Practiced for years to perfect, a signature is more than just something a person uses when writing their name. When used on a contract, a signature becomes legally binding. Contracts are common within healthcare, finance, and legal industries and will require signatures to become valid. Though people regularly sign contracts, it is crucial to avoid signing a contract without paying attention to it. Understand the legal considerations of signing a contract, how to check over the contract before signing, and how to make sure the signature will be secure when signing contracts electronically.
Understanding Contracts
Definition of a Contract
A contract is a legally binding agreement between two or more parties that outlines the terms and conditions of a business transaction or arrangement. This written document serves as a framework for the parties involved to understand their rights, responsibilities, and obligations. By clearly defining the scope of the agreement, a contract ensures that all parties are on the same page, reducing the risk of misunderstandings and disputes. Whether it’s a simple purchase agreement or a complex business deal, a well-drafted contract is essential for establishing a legally binding relationship.
Importance of Contracts in Business
Contracts play a crucial role in business as they provide a clear understanding of the terms and conditions of a transaction or arrangement. They help to establish trust and confidence between parties, reduce the risk of disputes, and provide a basis for legal recourse in case of non-compliance. A well-drafted contract can help to protect the interests of all parties involved and ensure that business transactions are conducted in a fair and transparent manner. By outlining the expectations and obligations of each party, contracts serve as a safeguard, ensuring that business agreements are honored and that any legal disputes can be resolved efficiently.
Legal Implications Before Signing
A contract can be for employment, leasing property, purchasing products or services, construction, or anything else. To be legally binding and enforceable through the courts if a dispute happens, a contract does need to meet a few requirements. It is also advisable to seek legal counsel to review the contract to ensure all legal requirements are met and to identify any potential issues.
The Offer in the Contract Signing Process
The offer is what one party gives to the other party in exchange for consideration. For instance, the offer would be the property being sold for a real estate contract. The offer would be the pay provided to the new employee for an employment contract. Be as specific as possible when describing offer.
The Acceptance
Acceptance is when the other party agrees to the offer. It is necessary to write out everything involved in the acceptance to ensure the contract’s terms are clear between all parties. For an employment contract, the acceptance might include how long the contracted job lasts, the pay and other benefits, and further details that describe under what condition the employee is accepting the offer.
Consideration
Contracts cannot be one-sided – there needs to be something given by both parties. While one party will initiate the offer, the other party will provide consideration. The consideration would be the funds paid to purchase the property in real estate contracts. For an employment contract, the consideration would be the job tasks done to fulfill the contract.
Competency
Both parties need to be legally able to sign the contract for it to be enforceable. If one party is not of a legally sound mind or is a minor, the contract may become void if a lawsuit is needed to settle any disputes.
Intention
The contract must be created with the intention of both parties to be legally bound to it. When the contract is signed, the legal implications of the agreement come into effect, binding both parties to the terms outlined. The signature can typically be used to prove intention in court.
Not all contracts end up in court. If both parties sign a contract and there are no issues moving forward, there is no need to go to court. If, however, there is a dispute, one party can take the other to court to enforce the contract. The court will then look at the elements here to see if the contract is legally binding before rendering their decision.
The Contract Signing Process
Steps Involved in Signing a Contract
The contract signing process involves several steps that must be followed to ensure that the contract is legally binding and enforceable. Here are the key steps involved in signing a contract:
Preparation: The contract must be carefully prepared and reviewed to ensure that it accurately reflects the terms and conditions of the agreement. This step often involves drafting the initial document and making sure all necessary details are included.
Review: Both parties must review the contract carefully to ensure that they understand the terms and conditions outlined in the document. This step is crucial for identifying any potential issues or areas that may need clarification.
Negotiation: If necessary, parties may negotiate the terms and conditions of the contract to reach a mutually acceptable agreement. This step allows for adjustments to be made to ensure that both parties are satisfied with the final terms.
Signing: Once the contract has been finalized, both parties must sign the document to indicate their acceptance of the terms and conditions outlined in the contract. The signature is a critical component that makes the contract legally binding.
Dating: The contract must be dated to indicate when it was signed and to provide a record of the agreement. This date is important for tracking the timeline of the contract’s validity and enforcement.
Initialing: Any changes or amendments made to the contract must be initialed by both parties to indicate their acceptance of the changes. This step ensures that all modifications are acknowledged and agreed upon by both parties.
Execution: The contract must be executed in accordance with the laws of the jurisdiction in which it is being signed. This step involves ensuring that all legal requirements are met for the contract to be enforceable.
By following these steps, parties can ensure that the contract signing process is conducted in a fair and transparent manner, and that the contract is legally binding and enforceable. This thorough approach helps to protect the interests of all parties involved and minimizes the risk of legal disputes.
Avoid Signing a Scam Contract
Unfortunately, scam contracts are prevalent, and courts can force them in some situations. They can also be a way to steal personally identifiable information contained in the contract or for other nefarious purposes. As long as the contract is expected, use the following to check any potential contract to make sure it is not a scam.
Check the Website
Check out the website for the company providing the contract. Does it look like a scam, or is it a well-designed website for a legitimate company? The website should not be a single page with minimal information, and it should include contact information for the company and details about the company. Look at the URL itself, too, for any signs of a scam. Websites should include the company name, not just a string of numbers and letters.
Check the Person’s Email Address
When receiving an electronic contract, check the email address of the sender. It should be in the format name@company.com or something similar. If the name or company name includes a string of numbers or letters, it is likely not a company-provided email address and can be a sign of a scam. Get in touch with the person sending the contract to see if the email address is correct.
Search Online for Information
A quick Google search with the company name and “scam” can lead to a lot of information. When a company scams someone, the victim may write reviews or post information about the scam online. This information will generally show up in a Google search and can offer insight into whether or not the contract is legitimate.
Check the Details of the Contract
When a contract is expected, both parties will know the details before it’s received. Reading through the contract allows each party to make sure it does include the terms that were discussed and that there aren’t any surprises.
Understanding the legal obligations outlined in the contract is crucial to ensure compliance and avoid potential liabilities.
Know Why the Contract Exists
Contracts shouldn’t be sent without any prior discussion. If a contract appears without prior contact with the company or an agreement to sign a contract, it may be a scam. Always look into why the contract was sent, who sent it, and whether it is something that should be signed before signing.
Check for Time Constraints
Scams often include a rush to sign, as this can cause the other party to be flustered and sign quickly without reading through the terms. Never sign without reading. If there is a rush to sign, especially if it is to the point there is no opportunity to read through the contract or have a lawyer review it, avoid signing it. There should always be time to read through the contract carefully before signing.
If there is any doubt about the validity of a document, do not sign it. Thieves can use the information contained in the contract to steal someone’s identity, open lines of credit in their name, or for other purposes. It is best to get in touch with the company that is supposed to send a contract to make sure it is legitimate and to read through it carefully to avoid signing anything unintentionally.
Review Security Measures
Contract signees are using electronic contracts more frequently today, and they can be a fantastic option when contracts need to be signed by two parties who cannot meet in person. However, there are security concerns to be aware of when signing any document electronically. Before signing, review the security measures for the eSignature app, check out the website for the signature program, and look for the following.
Electronic Signature Company
Always check out the company the contract will be signed through before signing. Review the company’s website and get more information about how they keep documents secure. Companies may white label an existing signature provider’s product, so even if it has the company’s logo, it should be possible to find out what service is being used and take a look at the service before signing.
Check for Advanced Controls
Advanced privacy controls should be available, such as 2-factor authentication (2FA), automated timeouts for all sessions, and advanced tracking. These controls prevent unauthorized access, so someone cannot sign a document on behalf of another without that person knowing. Proving the signature is valid can help prevent one party from saying that they did not sign the contract and, therefore, they shouldn’t be held to the terms in court.
Look Into Encryption and Security
The eSignature app should use secured HTTPS connections and should use encryption for the storage and transit of all documents. Look for AES 256-bit encryption for documents in storage and during transfer and TLS 1.2encryption for files in transit. Encryption is used to scramble the documents while they’re transmitted or stored so that if someone gains access to the document, they won’t be able to view it without authorization.
Know What Happens if There’s a Problem
While both parties should thoroughly review a contract before signing, mistakes can still happen. Always be aware of what to do if there is a problem and any deadlines for making changes or adjustments to the contract. If there is a mistake in the document, find out if there is a way to void it and make adjustments before signing again. Some eSignature companies like mSign offer a button that will void the document, and this is a convenient way to cancel the contract until appropriate changes can be made.
Always make sure there is a way to make changes or cancel the contract if one party notices any mistakes. While some mistakes may seem minor, they can be larger than expected down the road. Mistakes can also lead to a court case to determine if the contract is enforceable as-is and what that enforcement will include. It’s always better to fix mistakes as soon as someone notices them, so make sure there is a way to do that and understand the steps needed for any corrections. If there is an issue with a signed agreement, it is important to understand the steps needed to address and rectify the problem.
Know the Features for Using Electronic Signatures
Electronic signatures are being used far more frequently today with the pandemic and increasing global contracting. Before signing any document using an eSignature, check out the features offered. Electronic signature companies like mSign provide many helpful features when filling out a contract, such as the following.
Signing Orders
It is possible to set up a particular order for when each person can sign the document. If there is a specific order of signatures needed for the document, this helps prevent anyone from signing out of order.
Editor Privileges
The contract creator can set up editor privileges to allow some of those involved to make changes before the contract is signed. If someone does not have editor privileges turned on, they will not be able to make any changes.
Approvals
Approvals may be needed to verify that documents have been signed or that everyone agrees to changes. Even if the contract is signed, the contract will not yet be valid if the approvals are not done.
Audit Trails
Audit trails can be turned on or off and allow for the recording of the document’s history. Details in an audit trail include who has viewed the document, who signed it, when it was signed, and what computer was usd for the signature.
Notarization
Some documents need to be notarized, and this is something that can be done electronically. The signor will need to meet in person with the notary, but the document can be signed and notarized electronically, so all parties do not have to be present when it is signed.
What to Include in a Contract
Depending on the document or contract, there may be specific requirements for what is included. All contracts should include names and contact information for all parties involved, and they should also include dates for when the document is signed, when it goes into effect, and when it ends. For the medical industry, documents may also require patient ID numbers, HIPPA cover sheets with a confidentiality notice, and other details to protect patient’s privacy.
The contract should also include all pertinent details. If something is not in the contract, it will not be enforceable in court. Everything should be written down to prevent any potential errors or misunderstandings and protect both parties in case there is a disagreement over what the contract covers. Contracts may also include information about handling any disagreements to prevent going to court if possible.
Use the legal considerations above to make sure the contract is valid and legally binding once it is signed. If the legal considerations aren’t present in the contract itself or something is missing, it may not be possible to enforce the contract. Enforcement comes into play when one party declines to follow the contract and the other party takes the case to court. If the contract is missing crucial information or doesn’t include all of the legal considerations, the court will not enforce it. A signed contract serves as a legally enforceable document that outlines the agreed-upon terms and conditions.
Read Everything Carefully to Catch Errors
Before signing, always read through the document carefully to spot any potential issues. Check names, dates, spellings, financial information, and more to prevent problems that could prove costly or time-consuming to deal with once the contract is signed. Editors often start at the end of a document and read through it one paragraph at a time to get to the beginning. By reading the document in an unusual way, it’s often easier to spot errors and typos that could be problematic in the future.
The signature on a contract shows that it was read and understood, and that the signor agrees to all terms and conditions. It is crucial to understand the terms and conditions before signing. Depending on the document, it may be beneficial to have a lawyer review it before signing. A lawyer with contract law experience can spot inaccuracies, potential problems with enforcement, and other details that the average person may not notice. In most cases, parties will not be required to hire a lawyer before signing a document, but the expense could be well worth it by being able to avoid potential issues.
Check Financial Information Carefully
After reading the document carefully, go over the numbers one more time. A decimal in the wrong position, an extra digit, or math that isn’t done right can cost the signor a significant sum of money in the long run. Always double-check any numbers carefully before signing and if there is any question as to whether something is correct, be sure to ask about it. Never sign without being confident that the numbers are accurate and the document is ready to sign.
It is often helpful to print the document and highlight any numbers. HIghlighting enables the signor to go through them easier, make sure they match when needed, and that everything adds up to the correct total. Never assume that the numbers are correct or guess what the numbers should be – do math and make sure they are correct. The time to make changes to the financial amounts in the document is before it is signed, not after.
Understand the Legally Binding Document Before Signing
When reading through the document, take note of any familiar terms. Documents often include many legal terms that may not be familiar to the average person. Skipping over these terms without understanding them can lead to mistakes, as the person may not know what they’re signing or what could happen if they don’t uphold their end of the agreement. Written agreements provide a clear and enforceable record of the terms and conditions agreed upon by the parties. Some of the most common terms used in a contract include the following.
Acceleration Clause
With an acceleration clause, if one party does not uphold their end of the contract, the other party can require payment in full immediately. Acceleration clauses are common in financial documents, as they help prevent late or missing payments. If someone is required to make payments toward a total amount per the contract and does not make one or more payments, the acceleration clause allows the other party to request the remaining funds in full immediately. Typically, if the remainder is not paid in full, the party loses the item purchased and any funds paid towards that item before the acceleration clause is enacted.
Arbitration
Going to court is expensive for all parties involved, so there will likely be an arbitration clause. This clause specifies how any breaches or problems are settled and specifies that mediation or other methods are to be used before going to court. An arbitration clause can prevent court cases in a dispute, but going to court often does still remain an option if the parties can’t reach an agreement.
Attorney Fees Provision
To prevent disputes, there may be an attorney fees provision. If one party fails to uphold their end of the contract, they will be required to pay the attorney fees for both sides. This clause can apply to all disputes regarding the contract or may only be applied to frivolous claims, depending on the specific wording in the provision.
Breach
A breach occurs when one of the parties doesn’t uphold their end of the contract. When there is a breach, various clauses could come into play, such as the arbitration clause or the acceleration clause. Both parties need to understand what constitutes a breach and what happens if one occurs.
Conditions
Contracts can include conditions for specific events that could happen during the contract duration. If the event happens, the condition will state how the parties react to the event and what steps need to be taken next. The condition can happen as a part of the contract if it includes multiple steps or as the result of a breach. A written contract helps to clearly define these conditions and ensure that all parties understand their obligations.
Damages
If a breach does occur, the contract may allow for damages to be awarded to the other party. Damages usually include a financial amount paid to the other party, but not always. Damages should be clearly noted in the contract so both parties know what it would cost to breach the contract.
Guaranty
In some cases, one party cannot fill out the contract on their own due to age or other limiting factors. In these cases, a and help maybe needed. The guaranty clause allows for a third party to become involved and help one of the parties to the contract. If the party involved in the contract doesn’t fulfill their obligations, the third party will be responsible for doing so instead.
Indemnification Agreement
An indemnification agreement states that the parties agree not to involve the other party in legal claims. Indemnification agreements are done as a way for parties involved in the contract to protect themselves and often include specific details and limitations. It is crucial to understand the indemnification agreement before signing the contract.
There is a lot behind the signature on a contract. It is not just a way for a person to write their name but a way to create a legally-binding document that one party can uphold in court if the other party does not follow it precisely. Though it is easier than ever to sign contracts through an eSignature company, it is still crucial for all parties involved to understand what is being signed and agree to all terms and conditions. Use the information here to thoroughly investigate and review any contract before signing to prevent potential issues.
We’re here to support you
Although we can’t provide legal advice, we want to help you make wise decisions when it comes to signing documents. We hope this article has shown you some practical ways to protect yourself and your business as you prepare to sign agreements. If you have any questions or if we can help you in any way, please contact one of our representatives today.