If the agreement is not validly executed it is void. As a result your business can lose suppliers, clients and valuable investment.
Parties can now sit either side of the globe and electronically sign their agreement. Nevertheless, your agreement may be invalid if you execute a document using an electronic signature incorrectly. We look at how to avoid the pitfalls that render your agreement worthless.
What is an electronic signature?
Not every form of electronic signing is a valid electronic signature. A sign or a combination of signs must satisfy statutory requirements to be valid. It is a valid electronic signature if it is a:
- Sign which is typed; or
- Picture inserted in an appropriate place in a document
and the signatory inserting the sign/picture intends that mark to authenticate the document.
How can an electronic signature be used?
Valid, and probably acceptable, electronic signatures, include a person:
- Typing their name into a contract or email that includes the agreement’s terms;
- Electronically pasting their signature, e.g. a .jpg or .png image, into an electronic version of the contract in the appropriate place;
- Accessing a contract through a web-based e-signature platform and clicking to have their name, written in a typed or “handwritten” font, automatically added to the contract in the designated place; or
- Using a finger or e-pen with a touchscreen to write their name electronically in the appropriate place in the contract.
When can documents be signed with electronic signatures?
Legal documents require varying degrees of authentication. The more important the document, the greater the required degree of diligence.
You can execute a contract using an electronic signature, if the contract is not subject to specific statutory requirements.
Documents subject to statutory requirements
Some documents, such as contracts for land, are subject to statutory requirements. Here there is often a requirement for the signature to be in writing. However, if you insert an electronic signature with the real intention to authenticate the document, that is usually sufficient for a document to have been executed in writing and under hand.
An electronic signature is capable of executing a deed, provided that the person signing the document intends to authenticate the document and any execution formalities are satisfied. The legal requirement that a deed must be signed ‘in the presence of a witness’ requires the physical presence of that witness. This is the case even where both the person executing the deed and the witness are executing or attesting the document using an electronic signature – both must be physically in the same room together at the time of adding the electronic signatures to the deed.
A deed that has not complied with the relevant execution formalities could survive as a simple contract so long as it was supported by sufficient consideration. However, some deeds do not involve sufficient consideration and this potential back-up argument would not apply.
It is therefore crucial for all documents, including deeds, to contain the correct execution provisions and to ensure that they are fully complied with, otherwise there is potential for the document or deed to be invalid and not binding on any of the parties to it.
If a company is only authorised to execute deeds by affixing a seal, then the directors cannot validly execute documents using an electronic signature. Checking the company’s articles will go some way to satisfying due diligence.
Company Documents and resolutions
Usually, the company’s constitutional documents state if an electronic signature is acceptable for the company’s board and general meeting minutes. If the company does not specify how to execute documents, the document containing an electronic signature is presumed valid, unless the contrary can be proven.
1. Q: Must both parties use identical methods of signing? For instance, what happens if one party executes electronically, and the other party on paper?
A: The answer is that the signatures are valid – the parties are not obliged to use the same technology.
2. Q: What is the difference between an electronic signature and a digital signature?
A: An electronic signature is an electronic symbol attached to a document or other record, used by a person with intent to sign. In contrast, digital signatures guarantee that an electronic document is authentic. Both electronic and digital signatures can be binding.
3. Q: Are electronically-signed documents admissible as evidence in court?
A: Yes the courts in England and Wales accept documents executed by electronic signature. Banks in England should also accept e-signatures. Note, if English law does not govern the document, the jurisdiction may not accept electronically-signed documents.
Top tips to avoid problems with electronic signatures
- Check if the person signing the document has a right to do so.
- Check the person’s electronic signature is genuine in advance of the transaction.
- Ensure electronic channels are secure, to prevent unauthorised third parties signing documents.
- Ensure the document is actually witnessed, if required.
- If you file an executed document at Companies House or other registry, ensure they accept electronic signatures before you sign, to avoid rejection.
Challenging the validity of an electronic signature
Unless there is evidence to the contrary, an electronic signature validly authenticates a document. The court uses the same test for a wet ink signature to authenticate an electronic signature. The court’s test involves looking at evidence such as if the signatory accessed the document using his private email address or his own password. The court assesses authenticity on a case by case basis.
If the agreement is not validly executed it is void. As a result your business can lose suppliers, clients and valuable investment. If you are in any doubt our experienced corporate/commercial team will guide you swiftly and painlessly through the process.
Alastair is a sound pair of hands and gets the job done on time and within budget. He is a valued member of the commercial team and very much contributes to its success.