Online contracts refer to contracts that are created and signed over the Internet. Also referred to as electronic contracts or e-contracts, these contracts provide a fast and convenient way for individuals and organizations to enter into legally-binding agreements with other parties. They are now being used for a wide range of purposes, from consumer and business agreements to government filings.

What is an Electronic Contract?

An electronic contract refers to an agreement that is made and signed electronically, meaning that it does not involve the use of paper or hard copy. For instance, you create a contract on a computer and send it to a business associate via email. Then, the business associate sends it back to you with an electronic signature to indicate acceptance. 

There is also a kind of e-contract called “Click to Agree” contract. Commonly found in downloaded software, it requires a user to click the “I Agree” button at the bottom of a page that contains the software license terms and conditions. The transaction is complete once he or she clicks the button. If a contract is not properly accepted, it is not valid and enforceable by the law.

What is an Electronic Signature?

Electronic contracts and signatures are just as legally-binding and enforceable as conventional contracts signed on paper. In 2000, the federal government cleared the doubts that surrounded e-contracts by passing the Electronic Signatures in Global and International Act (ESGICA). With this law in place, e-signatures have become as legally valid as traditional paper contracts. This is good news for companies that do business online, especially those that offer insurance, financial, and household services.   

With a properly-written terms of use agreement and privacy policy, online entrepreneurs can protect themselves against certain legal problems and potential liability. Business-to-business websites (B2Bs) also benefit from the law because it enables them to create enforceable agreements when they order supplies or services. The ESGICA is important to all these companies because it allows them to conduct business entirely online. In addition, it also helps them save a substantial amount of money, which they can pass on to their customers.

Since it is not possible to create a traditional ink signature on an e-contract, a number of methods have been used to indicate signatures electronically, including:

  • Clicking an “I Accept” button
  • Typing the name of the signer into the signature field
  • Pasting a scanned version of the signature onto the signature field
  • Using cryptographic scrambling

Although each of these methods is commonly called “digital signature,” it's becoming a standard practice to refer to the cryptographic signature as a “digital signature” and use the term “electronic signature” for the other methods. While electronic signature methods are expected to be as commonplace and secure as credit cards, there is a concern that identity thieves may be able to intercept signatures that are created with unsecure methods.

Contracts That Must Be Made on Paper

In order to prevent consumers from being potential victims of abuse, electronic versions of certain documents are considered invalid and unenforceable, such as:

  • Wills, codicils, and will trusts
  • Divorce, adoption, and other family-related legal documents
  • Court notices, orders, pleadings, motions, and other court-related documents, Notices of default, repossession, eviction, and foreclosure
  • Notices of termination or cancellation of utility services
  • Notices of termination or cancellation of life and health insurance benefits
  • Documents legally required for the transportation of hazardous materials
  • Notices of product recalls that have an impact on health and safety

Creating an Online Contract

There are many online tools that you can use to create an online contract, including:

  • Photobiz — This website has a wide selection of contract templates for you to choose from and stores your documents in a systematic and secure manner.
  • Google Form — A free tool that allows you to create easily-shareable contracts and stores your files securely.
  • WordPress Online Contract — With this plug in, you can create, sign, send, manage, and archive a wide variety of contracts. It also offers template creation features, instant notifications, password protection, custom short-codes, and others.
  • Shake — Shake has one of the largest selections of online contracts for businesses. It has contract templates for freelancers, nondisclosure agreement, renting, buy and sell transactions, and loans.

If you need help with online contracts, you can post your legal need on UpCounsel's Marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.