Are the E-Signatures on Your Contracts Legal?

As an organization signs contracts, they should be aware of these things.

Managing contracts that are compliant is critical to align with proper legal standards and internal company processes. Being aware of new and upcoming regulations is critical for all teams to ensure an organization’s success. One fundamental aspect of this is a contract’s signatures.

If it has to come down to it, the validity of a contract will often come down to a judge’s ruling in court, but there are many things an organization can do to see to it there is limited room for questioning. Here’s a brief overview outlining some circumstances that could call for contesting the signatures on a contract—and how to avoid them.

Initials

While certain parts of a contract will call for initials, initialing only these parts does not mean the contract is fully signed. For example, in many procurement contracts, there are blank lines for initials next to key financial terms sellers are asked to initial. Initialing these but not the final signature could signify to a judge that the initials did not constitute the final signing of a document. There are almost always still some parts throughout a contract that will need a full signature. It’s critical to ensure all parties add not only their initials where appropriate, but also include a full signature on all necessary lines to avoid any potential conflict. Signing the full signature lines with only initials could raise the question of whether the person initialing the contract intended to fully sign it, or simply initialed parts of a contract and then changed their mind before signing.

Oral Contracts

In limited circumstances, an oral agreement may be enforceable by courts, but to ensure the full legality of a contract, it’s more than likely that a signed agreement, either paper or e-signature, will need to be in place. The Statute of Frauds requires certain contracts to be in writing and signed by the parties bound by the contract to prevent fraud. Getting all terms and conditions in writing and signed from the very beginning is the best way to ensure all sides are happy with the agreement and held accountable.

Digital Regulations

Thanks to the ESIGN Act of 2000 in the United States and eIDAS in the EU, e-signatures now have the same weight as traditionally signed contracts. Often they are more easily enforced in a court because of the checks and balances in place aren’t there for paper signatures. Elements such as timestamps and negotiation points are well documented, and signed contracts can be exported into any format, or referenced at any time on a contract management platform.

Clear communication and following the correct regulations will help ensure all parties signing a contract are happy with the agreement. Ensuring compliance throughout the signature process will mitigate risk and assist in creating good business relationships through contracts.