Understanding E-Contracts: Legal Framework, Benefits, and Types
We live in an age of rapid technological advancement, with new software and digital programs created regularly that are being used to replace our traditional systems or processes for the better.
One field in which software is changing is that of contract management; more specifically, ‘e-contracts’ are quickly replacing traditional contracts.
In this article, we will discuss what e-contracts are, the difference between them and traditional contracts, the main types of e-contracts, electronic contract requirements, how to execute these, and what digital contract management software is.
What Is E-Contract?
“E-contract” is short for ‘electronic contracts’; these are simply contracts that are created online, and digitally.
These electronic contracts are both created and stored online – they are a replacement for the physical contracts that used to be the norm for organizations that rely on agreements between other parties in order to operate and generate revenue.
Now, the creation and signing of these contracts can be done entirely online, with computers and certain types of software.
In the United States, e-contracts are governed by two main pieces of legislation: the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN Act). These laws establish the legal framework for electronic contracts and electronic signatures, granting them the same legal status as traditional paper-based contracts and handwritten signatures. To be considered legally binding, an e-contract must:
- Mutual agreement: Both parties must agree to the terms and conditions of the contract.
- Offer and acceptance: One party must make an offer, and the other must accept it.
- Consideration: Something of value must be exchanged between the parties, such as goods, services, or money.
- Capacity: Both parties must have the legal capacity to enter into a contract (e.g., they must be of legal age and mentally competent).
- Legality: The subject matter of the contract must be legal.
In the European Union, e-contracts are regulated by the Electronic Identification, Authentication, and Trust Services (eIDAS) Regulation, which establishes a legal framework for electronic signatures, electronic seals, time stamps, electronic documents, and other trust services. Similar to the US, e-contracts are legally binding in the EU if they meet the necessary requirements.
It is important to note that the enforceability of e-contracts might be subject to limitations or exclusions in specific situations or for certain types of contracts. For example, some jurisdictions may require certain contracts, such as those involving real estate transactions, to be executed in writing and signed with a traditional handwritten signature.
In conclusion, e-contracts are generally considered legal and enforceable in many jurisdictions, provided they meet the necessary criteria. However, it is essential to understand the specific laws and regulations governing e-contracts in the relevant jurisdiction before relying on them.
What Are the Differences Between Electronic and Traditional Contracts?
There are many differences between e-contracts and traditional contracts.
Some of the main ones include:
The time it takes to draft a traditional contract or an e-contract is drastically different.
As you can expect, electronic contracts are much quicker to create and sign over paper-based legal documents.
Before, the entire contract lifecycle would involve manually drafting a contract; then, this contract would either have to be sent to another party or the two parties would have to meet to negotiate.
During a negotiation, the contract must be sent back and forth or the parties must continuously meet with one another – the negotiation phase can take ages depending on the severity of the document and the people involved.
Naturally, this process can get bottlenecked with travel issues, mail problems, location difficulties, etc.
With e-contracts, everyone has access to the same legal document from their own computer.
And, the entire process is automated and streamlined; contracts are created with a few clicks. And, with the use of e-signatures, signing can be done from anywhere at any time.
Digital contracts are more cost-effective than traditional contracts.
When you consider the operational costs of paper-based contracts (postage, printing, etc.) and the human-labor hours necessary to draft these traditional contracts, it makes sense that e-contracts are significantly cheaper.
If an organization deals with lots of contracts in their operations, these costs add up – e-contracts can save a great deal of money.
The traditional contract lifecycle naturally results in many errors, whether these are human-caused or on purpose.
It is easy for personnel to accidentally make a mistake when drafting these contracts – considering how complex legal documents can be, it is to be expected.
But, contracts can also be edited after signing… there is often no way of knowing. This presents many legal issues and disputes that can cause lots of money and time.
With e-contracts, both parties can view and edit the document on their own time which means less rushing. Also, electronic contracts automatically fill out much of the important parts of the contract – such as names or signatures – which means less chance for error.
Also, with most e-contract software, errors are prohibited from being made and all prior versions of contracts are stored so that there is no discrepancy when certain revisions were made and whether they were made before or after official signing.
This is only the tip of the iceberg – there are simply too many problems with traditional contract management to list, most of these issues easily solved with e-contract software.
What Are the Main Types of E-Contracts?
The main types of e-contracts include:
- Shrinkwrap contracts (these are product-related contracts – usually software licensing agreements – and can be reversed in the case of a product return).
- Clickwrap contracts (agreements that are basically non-negotiable, where the other party can either accept or decline the contract in order to proceed).
- Browse wrap contracts (agreements you don’t sign, but is assumed you accept when performing an action – for example, by using a certain website you automatically agree to their ‘Terms & Conditions’)
What Are the Requirements for Digital Contracts?
E-contracts are similar to traditional contracts except for the fact that they are signed online; so, there are some differences.
So, the requirements of an e-contract include:
- Both parties must be willing to enter into a legal agreement.
- Signers must know they can withdraw their consent at any time.
- Signers must know they can request a paper document instead.
- The terms and offer must be communicated in a clear manner.
- All rights and obligations must be fully disclosed (including that when the contract is signed, the agreement goes into effect).
- The documents must be stored.
- The contract must be signed.
How to Create, Manage and Sign Electronic Contracts?
‘E-contract software’ is a type of software that allows for the creation, management, and e-signing of contracts.
These digital software solutions are exploding in popularity due to the benefits they have and the traditional contract management issues that they eliminate.
E-Contract Management & E-Contract Software
E-contracts are as legally binding as any paper-based legal document.
Considering this, it makes sense why this software is becoming more essential for organizations that deal with an increasing volume of complex contracts on a day-to-day basis.