Avid shoppers will recognise the wonderful shopping bargains on Black Fridays, Cyber Mondays, 11.11 Singles Day and sales on 12.12. From e-retailers like Redmart to online marketplaces like Carousell, the convenience of the internet has indeed made it much easier for us to indulge in our occasional need for retail therapy. Online communication methods such as e-mail and instant messaging also makes it easier for buyers and sellers to negotiate the price and terms of delivery.
Traditionally, buying and selling takes place face-to-face and contracts are concluded by physical signatures on the dotted line. As buying and selling moves onto online platforms, more business contracts are concluded online. This then begs the question; how has technology changed the way we enter into contracts? At which point is the contract concluded? Are contracts just as binding without a physical signature?
Some basic concepts as to when a contract is formed
A contract is formed when these 4 requirements are met:
- An offer is made;
- The offer is accepted by the other party;
- Consideration is given; and
- There is an intention by both parties to enter into a contract.
This may sound complicated (it’s legalese after all!), but in its most basic form, it can be explained very simply in this scenario – A offers to buy B’s used guitar for $50 (let’s just say A and B are conducting a face-to-face sale). B can either accept this offer or make a counter-offer, but let’s assume that B accepts the offer of $50. A and B agree to meet up 1 week later, B will bring the guitar and A will hand him the $50 on the spot.
In the above example, the consideration is the $50 for the guitar. There is also an intention to enter into a contract, because A and B have agreed to the terms. A contract is formed once all 4 requirements have been met.
A signed agreement is the best proof that a contract exists between parties. However, notice that in the above scenario, there is no mention that A and B signed a physical contract. The lesson to be learnt here is this – the law does not require that every contract be in writing before a person can sue on the contract, except for a few very specific scenarios set out in the Civil Law Act (e.g. contracts for the conveyance of land) which mandate that such contracts need to be evidenced in writing. Therefore, the value of a written contract lies more in proving the existence and the terms of a contract rather than its validity.
Contracting through technology and digital signatures
The basic principles of contract law remain the same whether the contract was concluded via traditional means or through electronic means. The Electronic Transactions Act (“ETA”) facilitates the usage of e-commerce in commercial transactions by equating the position of electronic records with that of written records. Under the ETA, a transaction which requires a signature can be satisfied digitally if there is a reliable method used to identify the user when the intention to transact was documented. The ETA also contains a presumption of authenticity if a secure digital signature (i.e. one which is unique and capable of identifying the user) was used in the transaction.
Digital signatures commonly appear in one of the following ways:
- Signing directly on electronic documents e.g. using DocuSign or AdobeSign
Some readers may have encountered this form of when opening a new bank account, purchasing a new insurance policy, or renewing a mobile phone contract.
|Reliability:||Softwares such as DocuSign and AdobeSign have made it possible to capture a reasonably accurate image of a person’s signature in digital form. Some organisations also have a unique digital pad which is used to capture the user’s signature.
These programmes usually have built-in security features that allow signatures to be imported only if the documents are signed on the spot and do not allow for the image of the signature to be replicated after the transaction is completed. As such, this manner of digital signing has been adopted even in financial transactions.
|Verifying the user:||The reliability of this manner of signing is usually considered secure given the security features built-in. In addition, the signature is usually affixed in front of a staff from the organisation administering the contract, especially if a unique digital signing pad is used. In this regard, there is usually little dispute as to the verification of the identity as well as the intention of the person entering into the contract.|
|Legal enforceability:||Given the reliability of this form of digital signatures, there is little difference between this type of digital signature and a signature in its physical form.
The security certificates embedded into the programmes would also qualify this as a secure electronic signature within the ambit of the ETA, rendering the presumption of authenticity applicable.
- Affixing a digital image of a signature
This manner of signing is less commonly seen for private individuals, but some small businesses do have a practice of scanning the signature as an image and allowing their executives to affix the image in their business dealings e.g. in issuing letters/ invoices.
|Reliability:||It should be noted that this is the least secure form of signing digitally, as this exposes the business to the risk of errant employees’ unauthorised use of signature images. It also becomes possible for external parties to misuse the signature by simply ‘snagging’ the image and applying it to any document.|
|Verifying the user:||By sheer virtue of the way such signatures are applied, it becomes difficult to trace down the person who had affixed the signatures improperly and whether any other transactions were affected. More commonly, the authenticity of these documents are also disputed, as the business owners would deny that such contracts have been made.|
|Legal enforceability:||Understandably, this type of digital signature would not be considered secure. However, the document with the signature image can still be adduced as evidence of a contract.
If the existence of a contract is in dispute, then the business’s dealings and conduct of parties would also be considered to determine whether a contract was indeed concluded and what the terms of the contract were.
As mentioned above, the authenticity of documents generated in this manner are often disputed in a court of law. For this reason, this manner of signing is not advised.
What if there is no signature at all?
- By an email sign-off or instant messaging
Business contracts can sometimes be concluded over email, usually over a long email chain with protracted discussions. The companies usually follow up with a written contract later, but there may be cases where the deal falls through before the written contract materialises. More commonly, private individuals conclude buy-and-sell contracts via instant messaging (these conversations often start with “can nego?” and conclude with “ok confirm”).
|Reliability:||Email communication and instant messaging are considered relatively reliable, with an almost-immediate delivery to the other party. Chances of the messages being altered during the course of transmission (i.e. from Device 1 à Server 1 à Server 2 à until delivery to Device 2) are relatively remote.|
|Verifying the user:||Email accounts usually require a login which is based on a username and password that is specific and tagged to a particular user. Therefore, save for instances where anonymous email accounts are used, it would be relatively easy to verify the user.
The ease of verifying the user in instant messaging, on the other hand, depends on the actual platform used. Whilst users on WhatsApp may be traced to a user’s phone number, some instant messaging platforms may be used if an account has been hacked (e.g. Facebook messaging). As such, greater care should be exercised where less secure methods of communication are used.
|Legal enforceability:||Singapore courts have considered email correspondence to be reliable enough for any signature requirement in contractual arrangements to be satisfied by the inscription of a company representative’s name (i.e. the email sign-off) next to his e-mail address at the top of his e-mails. In addition, if secure methods are employed (e.g. by way of a smartcard login or encryption), the presumption of authenticity may be triggered if the methods employed are sufficient to meet the criteria for the signoff to be considered a secure electronic signature.
Although the Singapore courts have not expressed any determination to a similar effect regarding contracts that are concluded over instant messaging, it is likely that the courts will consider a range of factors (e.g. whether a user can be properly verified, the security of the platform, how the service is meant to be used etc) to decide whether signature requirements may be satisfied. However, if the identity of the users are not in dispute, then the courts may examine the contents of the exchange to determine whether the 4 basic requirements of establishing a contract have been fulfilled.
- By a user account confirming a purchase on an online platform
Last but not least, avid online shoppers will be familiar with the process of browsing through the websites, clicking through the options and checking out their shopping cart.
|Reliability:||The reliability (and security) of an online purchase depends largely on infrastructure and user policies of the individual platforms. For well-established websites, the purchase and payment process are relatively reliable and secure.
Even though users are merely clicking through the pages, the users would have been required to agree to the terms and conditions of the service, indicated their intention to purchase the items by adding the item to cart, checking out the cart and confirming the billing details and delivery method. Therefore, there would have been multiple ‘checkpoints’ where the user confirms his intention to purchase the item.
|Verifying the user:||Through these platforms, the users are usually required to create a unique shopping account before purchases can be made. Although such accounts may be accessed by a different person, in a number of cases, the requirement to provide additional details (e.g. by a separate login to an online payment account or having to key in the credit card details) also serves as an additional layer of verification.|
|Legal enforceability:||Whilst not all platforms may have employed sufficient security measures that qualifies the clicks and login procedure as a “secure electronic signature”, the Singapore Court of Appeal has held in 2005 that these transactions still fall within the ambit of the ETA and contracts can be concluded electronically.|
Legal effect of digital contracts
As seen above, whilst the manner of concluding contracts may have an effect on whether certain legal presumptions apply, the fundamental principles of entering into contracts generally do not change. The courts will still examine the facts of the case to determine whether a contract was indeed formed and if so, both parties are legally bound under the contract.
However, even though technology has played a significant role in many transactions, it should be noted that some types of documents may still call for certain formalities to be satisfied, e.g. in wills and transactions involving land. In such cases, electronic forms, no matter how well-written or securely signed, are insufficient to overcome these formality requirements at this point in time. If in doubt, do check with your legal advisor if a formal legal document should be drawn up for your specific requirements.
Have a question or need legal advice?
If you have a legal question regarding legal issues concerning e-signatures or contracts, you can request a quote with Debbie Lee or other lawyers. With Quick Consult, you can check out in minutes and for a transparent, flat fee from S$49, the lawyers will call you back on the phone within 1-2 days to answer your questions and give you legal advice.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.