Are online contracts legally binding? The answer to this question was addressed in 2000 when federal legislation enacted the Electronic Signature in Global and International Commerce Act. The e-signature law made electronic contracts and signatures legally binding in the same way a paper contract is a binding document.

Legality of Online Contracts

For companies that provide household, financial, and insurance services online, contracts and e-signatures are an important part of their business structure. Business-to-business contracts benefit those who need enforceable agreements when services and supplies are needed. For these types of companies, the law helps them conduct business entirely on the internet. This results in savings that can be passed on to consumers.

To form a binding contract, a signature is not always required. When one is required, whether the e-signature is considered legally binding depends on the intent of the party as well as their consent.

For e-signatures to be valid and enforceable, the electronic document itself must be valid and enforceable. This means the electronic document must not be altered in any way. The document must be complete, which means it has been signed by all parties. It must also be available to each party as a savable and printable document that can be retrieved at a later time.

An online contract has the same challenge practices as a paper contract signed and dated by hand. In a court of law, it can be challenged that the contract was altered after it was signed. With online contracts, it is presumed the e-signature is valid unless it can be proven otherwise. Evidence that steps were taken to preserve the integrity of the signed document would be considered in a situation where the signature is being questioned.

Electronic Contracts and Signatures

With online electronic contracts, the document is created to be read and signed electronically with no paper involved. An example would be to create a contract for products or services on the computer and emailed to a business. An authorized representative of the business then reads the contract, electronically signs it, and returns their acceptance via email.

There are also e-contracts that have a "Click to Agree" option. This type of electronic contract is typically used with the downloaded software. After reading the contract, the user clicks the "I Agree" button. This is usually displayed as a button on the page containing the contract's terms and conditions. Once the button is clicked, the contract is in effect.

Providing a traditional ink signature by hand is not possible with an online contract. Signing an electronic form requires one of the following options:

  • Typing your name into the signature box.
  • Pasting a previously scanned version of your signature into the signature box.
  • Clicking the "I Agree" button.
  • Typing a code or personal identification number into the signature box associated with a particular person.
  • Using cryptographic scrambling technology. Using this type of technology to create an e-signature is often called a "digital signature." Cryptographic signatures use a public key infrastructure, which security experts consider to be the most secure method for signing online contracts.

Contracts That Must Be on Paper

In some instances, online contracts are considered invalid and are unenforceable. Examples include:

  • Testamentary trusts, wills, and codicils.
  • Family law, adoption, and divorce contracts.
  • Court documents.
  • Termination or cancellation of utility services.
  • Foreclosure, default, eviction, or repossession notices.
  • Termination of life or health insurance.
  • Recall notices of products that affect safety or health.
  • Documents legally required for the transport of hazardous materials.

These documents must be provided in traditional paper and ink format.

Federal Versus State Law

Some states have adopted the Uniform Electronic Transactions Act. The act establishes electronic signatures and contracts as valid in a manner similar to federal law.

The federal law will not override the Uniform Electronic Transactions Act adopted at the state level unless the law is significantly different from that of the federal law. In such a case, the federal law overrides the state law. This is to ensure electronic contracts and signatures are valid in all states. It is not dependent on where the party lives or where the contract is executed.

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