1. Negocios

E CONTRACTS 101: THE BEGINNERS GUIDE TO CONTRACT LAW
There have been two times in my career where misapplied or changed signatures and
contracts have led to serious consequences. Let me tell you those stories briefly, to get
you in the mood for a bit of contract law.
In the 1990s, my partner and I decided to setup our own software company. We were
total novices; we had never setup a company before. Soon after we found a third party
who offered to resell our product for us. This seemed like a great idea. They had sales
experience; we had a product, what could go wrong.
A year later, we were in court, battling for the rights to our own product. The reseller
turned out to be, less than honest. They had tricked my partner into signing a contract,
which gave them, ‘world-wide and exclusive rights’ to our product. I had no sight of the
contract and my partner, a software developer, wasn’t very savvy about these things (I
am shaking my head as I write). The end result was a cost of over $160,000 in court costs.
We did win our case, but we almost lost our company, the court placing an embargo on
sales until the matter was resolved.
The second contract debacle happened a few years later to a colleague. He was the
CTO of a small software house. This software company was taken over by a larger
company. He duly signed the merger contract, which at that time had no stipulations
over intellectual property (IP) ownership as they were developing new products.
Subsequently, one of the original products became a killer app. The merger company
then attempted to take the original product copyright. They attempted to do this by
copy and pasting in IP ownership clauses into the contract. This came out in a court
case over IP. To all intents and purposes, it looked like my colleague had signed a much
larger scope of clauses, handing over IP from his original company. It was only after
forensic analysis of the contract and a court case that the added clauses were revealed
as fake. Again, the case was won, but at a massive cost and in the end, the entire
company went into liquidation.
Elements of an E contract in Contract Law
When you do any business deal, it is always a good idea to get an agreement of the
various terms in writing. Contracts can be verbal or in the form of a deed too. The
contract forms a promise. This usually means that one or both sides will receive some
sort of remit as part of the obligations in the contract; you scratch my back and I’ll
scratch yours.
The obligations are enforceable by law. So if you renege on any of those obligations,
you can be taken to court and be dealt with. This is what happened in my cases above,
but going to court should always be the last option.
In 1988, the U.S. became a member of the ‘United Nations Convention on Contracts for
the Sale of Goods’. This overriding structure governs the execution of contract law
(warning, good nighttime reading for insomniacs).
E contracts are digital versions of the old paper contracts
The same essential laws govern them. The parts of a binding contract, both e contract
and paper, that are vital, are:
Offer: This is the promise between the parties. So for example, company X will develop
company Y’s web application; company Y will own the intellectual property, and will
pay company X $5,000 for this work. The offer then needs to be accepted. So, in the
example above company Y will accept that they will pay $5,000 (usually with a
timescale set). Company X will develop the site and make no claims at that time, or in
the future, for the intellectual property generated during development.
Acceptance: This is where both parties accept the terms of the offer using some form
of communication. An offer isn’t automatically accepted just because you haven’t
expressively rejected it. It’s not quite as simple as that (is the legal system, ever).
There are variants around acceptance. A unilateral contract has an acceptance based
on the performance or non-performance of a task. Bilateral contracts are only
accepted once the promise of the contract has been enacted by both sides. It gets
trickier when you have a situation where someone accepts a specification that isn’t
exactly what they wanted, pays for it, then realizes it is wrong. Their payment
promise means they have effectively accepted the contract, which is now complete,
even if it isn’t what they hoped for.
Consideration: The consideration of a contract is the items of value that the contract
revolves around. In the example of company X and Y above those considerations are
software code, IP, and monies.
Mutuality of Obligation: This is related to the promises made in the contract. You
should set out the expectations of the promise delivery, to avoid ambiguity around
performance and subsequent invalidation of a contract.
Mutuality of obligation is becoming a contentious area, especially in employment
and contractor contracts. A case involving a Stringfellows nightclub dancer shows
how complex this element of a contract can be.
Legal competency and capacity: This sets out the legal status of the persons who
are entering into the contract. Certain persons are deemed as being unable to give
clear consent. Typically this would include minors, bankrupts, mentally
incapacitated or intoxicated people. This element is to protect those people from
entering into something, legally binding that they may not understand.
Writing requirement: Almost every U.S. state has created legislature, which
requires that certain contracts must be in writing (this includes e contract form) to
be legal. It is known as the ‘statute of frauds’ and the basic argument is, it’s always
best to get it in writing. In terms of freelance or contractor contracts, anything over
$500 really needs to be in writing to be legally enforceable.
Once you have all of these elements in place, you have a legally binding contract.
Creating a watertight contract does not have to be difficult. Here are a few tips to
make sure you get it right first time and avoid your day in court:
Be prepared
Firstly, you will often find that you can re-use the same basic contract structure for
each new client. You may make a few minor changes, but the important clauses, such
as termination clauses, often remain the same. Using a lawyer to create a robust
contract in the first instance means that future contracts can be based on this
template. Digital signature portals, like the ApproveMe system, work with the concept
of contract templates for this very reason.
Make sure all stakeholders have read the contract
Once you have your contract, make sure every signatory of the contract has read it
thoroughly and understands the implications of the promises and other clauses. They
will be agreeing to them when they add their signature. Again, ApproveMe helps with
this process by entering the contract in a document management control system.
Have all stakeholders sign the contract
If you are using an e contract system, like ApproveMe, you can make sure this part
of the process is streamlined. The e contract is sent to each stakeholder, who in
turn authenticates that ‘they are who they say they are’, before adding their e
signature on the contract.
If and when it comes to the time that the contract is to end, or worse, you have a
contract breach, you will have documentary evidence in the form of audit trails and
even revoked signatures, showing who saw the contract and agreed, on both sides.
If you do end up in court, having an ESIGN compliant e signature on an e contract
will make the process much easier and therefore much cheaper.
Laws like ESIGN and UETA mean that correctly applied digital signatures carry the
same weight as traditional pen and ink signatures. Electronic signature,
technology, however can go one step further and create fully audited trails of
document access, signing, and agreement. It even protects those all-important
clauses from abuse.
One rock solid contract..
Having an electronic signing process in place with a legally binding contract adds a
technological barrier to any contract shenanigans, like I described above. In those
cases, both could have been prevented altogether using e contracts with e
signatures based on firm contract law.
Today, contracts can be created that are fully audited with built in non-repudiation
of e signatures, i.e. the e-signatures are binding and tied to the very content of the
document. If any changes are made, they instantly invalidate the e-signature and
the signatories are alerted. There is no way that the two cases above could have
occurred if an electronic contract and an electronic signing process had been
followed.
In the first case, as the director of the company I’d have been alerted to the
contract creation and signing event as I could tie contracts into my document
management processes. In the second case, my colleague would have been alerted
to the contractual clause changes, the signatures would also have been invalided,
voiding the contract
. E signature laws like ESIGN give us the tools to make sure that even e contracts can
be fully enforced under contract law.
To make sure your contracts are enforceable and unable to be manipulated, check out
our ApproveMe E-signature WordPress Plugin.
Article Resource: https://www.approveme.com/e-signature/e-contracts-101beginners-guide-contract-law/