Valid Electronic Contracts: Consent to do Business with eSignature

Today we hear from Ken Moyle, DocuSign's Chief Legal Officer and noted electronic signature law expert. In addition to serving as the Public Policy Chair of the Electronic Signature and Records Association (ESRA), Ken also often teaches continuing legal education classes and seminars regarding esignature and ESIGN.

Often, Ken is asked questions about when electronic signatures can be used to create a binding agreement. We all want to know how and when we can use eSignatures to create a binding agreement, so without further ado, Ken's thoughts:

Consent to do Business With eSignature
Like most popular phenomena, the electronic signature movement is sometimes susceptible to rumor and misinformation. For example, there are still a few folks in the real estate and mortgage industries who insist that a real estate transaction cannot executed electronically unless there is a paper-and-ink contract confirming the parties' agreement to go paperless.

This myth has been making the rounds for years in the Pacific Northwest and in some other small pockets of the country. I did a lot asking around to find out where this came from. The main source appears to be from an early Multiple Listing Service interpretation of the federal ESIGN Act, which provided an instant 50-state baseline for enforceability of electronic contracts (Washington is one of three states that have not adopted some form of the Uniform Electronic Transactions Act, the state precursor to ESIGN).

The confusion seems to come from this statement, which was forwarded to me recently by a real estate agent in Oregon who received it from a representative of her MLS:

"Electronic signatures can be used to create a binding real property purchase agreement, but only if the parties have a signed, written agreement to that effect in place before they use the electronic signatures.”

On its face, this statement is not inconsistent with the federal ESIGN Act or the state UETAs, since under these laws a “writing” is given the same effect regardless of whether it is on paper or electronic. But in the above case the statement was invoked to convince the agent that the “signed, written agreement” must be on paper.

The federal ESIGN Act requires that parties consent to do business electronically, but there is no requirement that a separate paper contract be in place in order to manifest such consent. In the case of a consumer transaction (such as a residential real estate sale) where a party is required by law to provide information that is otherwise required to be provided in writing and on paper, certain disclosures about engaging in business electronically must be provided to the consumer before the consumer consents to do business electronically. See ESIGN 101(c)(1). In addition, the consumer must “affirmatively” consent, but there is no requirement that the consent be documented in a [separate] “signed, written agreement.” ). In fact, section101(c)(1)(C)(ii) of the federal law requires that the consent be given electronically and not on paper, in order to demonstrate the consumer's technical capacity to engage in business electronically. In business to business transactions and in transactions where a signature is the only legal requirement (even if a consumer is involved), the consent does not have to be explicit at all. It may be found based on the facts and circumstances surrounding the transaction, and in most cases the fact that both parties used electronic means to execute the contract in the first place is more than enough to demonstrate that the parties consented to engage in business electronically as well as consented to the terms of the agreement.

But what if ESIGN doesn't apply? Isn't the state's law going to vary these requirements? In order to promote e-commerce nationwide, the ESIGN Act takes full advantage of the Commerce Clause of the Constitution in order to preempt state laws that would threaten the 50-state baseline. Any state electronic signature law that would impose burdens or increased costs on the use of electronic records could cause the state law to be preempted by ESIGN. To the extent that a state law requires a paper agreement to get consent to business electronically, such requirement would presumably be preempted.

Fortunately, an association or MLS has no authority to determine the enforceability of a real estate contract. If two parties, after agreeing to transact business electronically, enter into a real estate contract by electronic means, the electronically signed contract will be valid, effective and enforceable.