By Robert S. Kutner, Esq.
In 2001 President Clinton signed the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 (the “Federal ESA”). The Federal ESA recognizes the validity of agreements made electronically, namely, documents communicated via email, fax, text messages, instant messages, and similar methods. The Federal ESA has been hailed as a giant leap toward paperless transactions. In a sense, it marks an electronic revolution, just as the 56 signers of the Declaration of Independence in 1776 marked a political revolution. Many federal courts no longer accept filings on paper. Documents may only be filed electronically.
In 2004, Massachusetts enacted the Uniform Electronic Transaction Act, authorizing electronic transactions under state law, General Laws. Chapter 110G, Section 1 (“Massachusetts ESA”). Due to widespread use of real estate agreements transmitted electronically, it is crucial that REALTORS® understand the basic rules for electronic transactions.
State, Federal Laws
Quite simply, both state and federal laws provide that a signature, contract, or other record relating to a transaction may not be denied legal effect solely because it is in electronic form. The laws are “technologically neutral” in that there are minimal technological limitations concerning what may constitute an “electronic signature.” State law provides that the term “electronic” is defined to include “electrical, digital, magnetic, wireless, optical, electromagnetic” technology, while the term “electronic signature” is defined to mean an “electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” The Federal ESA contains comparable definitions and preempts inconsistent state laws.
Before the Federal ESA was enacted, there were three primary approaches under state law. Some states provided that any type of electronic signature was valid. Other states required some minimal form of security such as being able to tie the electronic signature to the signer or being able to ascertain that the message had not been altered. Still other states recognize as valid only “digital signatures,” generally defined as signatures that are basedupon some form of encryption technology that requires a password or special software to lock or encrypt and a second password to open. No encryption technology is required under Massachusetts ESA or Federal ESA.
Only by Consent
According to the Massachusetts ESA, no person may be compelled to transact business electronically. Each ESA applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. According to the Massachusetts ESA, whether the parties have agreed to conduct a transaction by electronic means “is determined from the context and surrounding circumstances, including the parties’ conduct.” In other words, express written consent is not required, nor is an original signature needed before documents for a transaction be delivered electronically. The conduct of the parties alone may be sufficient. Where express consent is desired, that consent may be obtained electronically. In other words, if a party has consented to an electronic signature, either by express agreement or by implication (from the party’s conduct), an agreement for the sale or rental of real estate that is made electronically will be valid. For example, contracts may be made via an exchange of emails or faxes. The Massachusetts ESA provides that it has priority over the longstanding provisions of the Statute of Frauds that requires every agreement conveying an interest in real estate to be in writing and signed.
Even if consent has been obtained, both the Federal ESA and Massachusetts ESA permit a person to withdraw consent at any time. Each act also permits the parties to vary the provisions for electronic signature by agreement. If a signature made under oath is required to be notarized by law, the Massachusetts ESA provides that the notarization requirement is satisfied if the electronic signature of the notary is provided together with all other required information (date signed, presence of individual, personal knowledge of identity of signer or review of driver’s license of signer, etc.)
While both state and federal law make it simple to form agreements and transact business electronically, reliance on the actions of a party and circumstances relating to a transaction, without more, may create uncertainty concerning whether the required consent was given. Therefore, many attorneys recommend to follow the “best practice” by including
a statement concerning the transaction that, “It is agreed that this document and any other document relating to this transaction may be signed or transmitted electronically and such document shall be as binding as one containing an original signature.” This statement may be included in an email, in an Offer to Purchase, in a Purchase And Sale Agreement, or in another document.
Where state laws or Board of Registration regulations require documents relating to a transaction to be maintained for a specific period of time (for example, Massachusetts Mandatory Licensee-Consumer Relationship Disclosure, notifications regarding lead paint, receipt of Home Inspectors Facts For Consumers), an electronic record satisfies the requirement, according to Chapter 110G, Section 13.
Both state and federal law contains limitations and safeguards. Neither act applies to: the creation and execution of wills, codicils and trusts; to adoptions, divorces, or other matters of family law; to court orders or notices; to any notice of cancellation or termination of utility services or the default, repossession, acceleration, foreclosure, or eviction under a credit agreement secured by the primary residence of an individual or under a rental agreement for one’s primary residence; or to termination of health or life insurance benefits; or to the recall of a product.
With knowledge of the requirements of state and federal law, electronic transactions may be handled seamlessly, completing the revolution.