The COVID-19 pandemic has created severe financial pressure for many businesses. It is therefore vital for businesses to not only rearrange and amend their current contractual obligations, but also to enter into new contracts, in order to survive.
Rearranging of current contractual arrangements may involve anything from entering into addendums to amend contractual performances (such as lease agreements or contracts with suppliers) or entering into entirely new agreements. Businesses will, of course, need to enter into new agreements with clients to secure work and generate income, or even conclude agreements to secure financial assistance (such as loan agreements).
Lockdown has made it difficult for people to get together to physically sign contracts. Furthermore, while many people may have access to a smartphone, tablet or computer and internet connection at home, not everyone has access to a printer and scanner. These circumstances have made it difficult for contracts to be signed. In order to proceed with business activities, many businesses are proceeding with verbal agreements or written understandings that have not been officially signed off.
MUST A CONTRACT BE IN WRITING TO BE VALID?
A common misconception regarding contracts is that they must be in writing to be binding and valid. Generally our law does not require formalities for concluding contracts and therefore a contract does not normally need to be in writing and signed by the parties to be legally valid. There are, however, exceptions to this.
While verbal contracts might be simple and convenient, especially under the current circumstances, it should be kept in mind that they are difficult to enforce in the event of a dispute. Unless the verbal communication between parties can be proven, it is very difficult to show an objective and clear record of the agreement’s details and terms. If there is a disagreement between the parties, it makes the identification of an accurate solution or remedy a lengthy and potentially costly process.
MUST A CONTRACT BE PHYSICALLY SIGNED?
A common misconception is that only an original handwritten signature on an original document will be valid. This is not the case. Copies of electronic contracts, faxed and e-mailed versions of contracts, as well as scanned or electronically stored versions, are all feasible formats for legally binding contracts and are enforceable.
Many contracts are now executed electronically, with one person signing and then transmitting the contract in some form to the other, who then signs it and transmits a countersigned version back. Keep in mind that it is also possible and legally valid to sign a contract in counterparts, thus having separate agreements, each signed by a party to the contract, which together form a valid and binding contract.
CAN A CONTRACT BE SIGNED ELECTRONICALLY?
The current legal position of electronic agreements in general is regulated by the Electronic Communications and Transactions Act 25 of 2002 (ECTA), which confirms that digital communications are legally just as valid as paper-based communications. An ordinary electronic signature is described in terms of ECTA as data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature. The following constitute four examples of ways to establish a digital signature:
• Using a stylus or finger to draw your signature on a
device such as a touch screen tablet or smartphone.
• Uploading an image/photo of your handwritten signature to the correct place in the applicable document.
• Using your cursor or mouse to draw your signature.
• Typing your signature on your keyboard.
IS A CONTRACT ENTERED INTO WITH AN ELECTRONIC SIGNATURE BINDING?
Generally speaking, while most agreements may be signed electronically, an agreement will usually require a signature by hand if a law requires this and will overlap with agreements that are required to be in writing to be valid (such as wills).
If you are going to make use of an electronic signature, such as by taking a photo of your signature and then using it in a contract, keep this safe and secure.
You should also keep in mind that some contracts which you have already concluded may prevent their amendment by way of an electronic signature or data exchange. You should therefore look out for these non-variation clauses in current agreements that you want to amend.
WHAT IF I AM UNSURE?
It is essential that contracts are legally enforceable and have a sense of certainty. Rather make sure that you have a written contract that has been validly concluded and ensure that you know what this process entails. Concluding contracts by electronic means will likely become a standard practice in doing business going forward. If you are unsure about concluding a contract by way of electronic signature, approach an experienced commercial attorney in order to ensure that your electronic agreements are indeed binding and enforceable.