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Online Contracts: Legal Agreements on the Web

By: Steve Stormoen / Thursday, November 8, 2012


Why are we still using QWERTY keyboards? This layout comes from the days of typewriters, and was designed not for speed or ergonomics, but to keep the keys from jamming! And yet that layout has stuck with us from typewriters to computer keyboards to the virtual keyboard on your smartphone or tablet, whose keys almost certainly never jam. The reason being: the QWERTY layout, though imperfect, is what everyone already knows. Not only is the layout familiar to us, it’s comfortable, and that familiarity and comfort is more useful to us than the superior typing speed and ergonomics of a competing layout, like Dvorak.

The same principle applies with a business contract, which traces its lineage to even earlier than the typewriter. That contract has evolved from a simple handshake to a contract written by hand, then with a typewriter, a word processing machine, and now a PC, sending documents seamlessly over the internet. However, no matter how much of our workflow we’ve shifted online, most people don’t view a contract as valid until each party signs with a personal, handwritten signature.

Unfortunately, this usually also means printing the document out on paper, faxing it away, and waiting for it to be faxed back. Logically, this seems absurd: electronic documents are the reigning global standard, and email is now three decades old. However, a look at history can help us understand why signatures are so important, and how we can update this standard for now-mainstream technology.

Act I: Before Signed Contracts, Handshakes and Wax Seals

A mere few hundreds of years ago, before literacy was widespread and paper documents were ubiquitous, the signature as we understand it today did not exist in the western world. Agreements between two parties were generally made verbally, face to face, with a handshake to seal the deal. This had the advantage of allowing the deal to be negotiated and agreed upon by both parties in person. And while the social pressures of an in-person meeting made for a strong incentive to keep one’s word, most deals settled over a handshake couldn’t have had any sort of outside mechanism of enforcement, or any indelible record to confirm the precise wording of the contract. As a result, these contracts were generally very simple, limiting the types of agreements that could be made.

The other ancient ancestor of the modern signature is the personalized wax seal, used to verify the sender of a confidential letter or other communication. These seals had the same benefits and drawbacks as the handshake deal, but in reverse: the written letter could be complicated and precise in its wording, and didn’t require both parties present to reach an agreement. However, the correspondence generally went in one direction, mirroring the political order of the times—those rich enough to be literate and have a personal wax seal generally gave orders by fiat, rather than through negotiation.

Interestingly, handshake deals and the digital versions of wax seals still have their place in today’s world, but are obviously no longer the dominant mode of doing business.

Act II: The Rise and Growth of Written Contracts

If we’d had hashtags back in the day, #democracy would have been trending around the same time as #literacy did in Western Europe and their new American colonies. With enthusiastic nations adopting freedom and equality as foundational political concepts, a person’s consent and the legal need to obtain it was gaining increased importance in government and business. Add these elements together and you get perhaps the most famous signature in history: John Hancock’s oversized flourish is a fixture on the US Declaration of Independence.

Technology has since enabled contracts to become longer, more complex, more precise. and more numerous. The advent of typewriters, mimeographs, word processing machines, photocopiers, and finally PCs have repeatedly revolutionized the way we compose, reproduce, and distribute paper documents. The time and money saved has allowed us to both make signed contracts not only longer—anyone who has spent time structuring a contract or involved with a case in a court of law, with hulking statements and appeals paperwork, would readily agree—but more plentiful as well. On your lunch break today, for example, if you pay with a card at a restaurant, you’ll likely have to sign your receipt to complete the transaction.

All that paper comes with a price, however. First is the monetary cost of such extensive printing, then the environmental cost of all that paper and ink, and finally the cost in labor and convenience to keep track of thousands upon millions of important contracts, receipts, and other paperwork. This is the problem that electronic signatures seek to fix, but haven’t fully yet.

Act III: Online Contracts and the Future of Business

The reason we see electronic signature software as an essential tool for any modern office, besides its benefits for the efficiency and cost savings of your business, is the way it evolves contracts and the way we do business itself. But most attempts at creating a standard electronic replacement for the handwritten signature have flopped for the same reason as poor Dvorak: they fail to integrate the habits we’re used to, and fail to understand why those habits are important.

Electronic signature legislation such as the E-SIGN Act and UETA define an electronic signature not as a stylish writing of one’s name, but rather as “an electronic sound, symbol, or process … executed or adopted by a person with the intent to sign the record.” But these more abstract electronic signatures have failed to catch on beyond click-to-sign EULA agreements that no one ever reads, and are truthfully designed to not be read.

RightSignature, which offers a free trial for new users, is the only electronic signature software that understands and reinvents the way we have become accustomed to signing contracts. What makes an electronic signature an accepted standard needs to be what makes handwritten signatures so intuitive: when a person writes their handwritten signature on a document, they are symbolically pledging on the strength of their name—on their reputation as a person—to the truth of that document, and to their intention to fulfill its terms.

We are already experiencing a future that promises even an even greater portion of our workflow shifting online—with the rise of online software programs like Google Docs, contracts are now being composed collaboratively and entirely online, with the redlines of either party easily defined and discussed. Shifting to electronic signatures as a standard for closing these documents simply means utilizing the symbols and habits we’ve come to expect from paper contracts and moving them online, to the same space as the rest of our workflow, with all the associated benefits in efficiency and cost.

With the API integrations that the best cloud-based SaaS programs have built with one another, forward-thinking professionals are already composing contracts in an online office app. These users are sending their documents for signature in RightSignature to a contact from their CRM, then storing the completed document in their cloud storage service of choice, without ever even having to download the file to local storage.

We rely on technological advances to make our workflow continually newer, faster, and better. However, it’s by connecting these advantages to the structures people already understand, like a handwritten signature, that technology and business truly progress. This is the evolution of business.

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