In recent years, the practice of meeting up with a counterparty – whether that is a supplier, an agent, a service provider etc. – to sign a contract in person, is one that has become increasingly uncommon. Instead, it is typically the case that businesses will choose to rely on the wealth of electronic options that are available in order to sign a contract.
Indeed, this is a practice that has become more common – and to some extent unavoidable – during the COVID-19 pandemic; given the necessity for employees to work from home and the various lockdown and social distancing restrictions that have been in place over the past 18 months.
But, is this a legally effective way to execute a contract? And are there any challenges that we need to be aware of, when signing contracts in this way?
What is an electronic signature?
Before we answer those questions, lets first clarify what an electronic signature is.
Ultimately, there are a number of different forms that an electronic signature can take, including:
- an individual simply typing their name or initials at the bottom of an electronic document (i.e. at the end of an e-mail or in a Word document);
- a scanned handwritten signature that is ‘pasted’ into an electronic document;
- using a web-based e-signing platform such as DocuSign; or
- clicking a tick-box ‘I agree’ button, on a website (as you would do when accepting a set of T&CS, for example).
Are electronic signatures an effective way to sign a contract?
As we can see, an electronic signature can take many different forms, some of which are technologically sophisticated (such as the use of an e-signing platform) and others that are rather more informal (such as simply typing a name at the end of a document). However, is using an electronic signature a legally effective way to execute a contract?
Thankfully, the answer to this question is relatively straightforward.
Under English law, the general rule is that a contract does not need to be made in a particular form (although note, there are exceptions to this that are beyond the scope of this article). Provided that the essential elements for a contract are present (namely offer, acceptance, consideration, certainty of terms and an intention to be legally bound) many consumer and commercial contracts can be made informally, without there being any requirement for a signature at all.
As there is no legal requirement for a signature in most commercial and consumer contracts, it is perfectly acceptable and effective for contracts to be executed with an electronic signature.
Are there any other challenges to using electronic signatures?
While, for most commercial and consumer contracts, there is no legal requirement for a signature, it is important to keep in mind what the purpose of a signature is.
The purpose of a signature is to evidence a party’s intention to authenticate a document. In other words, it demonstrates that a party is agreeing to sign and be bound by the terms of the contract.
Therefore, while an electronic signature may be legally valid, it is important to also consider whether the signature used provides good evidence that the party signing the contract did indeed intend to be bound by it.
For example, e-signing platforms are typically quite robust in this respect, as alongside the signature they provide good evidence of who signed the document and when. Whereas a typed name at the end of a document does not provide the same authenticating information and can be easily forged.
In light of this, if you do regularly use electronic signatures, it would be advisable to use a system that allows you to demonstrate:
- Authenticity – i.e. who or where the document and the signature comes from;
- Integrity – i.e. whether any changes have been made to the document after it was signed; and
- Non-repudiation – i.e. that the signatory cannot deny they signed the document.
Restrictions in a company’s constitutional documents
Another point to consider is that, where you are contracting with a company, it is important to confirm there are no restrictions in the company’s constitutional documents that preclude the use of electronic signatures.
Finally, it is important to note that the comments set out in this article relate to the position under English law.
If you are contracting with a supplier, agent or other service provider that is overseas, the position may not be quite so straightforward; as there is a risk that contracts may not be valid or enforceable when executed using an electronic signature, in overseas jurisdictions.
In light of this, it would be advisable to seek advice from a local lawyer as to whether electronic signatures are a valid method of executing a contract, in the relevant jurisdiction, when contracting with third parties that are based overseas.