Is that legal?
By: Thomas L. Bowden, Sr. This was posted Friday, February 17th, 2012
As attorneys, we sometimes get asked this broad open-ended question in a variety of contexts. Often the answer is equally broad, such as “It depends”. Let’s take just one example of how this question recently came up. I represent a number of clients who provide various consulting services. Just like attorneys, they need to enter into agreements with their clients to define the scope of work, deliverables, charges for their services, and the other critical parameters of the engagement.
In a fast-paced business environment, where the engagements may be brief and relatively inexpensive, the thought of preparing written documents, let alone turning them over to attorneys to negotiate is not only distasteful, it’s just impractical. Fortunately, I offered a solution. I simply said, why not put your standard contract terms on your website so that your clients can review them and click to agree, just as they do when they sign-up for various products and services over the web. “Is that legal? Would it be binding? Can we do that?” Answer: Of course it is, and of course you can.
Written documents signed in ink, increasingly, are anachronisms. Sometimes there is ceremonial value in exchanging written documents between the parties, but in all but a very few situations, this is not necessary to complete a contract. Yes, if you are recording a mortgage, you need a fully executed notarized form acceptable to the clerk in the county where the property is located. There are other exceptions as well, but for the vast majority of contracts between businesses, there is no legal requirement that the document be printed on paper and signed in ink.
The elements of the contract can be present without these physical embodiments. To create a binding contract you need the following elements:
3. A meeting of the minds
4. Legal subject matter
7. Legally competent parties
Note, paper and ink are not listed. The document and the signature merely provide evidence of the existence of those critical elements.
For some time now there have been acknowledged methods for establishing all of the elements of contract through electronic communications. Hundreds of billions of dollars travel around the world everyday on the basis of electronic contracts. The key then, in creating electronic contracts between small businesses, is to be clear and unambiguous. Fortunately, tools and conventions have arisen that make this process relatively simple. One approach is the code which prohibits the user from advancing to the next page until they check a box indicating that they have read and accepted the terms and conditions. Of course it doesn’t really check whether they have read the conditions, but if they checked the box, they are generally going to be held to the contract to the same effect as if they had read it, since they had the opportunity to and simply waived it. This approach can be useful for getting customers to agree to standard terms and conditions.
However when the contract calls for specific customized language describing duties, payments and deliverables, it may be necessary to exchange e-mails with documents embedded in them or attached to them. These e-mails may also refer to standard terms and conditions which are available on a website and those terms and conditions will then become part of the contract once the parties signify their acceptance to the deal. In virtually all states, courts will enforce agreements made via e-mail if the necessary elements of the contract, listed above, are clearly set out in the e-mail, or a series of e-mails culminating in a clear acceptance of those terms by both parties.
Now, before you run off assuming that all this means you don’t need attorneys to draft your contracts, let me remind you that there is more to contracts then simply proving the existence of an agreement. All of the cautions that I have raised in prior posts on the subject of boilerplate and do-it-yourself contracts still apply. The good news, however, is that in today’s electronic communications environment, the speed and efficiency with which we can create binding legal agreements is catching up with the needs of business.
One can even hope that, having dispensed with the archaic implements of paper and ink, businesses will use the electronic approach to properly document more of their business transactions than they did when the prospect of “getting a lawyer to write it up” was enough to cause both sides to just shake hands and hope for the best.
How often are you agreeing to contract terms on a website, for example, and you don’t sign even the first piece of paper? Think that is any less binding?