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By: Jack Easterbrook, Esq.

You are entering into a services agreement with a vendor and you are sent an email with a request that you electronically add your signature to the attached document.  Or you are borrowing money and the lender provides you with loan documents over the internet with an instruction that, if acceptable, you sign using an electronic signature.  Does this create an enforceable obligation?  How do you know?  This question has become even more important in a world dealing with the Covid-19 virus, where face to face meetings to execute documents is becoming increasingly rare and efforts have increased to use electronic methods.

Years ago, the standard was to maintain original, ink-signed versions of contracts in paper files.  Even today, the “gold standard” for establishing or authenticating a person’s signature on a document is the so-called “wet” or original ink signature.  We live, however, in a world that is increasingly conducting business on a digital basis and the relevant law has only slowly reacted and attempted to catch up.

The purpose of this article is to re-visit the law on electronic signatures and highlight a few key things to keep in mind when dealing with the electronic signing of agreements, loans, deeds of trust, mortgages, grant deeds and other documents, whether the matter arises in a real estate, financing or other business transaction.

Foundational Law

The foundational rules for electronic transactions are set out in the Uniform Electronic Transactions Act (UETA), which was initially enacted in California and made effective in 2000 as Civil Code Section 1633.01 et seq. (and similarly adopted in large measure in most other states as well) and the federal Electronic Signatures in Global and National Commerce Act (E-Sign) [Pub. L. No. 106-229, tit. 1, 2 (June 30, 2000); 15 U.S.C. § 7001 et seq.].  A primary objective of these laws is to facilitate electronic transactions by establishing rules whereby an electronic signature can be treated as valid and enforceable in the same manner as a wet signature.    Subject to certain exceptions and qualifications, these laws provide that a properly inserted electronic signature on a document is presumed to be authentic and any party disputing the authentic nature of the signature or enforceability of the document will have the burden of proof in showing how and why it should not bind them.

Consent of the Parties

The UETA applies only to a transaction between parties who have agreed to conduct the transaction by electronic means. This is critical – consent must be obtained.  Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct.   For many transactions, the consent can be contained within the body of the document itself, but not always!  When the contract is a standard form that is not itself an electronic record, the agreement may not be imbedded in the contract.  Alternatively, in those instances where the agreement is not a standard form, a section providing specific consent needs to be included, if not otherwise set forth in a separate agreement.

State and Federal courts have their own specific rules regarding the use of electronic signatures for court filings, which are beyond the scope of this article.  Most courts encourage or accommodate the use of electronic signatures.

Statutory Exclusions to the Use of Electronic Signatures

Numerous specific statutory exclusions exist to the use of electronic signatures.  These include transactions subject to laws governing the creation and execution of wills, codicils, or testamentary trusts.  Initially E-Sign and UETA did not (and still do not on their face) apply to contracts governed by the UCC other than Articles 2 and 2A (Sales). However, the UCC was subsequently amended to accept electronic signatures in many instances.  This is important as much of the financial and commercial world involves transactions governed at least in part by the UCC, and these transactions could otherwise be outside the scope of laws authorizing electronic signatures.

A somewhat ambiguous situation arises with respect to commercial real estate transactions, in which documents must be recorded in the county where real property is located.  Because of the possible differences in the requirements and procedures of various county recording offices and/or title companies, our practice is to always have recorded or notarized documents, including deeds of trust, executed with wet signatures to facilitate recording.

Disputes Concerning Electronic Signatures and Tips Concerning Process

Most disputes concern the question of whether proper procedural steps were followed, and the electronic signature can be attributed to the particular person who supposedly electronically signed the document.  The California UETA provides that an electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure utilized to determine the person to whom the electronic record or electronic signature was attributable.  When an electronic signature is challenged in a dispute, the party defending the authenticity of the electronic signature should be in a position to describe the specific processes and procedures it followed to ensure that the electronic signature can be attributed to a particular person.  This may include use of a person’s unique email, maintenance of a log showing the signers name and email, and a self-selected password to access the document(s) to be signed.  Commercial electronic signature services can facilitate these and additional procedures as well.  Courts have generally sided with the party seeking to enforce the electronic signature when robust procedures are followed.

In conclusion, electronic signatures are presumptively valid if proper procedures are followed and the transaction is not subject to an exclusion.  While the particular circumstances will affect the outcome when a dispute arises, it is always important to demonstrate the consent of all parties to the transaction and use robust procedures for ensuring the electronic signature can be attributed to the person with authority to sign.

 

This blog is written as of July 20, 2020.  Recommendations and legal requirements are changing rapidly, so please continue to review our legal updates or review postings on relevant government websites.

All blogs on this site are for educational purposes only, do not constitute legal advice or opinion, and should not be applied to your situation, or any specific situation, without consultation with counsel. Strategy Law, LLP does not provide any legal advice concerning any matter discussed in a blog except upon formal engagement including, without limitation, execution of Strategy Law, LLP’s formal legal services agreement, and with respect to specific factual situations.  No blog constitutes a guaranty, warranty, or prediction regarding the result of any legal matter discussed in the blog or any representation.

 

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