Electronic Signatures: can you automatically enter into a binding contract?
As technology advances, the law must keep up. For some time, parties have been able to sign or execute a contract and enter into a binding transaction by using an electronic form of signature. Many emails are also ‘signed off’ in this way or simply with a ‘footer’ which includes the name and details of the sender. To what extent are electronic signatures valid, such that a binding contract is entered into? In July 2019 the Law Commission of England and Wales issued guidance on the use of electronic signatures and the recent UK Court decision in Neocleous v Rees held that an email footer was sufficient to constitute a signature and create a binding contract.
More than a signature
It is worthwhile bearing in mind the fundamental elements of a contract. It has long been established that there are three elements required to create a valid, binding contract under the common law: offer and acceptance, consideration and an intention to create binding legal relations. When it comes to acceptance of the other party’s offer, the law has established a number of rules. For example, acceptance of the offer must be communicated to the other party. Equally sensibly, silence cannot constitute acceptance.
The July 2019 Law Commission Report on Electronic execution of documents confirms that these elements must be present – it is not just the execution of the contract, whether in writing or electronically, which is relevant. Critically, the Report refers to ‘intention’ in relation to electronic signatures. It states that in determining whether the method of signature demonstrates a party’s intention to enter a binding contract, the courts will adopt an objective approach considering all the surrounding circumstances.
Validity of electronic execution
The Report recognises that the UK legal system must be flexible and that contracts can be created in many ways. Some contracts may not need to be executed in any particular way, while other documents, such as deeds, need to be witnessed and signed in a certain way in order to be valid. Most construction contracts, consultant appointments and collateral warranties entered into in relation to a construction contract are executed as deeds.
In summary, the Law Commission Report concludes that an electronic signature can be used to execute a document, including a deed, provided that:
- The person signing the document intends to authenticate (or enter into) the document; and
- Any other formalities required to validly execute the particular document are also satisfied. In the case of a deed this would include the witnessing, attestation and delivery of the deed.
The reference to ‘any formalities’ includes any formal legal requirements or alternatively, any specific contractual requirements that have been prescribed or agreed by the parties to the contract. Such formalities might include a requirement for the signature to be witnessed or an insistence that the signature is to be handwritten.
What constitutes an electronic signature?
Whilst this might seem obvious to those who regularly use electronic execution, an electronic signature is not limited to a name entered electronically into a document.
The Law Commission Report specifies electronic signatures which have been held by the UK courts to be valid for the purpose of executing documents. These include:
a) a name typed at the bottom of an email;
b) clicking the ‘I accept’ tick box on a website; and
c) the header of a SWIFT message.
This highlights the potential complexity of electronic execution. It is important to be aware of how easily electronic communication, signatures and email ‘sign offs’ or automatically generated ‘footers’ may be sufficient to constitute authentication and execution resulting in a valid and binding contract. The recent decision in Neocleous v Rees  EWHC 2462 (Ch) (20 September 2019) is one such example.
Automatic email footers
Neocleous v Rees concerned a string of email correspondence between the legal advisors of parties to an agreement for the transfer of an interest in land. Specific terms relating to the transfer of land were set out in the email correspondence and both legal advisors confirmed their acceptance of these terms within the email thread. However, when one of the parties attempted to enforce these terms, the other party asserted that the agreed terms had never been signed and were therefore unenforceable. Importantly, s.2(3) of the UK’s Law of Property (Miscellaneous Provisions) Act 1980 requires an agreement for the transfer of land to be signed by or on behalf of each party in order to be legally binding.
The Court found that a valid and binding contract had been entered into. The emails amounted to a single document signed on the party’s behalf by its solicitor through the automatic generation of the solicitor’s name and other details in the footer at the end of the email chain.
It was argued that the footer was added automatically to every email and was never actively intended to represent a legal signature that would bind the party to the terms of that particular email. Again, the Court disagreed. Whether this email footer was entered by the sender or generated by computer software, it was sufficient to render the document “signed” for the purpose of the legislation, provided that the inclusion of the name was for the purpose of authenticating the document.
The recipient of the email could not know whether the name and details were added automatically or manually. However, it was a conscious decision on the part of the sender to incorporate the footer into every email. This conscious decision was enough to demonstrate intention. The addition of the words ‘Many thanks’ just above the footer, further indicated an intention to connect the name of the sender with the content of the email.
Take care with electronic signatures
The Court in this case referred to the conclusions in the Law Commission Report which confirms that in most cases electronic signatures can be used as a viable alternative to handwritten ones.
Senders of email communications (and that means most of us) should consider the implications of automatically inserting names and other details in the ‘footer’ of an email. Their automatic generation may be sufficient to constitute a signature for the purpose of execution of a contract. Consideration should be given to incorporating a disclaimer into emails with automatically generated footers, confirming that the inclusion and content of the footer is not to be considered a signature for the purpose of executing a contract and should not be deemed to be signed acceptance of any content set out within the email.
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