E-Signatures, Part 1. Can an Electronic Signature or an Exchange of E-mails create the Basis for a Binding Contract?

Electronic Signatures in Commercial Real Estate

There is unquestionably a trend toward greater use of Adobe, Docusign, Yozens, and other means of electronic signature for purposes of execution of legal documents and other correspondence.  A simple Google search reveals dozens of vendors offering e-signature services.  My clients, more and more often, are asking me whether they need to send originals or not when it comes time to execute legal documents.  The concern is one of cost and convenience.  Who wants to print a long document, sign numerous originals, then pay for overnight delivery service (which can cost up to $30 for Fedex) when a signed document can be sent electronically with the touch of a button?  The question is whether these electronic agreements are legal and enforceable.  The short answer: In most cases, originals are not necessary.

Recognizing the need for certainty in e-commerce, forty-seven states have now passed some version of the Uniform Electronic Transactions Act (UETA).  Three other states have passed their own non-uniform versions of the Act.  Congress has even gotten into the act by passing the Electronic Signatures in Global and National Commerce Act (E-Sign). Surprised by sensible government action…me too.

I will spare readers the gory details of UETA and E-Sign; but the general takeaway is that the laws are meant to facilitate e-commerce consistent with applicable contract law and codify that a “record or signature may not be denied legal effect or enforceability solely because it is in electronic form” and a “contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.”  Even to lawyers, who can be expected to argue about almost anything, this seems pretty clear.  Not so fast…

Other laws apply in the real estate context.  Specifically, most states have long-standing laws, usually known as the “statute of frauds,” that generally require any contract for the sale of real property to be in writing.  Under UETA, it is pretty clear that standard purchase and sale agreements with electronic signatures would be enforceable.  Disputes have arisen, however, with respect to other means of reaching agreement…like e-mail.  It is not uncommon at all for lawyers, brokers, and other real estate professionals to memorialize agreements, and more commonly amendments to written agreements regarding real property, by e-mail.  The question is whether courts will enforce these “e-mail understandings” or “e-mail agreements” as some call them.

The answer is generally “Yes.”  Courts are addressing this issue state by state as disputes arise, but the majority rule and trend is toward support of this practice.  A couple of weeks ago, in fact, the Tennessee Supreme Court held unanimously that e-mails fall within the protection of UETA because “all sorts of transactions are now routinely conducted by electronic means on a daily basis” which “obviates the need for a handwritten signature.”  The court also held that for purposes of Tennessee law, e-mails and other electronic records can satisfy the statute of frauds.  This holding does not apply to recordable documents, like deeds, that must satisfy state recording statutes.  We’ll save the discussion of antiquated recording statutes for another day.

Conclusion: Provided e-mails and other electronic forms of legal documentation or agreement are sufficiently detailed to create a valid contract otherwise under applicable law, generally courts will enforce such agreements (even in the real estate context).