Contracts have been a staple in most of our lives, from signing terms and conditions we haven’t got the time to read, to watching lawyers argue about contracts in our favorite courtroom dramas. Contracts are one of the myriad ways in which the law permeates our lives.
Recently, digital contracts (the electronic cousins of contracts written on paper) have seen a surge in popularity, owing mostly to interest from businesses trying to adapt to the increasingly digital nature of the corporate world. But what exactly are electronic contracts, and what flavors do they come in?
What is an electronic contract?
In basic terms, an electronic contract is simply a digital version of a regular contract. However, it isn’t enough for an electronic contract to just be a contract; it must also be a valid contract within the interpretation of the law.
The Indian Contract Act of 1872 prescribes the conditions, fulfilling which an agreement is deemed a valid contract. These include –
- Offer and acceptance
- Free consent
- Lawful consideration
These conditions are meant to ensure that the two parties entering into a contract with each other possess the capacity to do so, are doing so freely and lawfully, and are of the appropriate age. Additionally, the contract must entail an offer and a verifiable means of accepting this offer.
Electronic contracts that meet these criteria are valid and can be upheld in a court of law.
Now that we know what makes an electronic contract let’s examine the different types of electronic contracts.
Types of electronic contracts
Shrink-wrap contracts are typically licensing agreements for software.
The name derives from the shrink wrap packaging of the CD-ROMs in which software used to be distributed. In cases when licensing contracts are packaged along with the software, the contract begins when the user tears open the shrink wrap to use the software.
Licensing agreements these days are usually not delivered with the packaging and instead show up before installing the software in question.
Clickwrap contracts refer to those familiar and long blocks of text that nobody reads, detailing the terms and conditions for using a web-based service, software, etc.
They’re called clickwrap contracts because the user typically has to click a button or check a box to indicate that they accept the contract.
You’ll have noticed that clickwrap contracts are “less negotiable” than shrink-wrap contracts, i.e., they must be accepted for the user to proceed to the next web page or gain access to an application, so forth. Essentially, clickwrap agreements create a scenario in which the user is forced to either take it or leave it.
This creates a slew of legal problems regarding the enforceability of clickwrap contracts, which you can read more about here.
Essentially, browse-wrap agreements are contracts that you agree to simply by continuing to use the service or continuing to browse the web page, which is where the term originates.
Additionally, the terms of browse-wrap agreements can be viewed usually through a hyperlink.
Emails are not something you’d expect to see in a list of electronic contracts, but they have been ruled in several cases, to constitute a legally binding contract.
For example, in the case of Trimex International FZE vs. Vedanta Aluminium Limited, India 2010, the Supreme Court upheld the validity of an unregistered and unsigned contract discussed via email; thus, confirming the enforceability of the contract through email.
Emails can also be signed electronically, which is an important criterion for deciding when an agreement becomes a contract.
- Aadhaar-based signatures using an OTP
- Digital signatures that use an asymmetric public key system and hash algorithms, and allow users to sign documents with a password
Electronic signatures are recognized by the IT Act, 2000, which contains provisions
ensuring the legal validity and enforceability of documents signed using electronic signatures.
Therefore any contract conforming to the criteria laid out in the Indian Contract Law, and signed online using electronic signatures constitutes a valid electronic contract in India.
Electronic evidence creation is an area of keen interest to us at SignDesk and one in which we innovate constantly. Keep an eye on our social media for the latest updates on our releases. We’ve got something exciting brewing in the pipeline!
Should you be using electronic contracts?
Now that we’ve gone over the various types of electronic contracts, the question of whether they’re right for your business remains.
Electronic contracts are primarily a response to the expensive and inefficient paper-based documentation methods employed by many businesses. If you’ve been using paper contracts and wet signatures, you know how slow and frustrating they can be.
Electronic contracts, on the other hand, are completely digital and have been shown to increase worker efficiency by more than 20%, and reduce turnaround time by almost 99%!
E-signatures, in particular, save businesses massive amounts of time and effort. Therefore, the answer should be obvious – Yes! You should be using electronic contracts.
If you’re going to be using something, you might as well choose the best. SignDesk has been helping businesses go paperless for over four years, to great results. We have reduced onboarding time by 90% and saved 120 hours per customer per client for our 350+ clients.
Our e-signature product supports both Aadhaar eSign and digital signatures and is used by nearly all major Indian banks. Curious about how else we help businesses go paperless? Book a free demo with us now and find out!