Electronic contracts: legal validity and what the law requires

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Can an email or a WhatsApp message create a binding contract?

Yes. The Electronic Signature Law, 5761-2001 provides that a signature will not be held inadmissible only because it is electronic, and an electronic message can serve as evidence and be a valid legal act, like a contract on paper. An email, Google Docs, and even a chain of WhatsApp messages may meet the requirement, as long as they contain the elements of an agreement: offer, acceptance, intention to be bound and certainty.

The Law distinguishes between an ordinary electronic signature, a secure electronic signature (unique to its owner, and able to reveal any change in the document after signing) and a certified electronic signature (secure, and backed by a certificate from a certification authority registered with the Ministry of Justice). When legislation requires a signature on a document, section 2 of the Law allows the requirement to be met with a certified electronic signature, and under certain conditions also with another electronic signature, and section 3 provides that a signature will not be held inadmissible only because it is electronic.

What is needed for an electronic contract to be valid?

An electronic contract is made when the parties communicate and reach agreement by digital means. The requirements differ between consumers and businesses: (1) A consumer contract: the Consumer Protection Law, 5741-1981 requires a contract to be clear and not misleading. The court examines whether the consumer understood the terms: “I clicked I agree” without seeing what is written is not necessarily binding. The Consumer Protection Law allows rules to be set on the size of the letters and on highlighting material terms in a standard-form contract (section 4A), and in a standard-form contract, a term under which the customer confirms or declares that they read the contract is presumed to be unfair (section 4(12) of the Standard Contracts Law, 5743-1982). (2) A contract between businesses: here the requirements are less strict. If two businesses agreed electronically, by email, through an ERP system or with a digital signature, the contract is usually valid, as long as the parties can be identified and the agreement can be verified.

What documentation proves electronic agreement in court?

When an electronic contract reaches the court, the party that claims it exists must prove agreement. The accepted evidence includes: (1) an email or message showing express agreement, with timestamps; (2) a log of the e-commerce system showing that the contract was signed electronically, including the IP address and the time; (3) testimony of witnesses who were present when the contract was made. Under section 3 of the Electronic Signature Law, a message signed with a secure electronic signature is prima facie evidence that it was not changed after signing; another electronic document is admissible under the ordinary rules of evidence, but the party that submits it must prove that it is authentic and was not changed.

And who bears the burden? Under section 3A of the Electronic Signature Law, a party to a contract who had the upper hand in designing how the electronic signature works, for example the business that built the sign-up form or the online signing system, and who wishes to rely on the other party’s signature on an electronic message, bears the burden of proving that the other party really signed. The provision applies despite anything stated in any contract, and does not apply to a message signed with a certified electronic signature.

Which type of electronic signature is legally strongest?

There is a big difference between the types of electronic signature, and the court treats them differently: (1) Certified electronic signature: a secure signature backed by an electronic certificate from a certification authority registered with the Ministry of Justice (for example on a smart card). This is the strongest legally: it meets a signature requirement in legislation (except for a handwritten will, where the signature requirement cannot be met with an electronic signature: section 2(b) of the Law and the First Schedule), and a message signed with it is prima facie evidence that it was not changed after signing. (2) Simple electronic signature (e-signature): a name in the body of an email, a scanned signature, or a click on “I agree”. It is valid, but it requires proof that it was made knowingly and with consent. The more evidence there is of the sender’s identity and intention, the stronger it becomes. (3) Clicking a button in an interface: “I have read and approve” on a digital platform. It can be binding, provided the terms were presented clearly and the user had an opportunity to read them before clicking.

Breach of an electronic contract: what can you sue for?

When an electronic contract is breached, the injured party has the same rights as in an ordinary contract: (1) A claim for specific performance: the court can order the contract to be performed. For example, if a company agreed by email to sell goods and then did not send them, the other party can sue for actual performance, or for monetary compensation instead. (2) A claim for damages: if the breach caused damage, for example you had to buy the same goods at a higher price elsewhere, you can claim compensation for the difference. (3) Rescission of the contract: if there was a material mistake, misleading or coercion when the electronic contract was made, it can be rescinded by notice to the other party within a reasonable time (sections 14–17 and 20 of the Contracts (General Part) Law); where the other party did not know of the mistake, only the court may rescind it (section 14(b)). The rules are the same as for a contract on paper.

What about privacy protection in an electronic contract?

Electronic contracts usually involve collecting personal data. The Protection of Privacy Law, 5741-1981 provides that a person is entitled to know what data is collected about them and for what purpose. If an electronic contract collects a consumer’s data, the consumer must be given notice of the purpose of the collection and of who will receive the information (section 11), and when the use involves an invasion of privacy, informed consent is required (section 3), and that consent cannot be buried in general terms written in small print. Consent buried in terms that the consumer could not actually read may not be considered informed consent. Israeli law is not identical to the European GDPR in its requirements, and each case must be examined on its own merits.

What have the courts already said about electronic contracts?

These are the rules by which the question is assessed:

The law has no special provision for an “electronic contract”, so it is assessed under the ordinary rules: a contract is made by offer and acceptance (section 1 of the Contracts (General Part) Law), and it may be made orally, in writing or in another form, unless a law or an agreement requires a particular form (section 23). The question in each case is whether the party can be identified and their intention to be bound can be proved, and in a standard-form contract, a term under which the customer “declares that they have read” the contract is presumed to be unfair (section 4(12) of the Standard Contracts Law). Between businesses, when one sent an offer and the other replied “approved”, such agreement may be considered a binding contract in every respect.