Contract Signing Basics
On their most basic level and for purposes of this article, the contract formation process generally proceeds in the following way:
- (1) one party proposes to its intended counterpart to enter into a contract which states the terms upon which the party is willing to enter into the contract (known as the "offer");
- (2) the other party accepts the offer without modification of its terms (known as the "acceptance"); and
- (3) the parties act in accordance with the newly formed contract (known as the "performance").
A contract is defined as a legally binding agreement between two or more persons (or corporations or other entities). Under English law , the essential elements of a contract are:
• offer and acceptance
• intention to create legal relations
• consideration
• legality of purpose
• capacity
• certainty of terms
Importantly, the "contract" does not need to be in any particular kind of form to be binding on the parties. While parties are free to sign the contract, a contract can also be valid if it is not signed and entered into in a formal way. For example, a contract may be formed verbally or by conduct (the parties may have agreed to the contract in a verbal conversation, whether face-to-face or over the phone, or acted in a way which is consistent with the contract being in place – see for example Pagnan & Fratelli S.A.S v Feuhalter & Co Spa. A contract may also be formed by electronic communication through electronic messaging, email or web-based exchange.
Traditional Contract Signing
The two most common methods for signing a contract are by "hand" or via "facsimile." In either instance, signatures are merely made via a hand-written signature or a scanned image of a hand-written signature that is inserted into an electronic document. If a signature is made by hand, it is understood that the party intends to be bound by the terms of the written contract. In such instances, the law presumes that a party will not sign a document unless he/she intends to be legally bound. However, when the law presumes a party’s intent to sign a written contract, a party cannot later claim that he/she was unaware of the contract’s terms. Thus, a party cannot avoid what he/she has agreed to by arguing that he/she was not aware of the terms of the contract. Rather, the burden is then on the other party to show that by signing the contract, there was a meeting of the minds on the terms thereby creating a legally binding contract.
If a party does not sign any document that is necessary for enforcing the executory (i.e., not yet completed) phase of the contract, that party’s failure to sign the required document may delay the completion of performance. The law recognizes that a written contract may require the parties to subsequently sign other documents that are needed for perfection. As such, what constitutes the contract is flexible; the law does not insist that a written contract embody all of its terms at once. "When there are outstanding agreements to be reduced to writing and signed which are collateral to the main agreement, the latter may or may not be considered a complete contract until the collateral document is executed." If a party does not sign a collateral document (e.g., a deed, bond, mortgage, lien, or lease), the law does not enforce the contract and gives the aggrieved party the option of rescinding the contract.
As with hand-written signatures, if a party signs a contract by authorizing the use of a facsimile of his/her signature, a party’s intent to be bound by the terms of the contract is presumed. The party seeking enforcement of the contract has the burden of showing that the signatures were made by hand if someone contests the authenticity of a signature.
Electronic Contract Signing
In this digital age, it is essential to understand that all the above-mentioned processes of wet-ink signatures on paper contracts also apply to electronic signatures. In fact, not only is it common to receive electronic contracts for which you have to sign and return via email, but also, most probably you are already using various forms of electronic signatures, consciously or unconsciously. For example, when accepting a web visit’s policy and clicking I Agree, you are essentially signing an agreement. Similarly, clicking I have read the terms and conditions when downloading an app on your mobile phone, or at the end of your online banking transactions. There are endless examples of electronic contracts that we partake in on a daily basis.
The important point here is that electronic signatures are equally valid as ink signatures, for evidentiary purposes according to the EU E-Signature Regulation (eIDAs) and according to the ISO standard for information technology. However, it should be noted that even if the EU regulations have been adopted within the EU, the classification of the electronic signature and its evidentiary value in court may depend on the national law of the Member State where the dispute arises, for example.
Witness and Notary Signing
In the case of a contract for either the sale of land or a lease of land, given the significant rights that pass to the purchaser or tenant of land, there is a requirement that such contracts be in writing, signed by all parties and also witnessed. In practice, where a contract is intended to be a deed, it must be executed as a deed with the benefit of Independent Legal Advice, although there is an exception to the same when the contract relates to a business tenancies (tenancy agreements servied under Part II of the Landlord and Tenant Act 1954) (such contracts not being required to be done by deed) .
Unless an agreement for lease is executed as a deed, a separate deed is required in respect of the grant of lease once the contract for sale has been completed.
Witnesses
Witnesses are required to ensure:
Where the contract is for the sale of land it is usual for the purchaser’s solicitors to have the contract in draft, to be sent to the other party for signature with a request for the same to be retained by them. By so doing, both parties should have a signed contract on their filing systems for future reference.
Notarisation
In addition, if the parties are located outside of the UK, they will be required to have the contract Notarised (this being a process performed by a Notary Public).
Mistakes in Contract Signing
Contract signing usually comes at the end of the business negotiation process, once the agreement has been mostly finalized. But there are still a few pitfalls to look out for before agreeing to these final terms.
Unclear Terms
If you are too quick to sign on the dotted line for a contract that is unclear about what you are agreeing to, you’re asking for trouble. For example, if the entity you are signing with has a term, or any other aspect of your agreement, that could be misinterpreted in a variety of ways, you run the risk of misunderstanding how the contract is going to play out.
Try to stay patient and carefully review all parts of an agreement before signing. If anything is unclear, make sure you work to have it explained to you before affixing your signature.
Lack of Consent
In order for a contract to exist, all involved parties must consent to the terms they are agreeing to. Consent can be lacking in situations of fraud, duress and mistake. Make sure you understand what you are signing, and are not being forced to sign against your will. If you do not understand the parts of a contract you are agreeing to, there is a possibility of mistake, and you should not sign until all confusion is resolved.
Unsigned Supporting Documents
Some contracts will reference supporting documents that go along with your agreement. If you sign a contract that references these supporting documents, and the supporting documents are never officially provided to you, you could be in trouble. A case example in Washington state involved a situation where two parties signed a contract to purchase an existing contract from another company, as well as a separate agreement between those two parties. This new agreement never materialized while the first contract remained in involvement. A lawsuit and decision later ruled that the initial contract never went into effect because one agreement was referenced in the other, and therefore a complete, unsigned agreement never existed.
In your own situations, make sure you are provided with all supporting documents when signing a contract, so you are familiar with all aspects. It could save you a lot of money and time down the road if you are required to litigate over what you thought you were signing.
Future of Contract Signing
A recently released white paper by the Association of Corporate Counsel (ACC) on the use of contracts by the legal department shows that US and Canadian companies are increasingly interested in adopting contract lifecycle management (CLM) technology, in part because of increased interactions with compliance and business partners that result from outsourcing contractual engagements. The ACC report describes in detail how among the 49% of in-house respondents anticipating expanding their use of tech solutions this year, nearly half are looking to adopt a CLM solution.
In addition, blockchain and smart contracting has been discussed for some time as holding the potential to revolutionize contracting. In fact , blockchain technology’s ability to store and distribute data has already begun gutting industries that rely on middlemen. Some examples include mortgage-backed securities and the possibility of a world without notary publics. Contracts and transactions are ripe for being revolutionized by smart-contracting technology, which operates on blockchain. In essence, smart contracts require no human intervention to execute. Their code "observes" if a precondition is met, and if so, then automatically executes the following precondition. Rights and obligations are thus self-executing and become legally enforceable upon execution. Because of the velocity of the transactions and the inherent protection of blockchain data, many within the industry see smart contracting as the key to making mass-customized contracts scalable.