People usually decide to start their own business because they’re really good at the key skill that business requires, like a chef deciding to open their own restaurant instead of just working at one.
But they quickly realize that running a business requires them to have — or learn — skills entirely unrelated to the skill that their business centers on. That chef is going to have to know about leases, employment law, inventory management, marketing, and contracts — which these days means e-contracts.
The first thing to know about e-contracts is that understanding the contract is far more important than the “e-” part. While there are some adjustments required when drafting and signing an e-contract, what’s of primary importance is knowing what constitutes a valid contract.
Elements of a valid contract
Contracts are fundamental to business, from the smallest local businesses to global corporate giants, and the work of drafting, negotiating, and litigating contracts requires armies of attorneys around the world. Nonetheless, people everywhere intuitively understand the elements of a valid contract:
Mutual assent. This is the process of two parties agreeing on a valid offer from one for “valuable consideration” from the other. Valuable consideration is most often money, but it can be whatever the two parties agree is valuable. A marketing agency might provide its services with a law firm in exchange for legal counsel.
Adequate consideration. This is the price one party agrees to pay for the goods or services the other party has agreed to deliver.
Capacity. The parties to the contract must be legally eligible to bind themselves and mentally capable of understanding the terms. Minors and people who are incapacitated cannot be parties to a valid contract.
Legality. A valid contract can only be made for actions that are legal.
Mutual assent, adequate consideration, capacity, and legality constitute a valid contract, regardless whether someone writes it on paper or in a Google Doc — or even if they don’t write it at all. Oral contracts are legally binding, though harder to litigate for obvious reasons.
Advantages of e-contracts
Once you understand that writing a binding e-contract is, in every legal aspect, no different than writing a binding paper contract, you can appreciate all the practical ways e-contracts are more convenient than paper contracts.
Attorneys get paid by the hour, and they bill in six-minute increments. Those tenths of an hour add up fast. E-contracts allow attorneys negotiating a contract to compare drafts, add changes, and make corrections much faster than they could if they were working on paper.
JotForm’s contract templates allow non-lawyers to draft binding contracts. This limits attorney costs for contract review or avoids them altogether.
E-contracts, just like email, move much faster and at essentially zero expense compared with their analog predecessors. E-contracts allow even small businesses to retain freelancers and to look for them internationally.
The act of signing your name to a contract, letter, petition, or quick thank-you note has signified binding assent with whatever is written on the document for thousands of years. But how do you sign an e-contract, and is the signature valid?
U.S. law has recognized e-signatures as binding since President Bill Clinton e-signed (after first signing the written legislation the traditional way) the Electronic Signatures in Global and National Commerce (ESIGN) Act in 2000.
President Clinton and Irish Prime Minister Bertie Ahern were the first two world leaders to e-sign an international agreement when they signed a Joint Communiqué in 1998 recognizing the growing importance of promoting electronic commerce.
Now you can e-sign documents just as easily — JotForm’s e-signature widget makes it simple to gather a legally binding signature for your e-contract.
E-contracts are invaluable for business
National governments established the legality of e-contracts before the internet was anywhere near as ubiquitous and indispensable to business as it is now. Putting the legal framework in place gave entrepreneurs and established businesses alike the confidence to gradually move away from paper contracts in favor of e-contracts, reducing a paper-handling bottleneck and speeding the pace of business.
Contracts are fundamental to business. They are the means by which all the parties to a deal show they understand their commitments. E-contracts are just as valid as paper contracts if you need to take them to court, but they’re far easier and less expensive to produce than contracts on paper.