- Contracts are one of the most important and most sensitive business law matters.
- It can be more challenging for small businesses that do not have legal departments. Business owners often decide to draft contracts themselves or copy-paste them from the Internet.
- If an electronic contract does not contain five basic requirements, it can be deemed as the base for legal claims.
- Read on to find out the legal issues in e-contracts and how to avoid making any mistakes.
If there is only one legal aspect of your business that you should get right, it should be contracts.
Contracts are probably the most important and sensitive business law matters. Contracts can make the difference between loss and profit, lawsuit and success.
Nowadays, many businesses use standard contracts especially when it comes to customer agreements. Nevertheless, a business owner or manager cannot leave things to chance and is advised to carefully review each and every contract form.
The contract issue is even more challenging for small businesses that do not have legal departments. Business owners often decide to draft contracts themselves or copy-paste them from the Internet.
What is an Electronic Contract (E-Contract)?
An electronic contract or e-contract are contracts which are completed and signed online. Many organizations now conduct business mostly online and all of the legal agreements that they have with suppliers, partners and clients are considered as electronic contracts (from ATM transactions to hotel room bookings and wholesale from overseas)
We would always advise you to consult a lawyer who can make sure your contract is covering the latest regulations and requirements but if you decide to do it yourself, make sure that you pay attention to these:
Legal Issues of Electronic Contract Management
For an electronic contract to be legal there are 5 basic requirements:
- Authenticity - identification of the contracting parties
- Offer - an indication of the subject of the contract
- Non-repudiation – nobody can change the contract after it is signed
- Writing and signature – the contract should include the valid signatures and date of activation
First and most importantly, electronic contracts can take many forms. For example, an email conversation with a clear offer and acceptance can be considered a binding contract. This means that the terms of the contract are stated in the email communication, messages, presented offers, etc. between client and supplier.
Even if an electronic contract does not contain all of the elements listed above it can be deemed as the base for legal claims.
Another soaring issue is that when you sign traditional contracts you can see the person doing it, and make sure that they have the authority to get into a contractual relationship. Online, anyone can become anyone and you can never be sure if the person agreeing is not impersonating an authority. According to legal regulations, electronic contracts are binding only for the person actually signing them at the time.
However, one of the most argued issues is what counts as a signature. There is no clarity on what qualifies and the law can be bent greatly here. Electronic signatures are applicable for most electronic contracts provided that intent can be proven and that the authorized person was actually the one signing the contract.
The e-commerce contract has the same binding and legal power as the traditional contract but sets new rules in the general contract law. The environment in which electronic contracts are developed is dynamic – from emails to offers and attached documents – all are evidence for the terms of an agreement online.
Small business owners should think twice before giving quotes and promising big purchase by email so that they don’t get caught up in contracts they cannot fulfill. Your lawyer can help you identify which of your electronic communication and contracts require your attention and care.
Don’t wait until the claims and complaints start...Make sure your electronic contracts are as neat as your traditional agreements.
Editor's Update 06/07/20:
E-contract law in Australia: The Australian Government is currently working on the Electronic Transactions Act which will make electronic communications such as e-contracts easier and more reliable to use for business and personal transactions. You can find more information about this here.
Here are some other frequently asked questions surrounding contracts...
What is the difference between an electronic contract and a traditional contract? Traditional and electronic contracts are essentially the same, except an electronic contract is created, sent, edited and signed digitally. For this reason, electronic contracts are easier to use, contain fewer errors, are more time cost-effective and are generally more secure than traditional paper contracts.
What are the legal aspects of a contract? In order for a contract to be legally binding, it must include four critical components:
- an offer
- a confirmation of acceptance
- an intention to create a legal relationship
- a consideration (typically money)
If a contract contains all four of the above components, it may be considered invalid if someone is persuaded to commit an illegal offence; if either party is a minor or declared bankrupt; or if someone was misled, deceived or engaged in unconscionable conduct.
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