Electronic Signature: Valid Execution of Contracts
- Electronic Signature and Execution of Contracts
- Electronic Contracts
- Types of Electronic Signature
- Requirements for an Electronic Signature
- Benefits of Electronic Signature
- Issues with Electronic Signatures
- Applications of Electronic Signature
- Documents that can be signed through electronic signature
- Documents that cannot be signed through an electronic signature
- Difference Between a Digital and Electronic Signature
- Enforceability of Electronic Signature
- Electronic Signature as Evidence in Court
- Electronic Signature under Various Laws and Regulations
- E-contracts and E-signatures in a Post-Covid Era
- Replacement of Wet Ink Signature with Electronic Signature
The COVID-19 outbreak has resulted in changes to the operations of businesses and companies. It has changed how people used to work, like going to the office or conducting regular face-to-face meetings. In the Post COVID-19 era, the way of working has shifted to remote work. People faced many problems in adapting to this new way of working.
One such problem was the signing of contracts. Earlier parties used to meet at a specified location and consent to the terms by signing the physical copy of the contract then each party would have a copy of the contract with them. Since COVID-19 brought restrictions on the gathering of the public, it wasn’t easy to sign a contract physically.
So companies started using E-contracts and E-signatures. Due to this, e-Signature transactions have ballooned from 89 million to 754 million in last few years. An electronic signature is used to show acceptance of the terms of a digital contract or agreement.
Without electronic signature and execution of contracts, companies faced a lot of difficulties conducting business on digital platforms. E-contracts and E-signatures in the post-covid era have changed the traditional behavior of entering into contracts or agreements. This article will discuss the enforceability of electronic signature and execution of contracts.
Electronic Signature and Execution of Contracts
Electronic signature and execution of contracts have become essential since companies have chosen to conduct business digitally.
Due to technological advances, electronic contracts provide a more significant benefit, saving people time, cost, and money. The entire process of drafting and executing electronic contracts can take place online. Execution is made easy through the e-signing of contracts. E-contract has the exact requirements as that of a contract.
Types of Electronic Contracts
Electronic contracts can be of different forms mentioned below:
Such contracts are in the form of licensing agreements for software purchases. It contains specific terms and conditions related to the product or purchase, such as product pricing, warranties, limitations, and licenses. A unique feature of this contract is that you can’t see the terms until the package has been accepted.
Click or web-wrap contracts
It is a web-based contract that requires the user’s approval through the “I Accept” or “I Agree “button. The user has to abide by the terms and conditions before using the software or product.
Browse wrap contracts
It is a contract entered into while browsing the website. Generally, the contract is displayed in the form of a hyperlink showing the terms and conditions of using the website. It binds the website’s user to the usage of the website.
Scroll wrap contracts
It means that the contract needs to be scrolled down, implying that the user has read all the terms and conditions of the agreement.
The end step for enforcing electronic contracts is putting electronic signatures on such contracts. Such e-signing of a contract can happen in various ways, such as clicking on the place of your order button while shopping or signing an agreement electronically. Before the e-signing of a contract occurs, the electronic contract should be verified by both parties of the contract.
Types of Electronic Signature
The European Union (EU) eIDAS regulation mentions three types of electronic signatures. Below are the mentioned electronic signatures used for the E-signing of contracts:
Simple electronic signature
The eIDAS regulation defines an electronic signature as “data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign.” Examples of simple electronic signatures include scanned signatures or checkboxes mentioning the I Accept button. E-signing is not subject to verification of the signer’s identity or authenticity. No external hardware is required while using this signature.
Advanced electronic signature
These signatures require additional verification for usage. They must be uniquely linked to the signatory. A Certificate Authority (CA) issues certificates that can authenticate the advanced electronic signature (AES). AES uses asymmetric cryptography to secure the signature. The signature is created under the sole control of the signatory. AES will be rendered invalid if the data is changed. One-Time-Password must be used to verify the identity of the signatory.
Qualified electronic signature
It is an advanced electronic signature with much higher security. Multi-step authentication is used for this signature for authentication of the signatory. It relies on a Qualified digital certificate issued by a Qualified Trust Service Provider (QTSP). It comes with a card reader so that the signatory’s identity can be verified.
If you are unsure which electronic signature to use, you can consult lawyers at LegaMart who can walk you through the process. LegaMart offers various services, such as case reviews, advocacy, and more. It also helps to solve issues in electronic signatures and the valid execution of contracts.
Requirements for an Electronic Signature
For the E-signing of a contract, the electronic signature must be reliable and valid. Following are the requirements which must be adhered to while E-signing of agreement:
- The electronic signature must be unique and valid, found only on the person signing the contract.
- The person signing the contract must have ownership of their data to ensure a secure, authentic, and reliable electronic signature.
- Before you sign the contract, ensure you’ve inspected the chain of steps observed during the E-signing of the contract.
- The authenticity of the signatory must be verified. Every document needs two-step authentication for this object.
- The intent of the signer should be shown electronically.
- Electronic signatures must be retained by both parties signing the contract.
- Third-party software should be used to secure the electronic signature so that it cannot be tampered with after signing.
Benefits of Electronic Signature
Many software available on the internet helps to manage electronic signatures and valid execution of contracts, saving time and cost for the parties involved in the contract. Other benefits which are available with an electronic signature are listed below:
- An electronic signature is reliable
- An electronic signature is digital, so it helps to save a lot of paper
- It is efficient and saves a lot of time
- Cost reduction
- The efficiency of execution of contracts has increased
Issues with Electronic Signatures
Although technology has advanced, many issues still exist in electronic signatures and the valid execution of contracts. Various risks are associated with electronic signatures, such as
- Risk of fraud – Anybody can forge the signature since websites can be hacked or compromised.
- Risk of unauthorized signature – It is challenging to authorize the signatory.
- Risk of loss and destruction- There is no way of guaranteeing the security of your online signatures. A document containing the E-signature can be tampered with very quickly.
- Risk of non-compliance with laws – Some documents need notary or stamping, and very few countries have accepted online stamping, even during the pandemic.
- Reliability of Certification Authority – Even though the certifying authority follows all the regulations, there is no guarantee about the credibility of the certificates issued.
Applications of Electronic Signature
Electronic signatures are used by various entities mentioned below but are not limited to:
- Financial Institutions such as banks
- Companies and Government
Documents that can be signed through electronic signature
Electronic signatures can be used to sign the following documents:
- Offer letters
- Sales contracts
- Permission slips
- Rental/lease agreements
- Liability waivers
- Financial documents
Documents that cannot be signed through an electronic signature
The following documents cannot be signed with the help of an electronic signature:
- Wills and codicils
- Court orders and notices
- Documents related to a family matter
- Notices regarding cancellation or termination of health insurance benefits
Difference Between a Digital and Electronic Signature
A digital signature is a subset of the electronic signature. A digital signature is used to secure a document, whereas an electronic signature verifies the document. A digital signature is preferred where more security is needed. A digital signature can not be easily tampered with, whereas an electronic signature can be tampered with even if a qualified electronic signature is used. Many businesses use electronic signatures in contracts and agreements, whereas digital signatures are used in financial records.
Enforceability of Electronic Signature
Electronic signatures are valid in almost every country. They have the same legal status as that of a handwritten signature. In order to enforce an electronic signature, it must be proven that the party intended to do so. Also, consent of the parties is an essential requirement for electronic signatures. Even though parties are aware of Electronic signatures and valid execution of contracts, they must pay proper attention to the validity of contracts.
Blockchain helps to ensure the enforceability of electronic signatures and the valid execution of contracts. An electronic contract will not be rendered invalid just because electronic records were used as supporting documents. The enforceability of electronic signatures cannot be questioned since it is in electronic form and not on paper.
Electronic Signature as Evidence in Court
An electronic signature can be used as evidence in court. For admitting the E-signature in court, expert testimony must prove the accuracy of the signature. A signatory’s identity must be verified to establish the reliability of the signature. The following requirement must be met for an electronic signature to be admissible in court:
- A digital seal that can track its origins
- An audit trail showing back to the original signer
- Strong authentication methods to confirm signers’ identities
Electronic Signature under Various Laws and Regulations
The law is constantly evolving about the enforceability of electronic signatures and the valid execution of contracts. Various legislations and statutes have been passed in different countries which define electronic signature as stated below:
- Canadian law defines an electronic signature under Section 31(1) in The Personal Information Protection and Electronic Documents Act. Digital signatures are sets of characters and numbers generated by a user and applied to an electronic document to identify the signer.
- In U.S. law, an electronic signature has been defined under Section 106(5) in The Electronic Signatures in Global and National Commerce Act as an electronic symbol associated with the contract and implemented by a person to sign.
- In Indian law, an electronic signature has been defined under Section 2(ta) in The Information Technology Act as authentication of any electronic record by a user through an electronic technique, including a digital signature.
- In Chinese law, an electronic signature has been defined under Article 2 in The Law of the People’s Republic of China on Electronic Signature as the digital data attached to a data message used for identifying the identity of the person signing the contract and the party’s acceptance of the contents of the message.
E-contracts and E-signatures in a Post-Covid Era
E-contracts have played a significant role during the pandemic. Everything has become online, so people started using technology and digital platforms to conduct their business. Electronic signatures can authenticate electronic contracts. Courts have also begun considering the validity of electronic signatures. Many automated tools and websites allow your company to process documents for electronic signatures and valid execution of contracts in the post covid era.
Replacement of Wet Ink Signature with Electronic Signature
Electronic signatures cannot fully replace wet ink signatures since some court documents, such as negotiable instruments or trust deeds, cannot be electronically signed. The world is keeping up with digital technology, and it is only a matter of a few years before electronic signatures will be used in almost every contract. Transactions that involve parties from different countries can easily use electronic signatures instead of wet ink signatures.
Electronic signatures and the valid execution of contracts are essential for businesses. Traditional paper contracts have become outdated with the development of electronic signatures and valid execution of contracts in the post covid era. E-contracts and E-signatures are less expensive than other methods since parties don’t have to gather to execute a contract. The whole process of contracts, from offer to acceptance, can happen digitally, saving a lot of time.
Drafting and execution of electronic contracts require expertise, and thus Legamart offers the best solution for your issues in electronic signature and execution of contracts. They have a network of excellent lawyers who can help you get started and provide professional guidance on E-contracts and E-signatures in the Post-Covid Era. You can post your questions or queries on Legamart, and they can resolve your query on the E-signing of a contract providing you 100% satisfaction with your doubts.