For a contract to be valid and enforceable, there are a number of requirements that need to be fulfilled, one being a signature by the parties involved. This is called ‘acceptance’ and a signature marks that the parties have read, understood and agreed to the terms of the contract. That seems simple enough, or so we thought.
Pre-Internet and technology era, the traditional way for parties to sign a contract was with a pen and paper.
Today, we live in a modern digital age which means business can move at a rapid pace. Geography, time, communications… They are no longer factors as more and more commercial transactions are taking place electronically, globally, in real time. Who uses pen and paper anymore, who uses faxes? In fact, a lot of offices have opted to work in an entirely paperless environment.
We’ve all done it, we have all provided our electronic signatures. Perhaps you have signed inconsequential agreements online such as creating a new email account or the purchase of good and services.
When the stakes are higher, though, with commercial contracts, that’s when you need to know the validity of electronic contracts and signatures.
What is the difference between an electronic signature and a digital signature?
An electronic signature can be defined as a signature used on an electronic document, that is intended to be a signature. An electronic signature may simply be a text on an email.
A digital signature, by comparison, is a type of electronic signature, and uses technology that sits underneath the signature containing hidden data. This hidden data is a more trusted and secure way to verify a signature, which is important given electronic contracts can be challenged on validity of a signature.
Software such as DocuSign and Adobe EchoSign can be used to create digital signatures.
The Electronic Transactions Act was enforced in 1999 and established electronic signatures in Australia. Under Australian law, contracts are held enforceable whether it’s verbal, or the parties have signed the document with a wet-ink (physical) or electronic signature.
In addition to acceptance, electronic contracts still need to satisfy the requirements of any valid and enforceable contract:
– Essential terms
– Exchange of promises
– Intent to form legal relations
A step further with electronic documents
When it comes to electronic documents, there are some further considerations to narrow the possibility of a dispute arising:
- Parties need to consent to the document being enforced electronically
- The electronic signature needs to identify the person sending the information and be verifiable
- It needs to be ensured that no edits can be made to the electronic document once executed
- The type of document. While most documents do allow for electronic signatures, there are some that still require the wet-ink signature such as migration or citizenship documents, wills, and powers of attorney
- The electronic document needs to clearly state that the signer understands that their signature means their acceptance of the contract.
Authentication and validity of the electronic signature are issues to consider as they can be a cause for challenging a contract. Using digital signature tools can help strengthen the validity of the signature which may help to minimise these issues.
The laws around electronic signatures were established in recognition of the global nature of contracts today. While this allows for easier, faster and more streamlined transactions to take place, there are still avenues to challenge a contract on its validity.
If you have questions around electronic signatures or electronic contracts, please feel free to contact us.
Important disclaimer: The material contained in this publication is of a general nature only and it is not, nor is intended to be, legal advice. This publication is based on the law as it was prior to the date of your reading of it. If you wish to take any action based on the content of this publication, we recommend that you seek professional legal advice.