behind it, you are preparing yourself for the present and the future. If you are a business owner with the need to create and manage multiple digital contracts, consider using a contract management software system to streamline the process.