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I've never had any experience with any of this, but this sounds very practical in theory.
""" First of all, there is only one version of the document, so no one is ever unsure if they are editing an old draft. [...] Second, version tracking is built-in so you lawyer can see what changes you made, and spend time looking at those changes rather than rereading the whole document. """

Wow, sounds like lawyers really need to learn about Revision Control Systems. I suppose they don't work as well (diff'ing, etc) on documents that are effectively big binary blobs (like .doc(x)) - but that just makes me think they need to learn how to use LaTeX ;-)

Incidentally, am I understanding these online 'e-signing' services (e.g., http://www.echosign.com) properly? Isn't a user basically trusting their private-key to the service?

They understand revision control because it is built into Word... But my previous lawyer would send the document to me and to my CFO, each of us would make changes and I would talk to the lawyer on the phone. Soon there were three versions of the document, so there were threads going back and forth around "which is the latest document".

As for EchoSign, they authenticate that the person who signed the document must have at one point clicked through a link which went to their e-mail address. This is much better than the authentication of written signatures, i.e. that someone could scribble something on a piece of paper in the same way that you did it.

Outlook as revision control ftw. No seriously, lawyers must first get off the habit of marking up documents by hand. Everything else can come later.
Er... do these lawyers still exist? Fortunately I never met one, and if I did, I could never afford their inefficiency. Every lawyer I ever worked with used Microsoft Word for all their documents.
It's easier to review documents by hand than it is on a screen, especially given the amount of reading involved.
Actually, the point of the written signature is that they can be witnessed easily, and it is easy (or at least easier) to detect forgeries, especially if you use nice (i.e., expensive) pens.

With a wholly digital file, it's not. You have to trust a 3rd party. What happens if EchoSign goes out of business? Then you're fucked.

I read this as "Teach, you lawyer, to sign contracts electronically." :)
Someone should point the FSF at this :-)