Companies depend on their contracts to bring in revenue, so it’s imperative that they are carried out and managed legally, and at minimal risk to the company. Typically, companies rely on lawyers or legal teams to mitigate risks within a contract, but not all companies can afford legal backup, especially the smaller ones.
A legal contract contains these elements: an offer, consideration, acceptance, and an overall collaboration of terms. When sealing the agreement, or signing the contract, you must make sure it’s done legally to ensure the terms are carried out and the company recognizes revenue from that deal.
When signing contracts, it’s not always clear what is acceptable and what is not. In court, a judge decides the validity of a contract based on “reasonable-person standards,” meaning “how would a reasonable person interpret this?” With that in mind, here are some methods of signing that are commonly brought to question:
The validity behind initialed signatures depends solely on the placement of that initial. Typically, there are slots placed near terms in a contract for initials. However, if there are ONLY initials on a contract and not a full signature, there is the possibility for it to be interpreted as agreement only to the initialed terms, and not to terms later in the contract.
While many still believe a paper and ink signature is the only legitimate signature, electronic signatures are perfectly legal in the U.S. and many countries around the world. The ESIGN Act (2000) and UETA (1999) establish that electronic signatures carry the same weight and legal effect as traditional paper documents and handwritten signatures.
In fact, many argue that electronic signatures are more secure than a piece of paper, a name and a date. Electronic signature includes the person, place, content, and the intent are all tied together:
Say you found a deal that’s perfect for your company. As you prepare to finalize the agreement, you realize that you will not be available for the final contract signing. In these cases, some companies choose a third-party to sign for them. However, it’s important to consider the degrees of a third-party authority:
Some states do consider verbal agreements to be oral contracts, enforceable like a written contract. According to the Statute of Frauds, states that contracts including the sale of goods or real estate valued over $500 must be put in writing. So if any terms within a contract were verbally established without those terms in writing with a signature, those terms can be voided.
We all can’t be lawyers, but companies have too much to lose if their contracts are being illegally signed. While hiring lawyers is always considered the safest way to avoid risks in contracts, smaller companies who don’t have the extra capital can do more increase accuracy in the contract process. To learn more about how companies can do more with less in contract management, download our ebook.