Click With Caution
Courts are upholding electronic signatures in transaction documents.
The statute of frauds, which dates back to 17th-century England and continues in some form in every state, requires that contracts for the transfer of real estate interests and for the sale of goods above a certain dollar amount (usually $500 or $1,000, depending on the state) must be in writing to be enforceable. Since commercial real estate developers, owners, managers, and brokers frequently are involved in real property sales well over the dollar limit, the industry appeared destined to remain mired in the paper world.
However, the federal Electronic Signatures in Global and National Commerce Act, which went into effect on Oct. 1, 2000, along with its state counterpart, the Uniform Electronic Transactions Act, is changing the way commercial real estate professionals conduct business transactions. Although several states have yet to adopt UETA, the federal law makes electronic signatures binding in interstate transactions, even if one or both parties are in non-UETA states. Most electronic transmissions also use federally covered telecommunications systems and networks, making it likely electronic signatures will be upheld.
In the three years since E-Sign and UETA became law, courts have found a wide range of activities qualify as electronic signatures. Typed names in e-mails and click-through agreements are among them. Spoken recordings, such as voice mails, are not far behind. The bottom line is that the law is clear and the courts are willing to enforce electronic contracts.
Understanding the Electronic Signature Law
In Shattuck v. Klotzbach, decided in December 2001, the Massachusetts Superior Court sided with a jilted commercial property buyer who had nothing other than e-mail correspondence to show for its real estate sale contract. The court stated, “The defendant sent e-mails regarding the sale of the property and intentionally and deliberately typed his name at the end of all such e-mails. A reasonable trier of fact could conclude that the e-mails sent by the defendant regarding the terms of the sale of the property were intended to be authenticated by the defendant's deliberate choice to type his name at the conclusion of all e-mails.”
What constitutes a binding electronic signature? The law provides a framework for electronic contracting that expands the universe of what one can sign and how one can sign electronically.
First, the law uses the term records to describe the types of documents that can be signed electronically. A record is “information that is inscribed in a tangible medium or stored in an electronic or other medium and is retrievable in perceivable form.” The law's creators developed the term as a catchall to cover the different media that parties might use. Records can be hard copy or electronic; paper-and-ink documents are records, as are e-mails and voice mails.
Second, the law provides a new way to sign. An electronic signature is “an electronic sound, symbol, or process attached to or logically associated with a record, and executed or adopted by a person with the intent to sign the record.” These elements have made paper-and-ink signatures binding for centuries; the law now applies them to the electronic world.
Finally, both E-Sign and UETA provide that, with certain narrow exceptions, an electronic record satisfies any written document requirement and an electronically signed record satisfies any legal requirement that a contract be evidenced by a signed writing.
Roadblocks and Challenges
To date, the commercial real estate industry has not experienced an onslaught of e-closings. Barriers to implementing the technology exist.
First, E-Sign and UETA very broadly define what constitutes an electronic signature. Although this allows parties to use the full range of electronic tools, it can hinder transactions when parties can't decide which technology to use. The Mortgage Industry Standards Maintenance Organization has released a set of e-mortgage guidelines and recommendations, but many enterprises have developed competing infrastructures and technologies. For the new legal framework to help, all parties should agree on the electronic record and signature technology used in transactions.
Second, the industry and the public need to become comfortable with the technology's security. Many popular candidate systems use a public key infrastructure, or PKI, solution. PKI involves giving users long numbers, called private keys, that they keep on their computers and use to sign electronic records. The process is so effective that it provides near certainty that a given document was signed with a user's private key. However, PKI can't verify that a key was, in fact, used by the key's owner as opposed to a third party who misappropriated the key. Resolving this issue, characterized as authentication and non-repudiation, is central to whatever standard emerges.
Third, many real estate transactions must be recorded with state or county officials to protect the purchaser against third-party interests. UETA does not require any governmental officials to accept electronic records or signatures, and many state recording laws expressly or implicitly require paper filings. Changes in state law are necessary for universal acceptance of electronic recording.
Take time to review e-commerce law, both generally (UETA is online at www.law. upenn.edu/bll/ulc/fnact99/ 1990s/ueta99.htm) and in the states in which you do business