When is an electronic signature sufficient to make an agreement enforceable? Two recent California Court of Appeal decisions rejected efforts to enforce agreements supposedly entered into with electronic signatures under the Uniform Electronic Transactions Act (the “UETA”) because there was insufficient evidence that the statute’s requirements were met. These opinions emphasize how important it is to adopt procedures that comply with the statutory requirements if one wants to use electronic signatures to form a contract. Critically, there must be evidence that both parties agreed to conduct the transaction by electronic means, and there must be evidence that the electronic signature is the act of the person who purportedly signed.
The UETA enhanced Californians’ ability to use electronic means to conduct business. If the parties follow the provisions of the 17 subsections of the UETA, they can form contracts or conduct business entirely electronically, without the need to exchange wet signatures on paper via mail or courier. Section 1633.5(b) limits the UETA to transactions where the parties have agreed to conduct the transaction electronically. The Legislature provided a test for determining this: “[w]hether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct.” Section 1633.2 defines electronic signature as
(h) “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
Section 1633.7 provides that no record, signature, or contract may be denied legal effect or enforceability solely because it is in electronic form or an electronic record was used in its formation. Subject to a number of exceptions, section 1633.8 provides that if a law requires information be provided in writing and parties have agreed to conduct a transaction by electronic means, the written requirement is satisfied by providing an electronic record “capable of retention by the recipient” at the time of receipt. Section 1633.9 makes an electronic signature attributable to a person “if it was the act of the person,” and then explains that the act of a 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.” Other sections complete the UETA’s statutory scheme allowing parties to conduct business electronically.
How does this play out in practice? The California Court of Appeal addressed these issues in J.B.B. Investment Partners, Ltd. v. Fair, ___ Cal.App.4th ___ (December 30, 2014) 2014 WL 7421609. Plaintiffs, investors in Defendant Fair’s entities, claimed that Fair misrepresented facts to them and failed to properly document the transactions. Plaintiffs’ attorney sent a settlement offer by email that demanded that Fair (1) represent that no monies had improperly flowed between his entities, and (2) enter into a stipulated judgment for $350,000. The email stated that the “Settlement paperwork would be drafted in parallel with your full disclosure of all documents and all information . . . ,” and concluded “WE require a YES or NO on this proposal; you need to say ‘I accept’…. Anything less shifts all focus to the litigation. . . “ The next day Fair responded, including the words “I agree” followed by his full typed name.
Plaintiffs’ attorney responded that he did not understand Fair’s response and needed an unambiguous acceptance of the settlement or plaintiffs would file their complaint. Plaintiffs filed their complaint later that day. Fair responded with a number of emails and voicemail messages, beginning with one that stated: “I said I agree. Took wording right from [plaintiff’s counsel’s] e-mail. I agree[.]” Plaintiffs then sent Fair a final agreement for his signature. Fair did not sign the agreement, and testified later that he had changed his mind.
Plaintiffs filed a motion to enforce the settlement agreement under Code of Civil Procedure Section 664.6. Fair opposed the motion, claiming that he did not intend his signature on the email to be a formal acceptance of the terms of the email, that he would never sign an agreement without advice of counsel, and that neither the email nor any other communications between the parties before the email indicated an agreement that the parties intended the agreement to be concluded electronically as required by the UETA. The trial court granted the motion to enforce, holding that Fair’s signature was an electronic signature within the meaning of the UETA and, even if it were not, the agreement was enforceable under common law principles.
The appellate court reversed based on its holding that Fair’s typing his name on his email was not an electronic signature under the UETA. The appellate court relied on the fact that the definition of electronic signature in section 1633.2(h) requires that it be executed by a person with the “intent to sign the electronic record.” The court stated that the evidence did not support a finding that Fair had intended his signature to formalize an electronic transaction.
The appellate court opined that plaintiffs had not shown that the parties agreed to conduct the transaction electronically as required by section 1633.5(b). The court acknowledged that section 1633.5(b) does not require an explicit agreement to conduct the transaction by electronic means (“Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct ….“), but noted that the absence of an explicit agreement to conduct the transaction by electronic means “is a relevant factor to consider.” The court reviewed the evidence and determined that plaintiffs had failed to present sufficient evidence to demonstrate that the parties agreed to conduct the transaction by electronic means.
The Court of Appeal rejected invocation of the UETA under similar circumstances in Ruiz v. Moss Bros. Auto Group, Inc., ___ Cal.App.4th ___ (December 23, 2014) 2014 WL 7335221. The plaintiff in Ruiz brought claims against defendant employer for violation of the Labor Code. Defendant filed a petition to compel arbitration relying on an agreement that it claimed plaintiff had signed electronically. In support, defendant submitted a declaration by its business manager, which stated that plaintiff “electronically signed” the arbitration agreement. Plaintiff opposed the petition arguing that the declaration was conclusory and failed to meet defendant’s burden of proving that the parties had a valid agreement to arbitrate. In its reply, defendant submitted another declaration which stated that the arbitration agreement that plaintiff signed was presented to all defendant’s employees as part of a series of changes to its employee handbook and that “[e]ach employee is required to log into the Company’s HR system—each with his or her unique login ID and password—to review and electronically execute the Employee Acknowledgement form, which includes the arbitration agreement.” The trial court denied the petition, holding that defendant had failed to prove that an agreement to arbitrate existed.
The appellate court affirmed the trial court’s ruling, stating that implied in the ruling was a finding that defendant had failed to establish that the claimed signature was the act of plaintiff. Since section 1633.9 requires that the signature be the act of the party, defendant was required to prove that fact. The court reviewed defendant’s declarations and found that nowhere in the declarations did they explain how the declarant inferred that the signature was “the act of” plaintiff.
The UETA provides the opportunity to streamline routine agreements and to conduct agreements wholly in an electronic medium. These cases emphasize how important it is to carefully review the UETA and assemble a procedure that meets its requirements, including documenting that the parties agree to conduct the transaction electronically. Perhaps as important, proponents of electronic signatures need to present the court with sufficient proof of their procedures to demonstrate how they can establish that the signature was “the act of” the party.
If you have any questions, please contact George Wailes at firstname.lastname@example.org or at (650) 342-9600.