No More “Signing” on the Dotted Line

E-mails rule the business world. Due in part to the sheer volume of e-mails we receive, many professionals use standardized email signatures, which are automatically inserted at the bottom of an email. The shift to more transactions occurring by email raises the question: what constitutes a legally binding signature? A recent decision by the California Court of Appeals addressed the issue of when an e-mail may constitute a binding signature. The decision underscores the importance of understanding the validity of electronic signatures and the statutory requirements for your jurisdiction.

The case at issue involved alleged fraud in procuring the plaintiffs’ real estate investments. Before commencing suit, the parties engaged in settlement negotiations. Counsel for the plaintiffs sent an email to the defendant setting forth proposed settlement terms, as follows:

“We require a Yes or No on this proposal; you need to say ‘I accept’…”

Defendant responded: “…the facts will not in any way support the theory in your email. I believe in [one of the investments]. So I agree.”

Confused by defendant’s response, the plaintiffs’ counsel requested an unambiguous reply. The plaintiffs filed suit when they received no reply.

Later, the defendant sent another email stating “I have accepted by phone and [e-mail]. Stop proceeding. I said accept which is same as ‘agreed.’ You must stop and tell the court we have an agreement.”

However, the defendant had an apparent change of heart and refused to formally execute the settlement agreement so the plaintiffs filed a motion to enforce their agreement. The trial court granted the plaintiffs’ motion finding that the defendant’s printed name in his e-mail and the corroborating voicemail qualified as an “electronic signature” under California’s Uniform Electronic Transactions Act (UETA). The Court of Appeals reversed.

On appeal the court addressed two issues in reaching its decision: (1) whether the parties agreed to conduct a transaction by electronic means pursuant to the UETA and (2) whether the defendant’s signature was executed or adopted “with the intent to sign the electronic record” as required by the UETA.

The court found that the parties clearly intended to negotiate the terms of settlement by e-mail, but the plaintiffs did not demonstrate that the parties agreed to conduct transactions by electronic means or that the defendant intended to electronically sign the settlement offer with his printed name at the end of the email.

Similar to California, most states have enacted some version of the UETA, but the particular rules regarding electronic signatures can still vary from state to state. Therefore, professionals should be aware of their jurisdiction’s specific requirements. Consider the following best practices when conducting electronic transactions and utilizing electronic signatures:

  • When formalizing an agreement electronically, the agreement should include a provision that the parties intend to conduct the transaction by electronic means pursuant to the UETA.
  • The agreement should also make clear that acceptance of the terms can be accomplished by electronic signature (i.e., the parties agree that an electronic signature is a binding signature).
  • Agreements of legal significance should unambiguous in their terms.
  • Most importantly, make sure the electronic transaction complies with your jurisdiction’s requirements, as in the above example, even if parties definitively indicate their acceptance the agreement may not be enforceable if certain statutory requirements haven’t been met.