Creating Enforceable Agreements Electronically

John Bentas
Counsel, Corporate Department
Published: McLane.com
March 22, 2020
Insights - Featured Image - Corporate

With most people working remotely because of self-quarantining or legally mandated sheltering in place, many find themselves with limited or no access to their usual business tools, such as scanners and printers.  As businesses try to continue to operate, including entering into agreements, can a legally binding agreement be created if you are not able to print and physically sign the agreement?  The answer is likely yes because of the Uniform Electronic Transactions Act.

The Uniform Electronic Transactions Act, which has been adopted and in place for many years in Massachusetts and New Hampshire, removes barriers to e-commerce and provides a legal framework for the use of electronic signatures and records in business transactions.  Under the UETA, electronic records and signatures have the same legal effect as printed contracts and handwritten signatures.

Under the UETA, a transaction or signature may not be denied legal effect or enforceability solely because it is in electronic form.  If a law requires a signature, an electronic signature satisfies the law. There are some limitations to this, including laws governing the creation and execution of wills, codicils, or testamentary trusts and certain contracts governed by the Uniform Commercial Code.  Otherwise, the UETA is intended to by applied broadly.

The keys to the application of the UETA are that (1) the parties have expressly agreed to conduct the transaction electronically and (2) the electronic record or electronic signature is attributable to a person so long it was the act of the person. The parties can explicitly agree to conduct a transaction electronically by clearly manifesting that intent, even in an electronic format.  Therefore, it should be made clear in the communications between the parties that the use of e-mail or other electronic means (such as Word documents) will be the methods of doing business between them (i.e., they will be binding).  A person can opt out of the UETA at any time by notifying the other party.

So what happens if someone sends you a contract in Word or PDF format via an electronic mail? Do you now have a binding contract because they sent it to you and you previously agreed to this format as binding?  The answer is no.  The second component of the UETA requires that you have to “sign” or assent to the transaction by a means that is attributable to you as your act.  Under the UETA, an electronic signature can be a sound, symbol, or process, so long as the signature is attached to or logically associated with the contract or record and executed or adopted with the intent to sign the record.  Whether any given electronic signature is valid depends on the facts and circumstances.  Therefore, if you open the Word document and type your name in the signature line and send it back, or even reply to the original e-mail with a clear indication of assent (e.g., “I am fine with the contract you sent”), then you likely have a binding contract at that point.

Although it is not required under the UETA, it is prudent to establish a “security procedure” to ensure that the person you are dealing with on the other end of the electronic communication is the person actually signing the document.  This can be accomplished by use of third party software (e.g., DocuSign). The same effect can be achieved though through a call-back procedure by calling the other party to the agreement and confirming that they sent the email back to you.

In conclusion, when using electronic records and signatures, you must make sure that the parties to a transaction consent to the use of the electronic means and that each signatory, when signing, intends to sign the record as his or her act.