Electronic Contracts: Legal Validity — CloudSign, freeeSign, and Others

This section identifies the questions about legal validity and practical trouble cases that arise when adopting electronic contracts.

Web designer Tanaka (pseudonym) handles about five service-agreement projects per month. Previously, contracts were exchanged by mail, which often delayed project starts by over a week, prompting clients to ask "Can't we start sooner?" Tanaka proposed using CloudSign for electronic contracts, but the client responded: "Are electronic contracts actually legally valid?" and "Will they be accepted as evidence in court?"

Meanwhile, the legal affairs manager at a production company that outsources to about 20 freelancers per month had been considering adopting electronic contracts but hesitated, uncertain "whether electronic signatures are legally equivalent to paper contracts" and worried that "evidentiary value might differ between services."

The background to this situation is a lack of accurate understanding of the legal validity of electronic contracts. Many freelancers and clients have vague anxieties like "digital things are legally weak" or "you'll lose in court without paper." In reality, electronic contracts that meet the appropriate requirements have had the same legal force as paper contracts since the Electronic Signatures Act came into force in 2001 — but this fact has not been sufficiently communicated.

A further problem is that with so many electronic contract services available, the criteria for judging which ones meet the legal requirements and are suitable for use in service agreements are unclear. Researching the validity of CloudSign and similar services returns mostly technical explanations, making it hard to assess practical usability.

This information gap holds back the use of electronic contracts by freelancers, preventing the original goal of more efficient contract processing from being realized. In the worst case, adopting inappropriate electronic contract methods can create legal risk.

This section organizes the legal basis for electronic contracts under the Electronic Signatures Act and the specific requirements for ensuring their validity.

The legal effect of electronic contracts is explicitly provided in Article 3 of the Act on Electronic Signatures and Certification Business (Electronic Signatures Act): "With respect to an electromagnetic record created to represent information, if an electronic signature based on the intent of the person concerned has been affixed to the information recorded in that electromagnetic record, it shall be presumed to have been duly executed." If the appropriate requirements are met, electronic contracts have the same evidentiary value as paper contracts.

The specific validity requirements are two. First, identity: the electronic signature must have been performed based on the will of the signatory. Second, non-tampering: the content of the document must not have been altered after the electronic signature was applied.

In applying electronic signatures to service agreements, the technical mechanism that guarantees these requirements is important. There are three main approaches.

First, under the party-signature model, the contracting parties sign using their own electronic certificates. This has the strongest evidentiary value, but obtaining a personal electronic certificate costs several thousand to tens of thousands of yen per year — a significant burden for freelancers.

Second, under the business-operator-signature model, an electronic contract service (such as CloudSign or freeeSign) applies a proxy signature. After the user's identity is verified, the user issues signature instructions and the service provider applies the electronic signature on their behalf. Because this is low-cost and easy to adopt, it has become the current mainstream.

Third, under the notary-signature model, the electronic contract service records and certifies the signing process. Strictly speaking, the presumption of Article 3 of the Electronic Signatures Act does not apply, but the evidentiary value under the Code of Civil Procedure is fully recognized.

In practice, services using the business-operator-signature or notary-signature model are common. What matters is that either method, with appropriate identity verification and a record of the signing process, carries sufficient legal force for a service agreement.

According to the Ministry of Justice, even when the requirements of Article 3 of the Electronic Signatures Act are not met, if the authenticity of the signature is proven, the contract will be treated as valid. In other words, there is no need to be overly concerned about legal validity if major electronic contract services are used properly.

This section compares the legal validity and practical use cases of commonly used electronic contract services for service agreements.

CloudSign is Japan's largest electronic contract service, operated by Bengoshi.com. It uses the notary-signature model and verifies identity through email address and access code authentication. The monthly fee starts at 11,000 yen, with a pay-per-use model based on the number of documents sent. CloudSign's validity has never been challenged as a legal issue, and it has extensive adoption by large corporations.

freeeSign is a service provided by freee Co., Ltd., notable for its integration with accounting software. It is primarily based on the notary-signature model, with the party-signature model available when needed. Its monthly fee starts at 4,980 yen — lower than CloudSign — making it accessible to freelancers and small businesses.

GMO Sign supports both the business-operator-signature model and the notary-signature model, allowing selection based on use case. Leveraging the technical foundation of GMO Trust Services, it provides high evidentiary value. The monthly fee starts at 9,680 yen.

Adobe Sign is a globally used service with high compatibility with PDF. It is familiar in the creative industry, but may have issues with adaptation to Japanese legal requirements and Japanese-language support.

The criteria for selecting among these services for service agreements are as follows.

From a legal validity perspective, all of these services perform appropriate identity verification and sign-process logging and are unproblematic for service agreements. The deciding factor is therefore operational.

Counterparty adoption is the most important factor. If the client already uses a specific service, aligning with that service smooths contract execution. When the freelancer is making the proposal, CloudSign is often chosen for its ease of use and name recognition.

Type and frequency of contracts should also be considered. For one-off service agreements, choose a service with a free plan or spot-use option. For ongoing transactions, a monthly plan reduces cost.

For clients with strict security requirements, GMO Sign or the upper-tier plans of CloudSign that support the party-signature model are appropriate. The notary-signature model is sufficient for typical service agreements.

In practice, it is desirable to be ready to work with multiple services. Having accounts on the three major services (CloudSign, freeeSign, GMO Sign) will cover almost all counterparties.

This section lists legal risks and specific operational mistakes that undermine evidentiary value and are often overlooked when executing electronic contracts.

The most common misconception is that "any electronic contract is legally valid." In reality, simply sending a PDF by email and having the recipient reply "I agree" does not qualify as a proper electronic contract. Such a simplistic method provides inadequate identity verification, making it difficult to prove contract formation if a dispute arises later.

As a concrete example: a graphic designer who got into a payment dispute found that the evidentiary value of their email-based contract was considered insufficient in court, and ultimately had to accept an unfavorable settlement.

Even when using an electronic contract service, the following operational mistakes can undermine evidentiary value.

Inadequate identity verification of signatories is a frequent issue. If the client's representative signs on behalf of the company without verifying their authority, the validity of the contract can be called into question. Especially in transactions between sole proprietors and corporations, it is necessary to make clear who in the corporation has signing authority.

Improper file naming and management is also problematic. Ambiguous file names like "Project A_Contract_Final_20240315_Revised" make it hard to determine which version was signed. Record the management numbers auto-generated by the electronic contract service and link them to the internal project management system.

Incorrect signature order is surprisingly common. In a service agreement, the standard practice is for the client to sign first and then the contractor, but setting it up in reverse order can leave the timing of contract execution ambiguous.

A problem specific to electronic contracts is document management after signing. Contracts stored on a cloud service may become inaccessible if the service is cancelled or the provider goes out of business. Always download a PDF copy and keep multiple backups in different locations.

There are also many cases of misunderstanding about stamp duty. Electronic contracts do not require revenue stamps, unlike paper contracts — but some practitioners handle them the same way. Conversely, over-emphasizing the stamp duty savings of electronic contracts as a selling point can cause the core issue of legal force to be lost sight of.

Mistakes in the revision process occur frequently too. Electronic contract services make it easy to resend revised versions, but insufficient revision history management leaves it unclear which terms were agreed to. When revisions occur, use a supplementary email specifying the revision content, and record the reason for revision and the agreement process.

This section presents concrete action plans for effective use of electronic contracts by freelancers and companies.

Electronic Contract Strategy for Freelancers and Contractors

As a basic policy, it is important to view electronic contracts as a "sales tool." The ability to start projects faster because contract execution is quicker is a significant benefit for clients.

As practical actions, adopt electronic contracts in the following steps.

In the initial stage, create free accounts on the three major services (CloudSign, freeeSign, GMO Sign) and learn how to use them. When making a proposal, presenting "we can also execute via electronic contract through CloudSign etc." as an option demonstrates digital readiness.

Differentiation based on pricing structures matters too. For one or two projects a month, use CloudSign's pay-per-use plan. For five or more ongoing projects per month, consider freeeSign's monthly plan. Calculate annual stamp costs and mailing fees in advance and understand the specific cost savings from adopting electronic contracts — useful material for pitching to clients.

For evidence preservation, always download a PDF after signing is complete and manage files centrally in a project management system (Notion, Google Drive, etc.). Use a consistent naming convention like "20240315_ABC Corporation_Website Production_Service Agreement" to make files easy to find later.

Electronic Contract Adoption Strategy for Clients and Companies

On the client side, organizational adoption is required, so a phased approach is effective.

As a first phase, run a trial adoption limited to service agreements. Defer full-time employment contracts and important master agreements, and first validate the effect of electronic contracts on one-off freelance contracts. This builds adoption track record while minimizing internal resistance.

For coordination with legal and general affairs departments, hold internal seminars on the legal validity of electronic signatures for service agreements to address staff concerns. Inviting an external lawyer or social insurance labor consultant to explain the legal basis helps deepen understanding of the adoption.

In actual operations, allow a period of parallel use of electronic and paper contracts. Letting the choice be up to the freelancer avoids negative impact on the business relationship during the transition. At the same time, provide concrete benefits — such as earlier project start dates — to freelancers who choose electronic contracts.

Digitizing the approval workflow is also an important consideration. True efficiency is realized by digitizing not just contract execution but also internal approval and authorization processes. However, changing everything at once invites trouble, so start with the contract execution step and expand gradually.

Success Factors Common to Both Parties

For electronic contracts to succeed, communication with the counterparty matters more than the technology.

To ease anxiety about new tools, provide support for using the system over the phone or video call during the first use. Especially with senior executives or staff accustomed to paper contracts, patient explanations and a gradual familiarization approach are needed.

Also communicate the benefits of electronic contracts not just as "cost savings" but from multiple angles: "more efficient contract management," "better searchability," "support for remote work." Improvements to working style and business quality are generally more persuasive than simple economic arguments.

Ultimately, adopting electronic contracts is not itself the goal — building better business relationships and improving operational efficiency is. Keeping this perspective in mind and adapting flexibly to the counterparty's situation is the key to successful use of electronic contracts.

References

Act on Electronic Signatures and Certification Business (2024)

On the Legal Validity of Electronic Contracts (2024)

Explanatory Materials on the Amendment to the Civil Code (Law of Obligations) (2020)

Civil Code (e-Gov Law Database) (2024)