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On Solid Ground? Reliance Upon and Use of Technology in Real Estate TransactionsMarch 27, 2017
How has increased reliance on and use of technology affected the legality of real estate transactions? The pervasiveness of technology in the context of real estate transactions, specifically with regard to the distinction between the existence or non-existence of a binding contractual agreement, has increased dramatically over the past few years. From communications concerning purchase and sale of real property via text message to the use of electronic signatures in entering into binding transactions, the influence of technology in this industry cannot be understated. In effect, it has become pertinent to analyze the use of technology in a legal context in order to ensure a comprehensive understanding of the effect these tools can have in many types of transactions.
Generally, the elements of any legally binding contractual agreement include California Civil Jury Instructions (CACI) 302: Contract Formation—Essential Factual Elements offer, (2) acceptance, (3) consideration, and (4) no defenses. In California, the essential factual elements necessary to prove contract formation are: (1) the contract terms were clear enough so the parties could understand what each was required to do; (2) the parties agreed to give each other something of value [a promise to do something or not to do something may have value]; and (3) the parties agreed to the terms of the contract.1
As the use of electronic signatures in contract law became more and more prevalent, the federal government responded by passing several laws, in an effort to govern growing concern over the legality of agreements utilizing this more technological approach to contract formation. On June 30, 2000, the U.S. Congress passed the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) in order to “facilitate the use of electronic records and electronic signatures in interstate and foreign commerce by ensuring the validity and legal effect of contracts entered into electronically.”2 The FDIC indicates that the E-SIGN Act allows “the use of electronic records to satisfy any statute, regulation, or rule of law requiring that such information be provided in writing, if the consumer has affirmatively consented to such use and has not withdrawn such consent.”3
Around the same time that the E-SIGN Act was passed, the National Conference of Commissioners on Uniform State Laws drafted a model law in the form of the Uniform Electronic Transactions Act (UETA). UETA is one of the several United States Uniform Acts and has been adopted in some form by forty-seven states, including California, as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The purpose of UETA is to create uniformity among state laws in connection with paper records and the validity of electronic signatures. UETA provides that “when a law requires either a writing or a signature, an electronic record or an electronic signature can satisfy that requirement when the parties to the transaction have agreed to proceed electronically.”4 Because UETA is not federal law and serves only as a model on how to approach the legality of this type of technology in a contractual context, it has been left up to the states to enact their own laws with regard their respective implementation preferences. California has adopted a modified version of this uniform act, known as the “Cal UETA,” under which “electronically created and/or executed contracts became, subject to certain exclusions, legally equivalent to written contracts.”5
Under the E-SIGN Act and UETA, the general requirements for an electronic signature to be recognized are as follows: (1) intent to sign, (2) consent to do business electronically, (3) association of signature with the record, and (4) record retention.6 Both laws provide that a contract, signature, or record shall not be denied legal effect solely because it is in electronic form, and that a “contract relating to a transaction cannot be denied legal effect solely because an electronic signature or record was used in its formation.”7
Despite the intent to enact laws governing the use of technology in a contractual setting, there are a number of recent cases in California that highlight some of the potential difficulties in the integration of technology and legally-binding transactions. In Ruiz v. Moss Bros. Auto Group, Inc., the California Court of Appeal held that the defendant failed to prove that Plaintiff’s electronic signature on an employment contract was in fact authenticated as the electronic signature of Plaintiff.8 The Court based its decision in part on the language of California Civil Code Section 1633.9, which states: “(a) An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.”9
In J.B.B. Investment Partners, Ltd. v. Fair, a case concerning an alleged contract between parties in connection with a settlement agreement, the Court held that merely printing one’s name at the end of an email did not establish an “electronic signature” absent clear evidence of an intent to be bound to the agreement.10 While the Court acknowledged that a “printed name or some other symbol might, under specific circumstances, be a signature under UETA,” and that “Courts in other jurisdictions that have adopted a version of UETA have concluded that names typed at the end of e-mails can be electronic signatures,” the Court held in this case that the simple typing of Fair’s name at the end of the email was insufficient under the Cal UETA to bind Fair to the alleged agreement.11
As a result of Ruiz and J.B.B. Investment Partners, it has become evident that entities that intend to rely on electronic signatures in the execution of a binding contractual agreement must take steps to establish clear intent to formalize the given agreement and conduct the given transaction electronically. Many services have been made available to parties intending to conduct business transactions and formalize contractual agreements electronically, most notably of which are DocuSign, eSign+, Adobe EcoSign, and Authentisign. These services boast a collection of the most widely utilized electronic signature and digital transaction management platforms in the world. In an effort to satisfy the legal requirements of electronic signatures in legally binding transactions, DocuSign provides the following services: (1) content control, (2) secure signatures, (3) authentication of signers, (4) notice of e-contracting, (5) audit trail elements, (6) intent, and (7) user determination of ‘authoritative copy’ options.12 These services are intended to overcome some of the legal obstacles set forth by increased legislation and regulation governing the widespread use of electronic signatures in business transactions.
In response to the availability of services such as the aforementioned electronic signature and digital transaction management platforms and the increased reliance on digital methods of executing contractual agreements, the real estate industry has also started to implement these tools in the context of real estate transactions. The use of digital contracts and electronic signatures gives purchasers of real property an opportunity to review purchase agreements on their own time and allows a thorough review of contractual provisions outside of the presence of an escrow officer, real estate agent or other agent of sale. Further, due to the voluminous nature of real estate contracts, conducting this type of business by electronic means allows the real estate industry to take on a more eco-friendly identity. However, there are certain concerns that parties must take into account in using technology to conduct these types of transactions. Parties must consider the parties’ privacy with respect to personal information communicated during negotiations and the transmission of contractual agreements. Additionally, the potential for fraud still exists and, as such, the parties must make sure to take advantage of trusted electronic signature authentication services to utilize secure signatures and identification markers in the execution of real estate contracts. Parties must also consider the lack of uniformity between state laws with regard to UETA and other legislation governing electronic transactions. This can create issues in connection with interstate and international real estate transactions.
Another context in which the electronic nature of real estate transactions has become noteworthy is the use of texting during purchase and sale negotiations and transactions. In Massachusetts, a court found that a text message can sufficiently constitute a writing under the Statute of Frauds to bind a party to an agreement to sell real property.13 The Court considered numerous factors, including intent of the parties, existence of signature, lack of disclaimer, and meeting of the minds between the parties.14 In reaching its decision, the Court dismissed Defendant’s notion that a contract must be formal to be enforceable. This ruling illustrates that real estate transactions, although subject to many legal requirements, can still be binding even in the absence of a formal agreement.
California has taken steps to account for the use of text messaging in real estate transactions by amending its Statute of Frauds legislation. In 2015, the State Legislature passed AB 2136. This bill was codified as California Civil Code Section 1624(d), which states that an “electronic message of an ephemeral nature that is not designed to be retained or to create a permanent record, including, but not limited to, a text message or an instant message format communication, is insufficient under this title to constitute a contract to convey real property, in the absence of a written confirmation that conforms to” a specified requirement of existing law.16 This statute serves as a necessary delineation between the binding nature of formal agreements and the use of technology in negotiating and executing such agreements. However, many states have failed to implement these types of limitations with regard to the use of a more informal digital medium in conducting real estate transactions, which can also serve to create difficulties in interstate and international purchases of real property.
In summary, there are numerous advantages to the reliance upon and use of technology in real estate transactions. However, as discussed above, there are also many legal pitfalls that could potentially raise concerns over this type of integration. Pursuant to governing legislation and judicial interpretation of digital contractual agreements and electronic signatures, it is pertinent for parties engaging in these types of business transactions, especially in the context of real estate, to fully understand and comprehend these benefits and concerns. Only then will parties have the maximum ability to insulate themselves from legal action stemming from the use of technology in this industry. The world is headed to a more digital future, and the implementation of technology in the real estate industry is already underway. No return to more traditional means of conducting these types of transactions is currently on the horizon and, as such, it is important to take the lessons learned with regard to the legality of digital transactions and electronic signatures to heart in order to create a more secure environment for the use of technology in the purchase and sale of real property.
1. California Civil Jury Instructions (CACI) 302: Contract Formation—Essential Factual Elements.
2. Facts 101: Business Law, 8th Edition (2016).
3. FDIC Compliance Examination Manual, Tab X-3.1: The Electronic Signatures in Global and National Commerce Act (E-Sign Act).
4. U.S. Electronic Signature Laws and History, DocuSign, https://www.docusign.com/learn/esign-act-ueta (March 22, 2017).
5. Bradley D. Scheick, Recent California Decisions Reinforce Need for Care in Electronic Contracting, Miller & Starr Real Estate Newsalert, March 2015.
6. U.S. Electronic Signature Laws and History, DocuSign, https://www.docusign.com/learn/esign-act-ueta (March 22, 2017).
7. U.S. Electronic Signature Laws and History, DocuSign, https://www.docusign.com/learn/esign-act-ueta (March 22, 2017).
8. Ruiz v. Moss Bros. Auto Group, Inc. (2014) Cal.App.4th 836.
9. California Civil Code Section 1633.9(a).
10. J.B.B. Investment Partners, Ltd. v. Fair (2014) Cal.App.4th 974.
11. J.B.B. Investment Partners, Ltd. v. Fair (2014) Cal.App.4th 974.
12. DocuSign White Paper, available at http://community.corporatecompliance.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=40bffdbb-226a-4cef-b6f4-8843152a114a.
13. St. John’s Holdings, LLC v. Two Electronics, LLC, Massachusetts Land Court, 2016 WL 1460477 (Not Reported).
14. St. John’s Holdings, LLC v. Two Electronics, LLC, Massachusetts Land Court, 2016 WL 1460477 (Not Reported).
15. St. John’s Holdings, LLC v. Two Electronics, LLC, Massachusetts Land Court, 2016 WL 1460477 (Not Reported).
16. California Civil Code Section 1624(d).