There was a time when a contract was not legally binding unless all of the parties involved sat down, reviewed the agreement, then signed and dated it in front of witnesses. Today, such formal contract signings have become passé. Everyone—from major corporations to the solo lighting practitioner—now uses email as their primary means of communication. Consequently, people receive and review documents on their smartphones, tablets, and other mobile devices. Some even sign documents with a digital signature.
While most businesses enjoy the ease of digital communication and negotiation, many wonder if email communications or digital signatures are legally binding. What are the legal ramifications of using email and digital signatures to conduct business and to negotiate and sign business documents?
To gain a full understanding of the legality of electronic communications, we have to discuss two federal laws. The first is the Uniform Electronic Transactions Act of 1999 (UETA). This act makes it legal for contracts to be negotiated and agreed to via email. The UETA specifically states that emailed and faxed contracts are legally binding. So any agreement made through electronic medium will, assuming all other required contractual conditions are met, hold up in court.
The second law is the Electronic Records and Signatures in Commerce Act. Signed by President Bill Clinton in June 2000, this law grants electronic signatures on contracts the same weight as those executed on paper. Even so, there are some exemptions, such as student loans, whose contracts must still be signed by hand.
The Enforceability of Email
The law has developed rapidly over the past 20 years since the UETA was passed. Clarifications of the original law and developing case law have made it reasonably clear that an email can be considered a legally binding contract. Therefore, it is important for designers and design firms to be mindful of what they write in emails as to avoid inadvertently creating a contractual obligation. Unlike formal negotiations and signings, email communications can be very casual and oftentimes fail to reflect the level of thought or care that goes into the preparation of hard-copy contract documents.
Over the past few years there have been a number of federal and state cases involving the creation of contractual obligations through email, which the author later sought to get out of. For example, a lighting designer had been negotiating a contract with a client that had gone back and forth via email for several days. Tired of the process dragging on, the designer sent an email to the client indicating that “the current terms of the contract are acceptable.” Five days after sending the email, the designer reviewed those terms and realized that he had agreed to it out of frustration, not because the terms were favorable. He immediately contacted the client and sought to revoke the agreement. The client refused, arguing that they had already turned down a number of other designers and that they wanted to use him.
The designer then filed a lawsuit seeking the court’s permission to void the contract on the grounds that it was not formally entered into, but informally agreed to via email. The court determined that the email clearly showed his intent to enter into the contract with the client and refused to let him void the agreement, comparing the situation to the request of an individual who had signed a formal, hard copy contract and then later sought to avoid his obligations simply because he had not read the entirety of the document.
But courts do still require that all of the elements of a contract be met. A contract is an agreement that sets specific terms between two or more persons or entities with a promise to do something in return for a valuable benefit. The courts have been applying standard contract law requirements to emails and other electronic communications since the late 1990s. So lighting designers need to understand the potential power of an informal email and the steps to take to protect oneself against unintended contractual obligations. And the best way to limit the power of an electronic communication is to include a disclaimer.
For example, let’s assume that you are negotiating a contract with a client. You have sent more than 10 emails back and forth trying to hammer out various clauses in the document, but you do not want any of these negotiations to be considered acceptance of a formal agreement. As such, you should include a disclaimer at the bottom of your emails that states that the message does not legally bind either party and serves only for the purpose of negotiating a final agreement. You can also state that the electronic correspondence may provide the basis for the preparation of a legally enforceable agreement but that email does not address all issues contemplated by the transaction, and as such will be the subject of further negotiations. You should also include a sentence that reads: “In the event that the parties are unable to agree upon and execute, for any reason whatsoever, a mutually acceptable formal agreement, the parties understand that each party reserves the right to cancel all negotiations and consider other offers thereafter.”
Finally, you should include a sentence that states: “In the event an agreement is executed and delivered by both parties, the terms of that document shall supersede all prior discussions and negotiations, and such documents should constitute the entire agreement between the parties.”
Electronic and Digital Signatures
There are hundreds of websites that offer digital and electronic signature solutions. Furthermore, many sites make a distinction between the two.
Most people use the term “digital signature” to mean either a digital or an electronic signature, but it is becoming standard to reserve the term for cryptographic signature methods. (Cryptography is the science of securing information and is generally associated with signatures on encrypted documents.) The term “electronic signature,” on the other hand, is used for other paperless signature methods.
There are a number of online and mobile applications that use cryptography to create a digital signature, such as SignNow (signnow.com) and DocuSign (docusign.com). In these applications, online documents (word or pdf) are encrypted to protect them from unauthorized signatures. A “key” is generated which allows only the proper parties to sign the documents.
On the other hand, while an electronic signature or “e-signature” can be a secure digital signature, it can also be a typed name or a digitized image of a handwritten signature. But with these “e-signatures,” there is nothing to prevent someone from typing someone else’s name. An “e-signature” may be legally enforceable in a number of circumstances, but it is generally considered to be less secure than an encrypted digital signature.
In general, digital signatures are fully enforceable. Both the Electronic Signatures in Global and National Commerce Act (ESIGN, 2000) and the Uniform Electronic Transactions Act (UETA, 1999) state that electronic records and signatures carry the same weight and legal effect as paper documents and handwritten signatures.
But there are a few documents that cannot be signed using a digital or electronic signature. These include wills, leases, deeds, adoption papers, divorce papers, court orders, notices of termination of leases, notice of repossessions, and notices of foreclosure.
It is important to note that when a lighting designer wants to use a digital signature on a client contract, federal law permits the client to opt out of an electronic agreement. Thus, prior to using an electronic contract and signature, the designer is required to provide the client with a notice concerning the use of electronic documents and signatures, and an explanation of the designer’s digital security. The law does not have the same requirements for business-to-business agreements.
So while using digital means of conducting business can often be quicker and more cost effective than traditional methods of signing and negotiating contracts, it is still important for lighting designers to follow the developing areas of law relating to digital signatures and electronic documents so that they, and their clients, are best served when entering into working agreements.