In the post-pandemic world that we find ourselves in, a lot has changed in the way that we sign and formalise agreements, especially in light of new electronic signature platforms that have emerged, such as DocuSign.
An electronic signature may take many different forms, and these include the following (which you may already be very familiar with):
- typing your name or initials at the bottom of an electronic document, such as an email, or in the signature block of a Word document;
- a scanned handwritten signature that is then incorporated into an electronic document, or an image of a manuscript signature is pasted into an electronic document;
- clicking an “I accept” or “I agree” button on a website;
- using a web-based e-signing platform such as DocuSign or Adobe Sign to generate an electronic representation of a handwritten signature; or
- using a stylus or finger to sign an electronic document via a touchscreen or digital pad.
What are the risks of using electronic signature platforms?
The main risks of using an electronic signature to enter into contracts and deed include the following:
- the counterparty may argue that it did not in fact sign the contract and that someone else did fraudulently (by mistake or without authority);
- the counterparty or a third party may argue that there is no contract because an electronic signature is not a valid method of entering into a contract; or
- the counterparty or third party may argue that the electronic signature platform does not meet the formalities required to execute a deed.
What does the law say?
The general rule under English law is that a contract does not need to be made in any particular form, provided that the essential elements for an enforceable contract are present: offer and acceptance, consideration, certainty or terms and an intention to be legally bound (which we can delve a little deeper into in another newsletter edition).
However, for some types of contracts, there may be legal formalities which the parties must follow if their contract is to have legal effect. Although the formalities vary, they typically require that the contract is required “in writing”, is “signed” or executed as a deed.
English case law, as well as reports and practice notes from the Law Society and the Law Commission confirm that, in general, an electronic contract executed with an electronic signature can satisfy a legal requirement for it to be in writing/signed. It is not as clear-cut when signing a deed, as outlined below.
What are the formalities for a validly signed deed?
- Deeds signed by an individual: if you are signing a deed as an individual, for the deed to be valid, it must be signed in the presence of a witness who verifies the signature. This requirement can be satisfied using an electronic signature, provided that the witness is physically present when you are signing the deed.
- Deeds signed by a company: two ways in which a company can validly execute a deed include:
- the signatures of two authorised signatories (either two directors or a director and secretary of the company); or
- the signature of a director of the company in the presence of a witness who can verify the signature.
Although it has been debated whether signatures can be witnessed remotely or virtually (such as via video link), the Law Commission concluded that witnessing formalities require the witness to be physically present in the same location as the party that is signing the deed and to actually observe the electronic signing of the deed.
Ultimately, the fundamental formalities for deeds are still necessary, however for many transactions, electronic signatures and electronic signature platforms can be a cost effective, quick and environmentally friendly way to enter into contracts.