The COVID-19 pandemic and nationwide lockdown, as well as the continued restriction on many economic activities, has created severe financial pressure for many businesses, especially from a cash flow perspective. 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).
The current nationwide restrictions on movement, as well as the need to enforce social distancing and limiting physical interactions with others, have 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 under these circumstances, 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. Our law does generally not require formalities for concluding contracts and therefore a contract generally does not need to be in writing and signed by the parties to be legally valid. There are however exceptions to this general rule, which requires certain contracts to be in writing, or which prescribe certain formalities (such as, for example, suretyship agreements and leases with a duration of more than ten years).
While verbal contracts might be simple and convenient, especially under the current circumstances, it should be kept in mind that they are difficult and complicated to enforce in the event of a dispute. It speaks for itself that unless the verbal communication between parties can be proven, it is very difficult to show an objective and clear record of the agreement details and terms. This becomes problematic if there is a disagreement between the parties and makes the identification of an accurate solution or remedy a lengthy and potentially costly process. Especially given the uncertainty and unpredictability of the current times, legal certainty is essential.
Must a contract be physically signed?
A further question that then arises is whether you need the original signed version of the contract in order for it to be valid. There is still a general misconception 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.
Contracts are now very commonly executed electronically, with one person signing, then transmitting the contract in some form to the other, who then signs it and transmits a countersigned version back. It should also be kept 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 that digital communications are no less legally valid than paper-based communications. ECTA allows for the use of electronic signatures or “digital signatures” as long as certain requirements are met.
What are the requirements for a valid digital signature?
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.
According to ECTA, there both ordinary and advanced digital signatures that may be used in respect of transactions, depending on the circumstances. The following constitute four examples of ways to establish a digital signature:
• When a stylus or your finger is used to draw your signature on a device that allows for this. This can be done on a touch screen device (like a tablet or a smartphone).
• Where you upload an image/photo of your handwritten signature. Taking a photo of your handwritten signature on a piece of paper and uploading it to the correct place in the applicable document.
• Using your cursor or mouse to draw your signature. There are a number of programs that allow for the drawing of a signature in this way.
• 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 generally 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).
It is important to keep in mind that 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, to keep this safe and secure, in order to ensure that not just anyone can obtain the image of your signature and use it recklessly or against your wishes.
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, especially given the uncertainty of the current times. Rather make sure that you have a written contract that has been validly concluded and make sure that you know what this process entails. Concluding contracts by electronic means will likely become a standard practice in doing business going forward and especially in the coming months.
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.