by: Brad J. Boyd, Esq, MNAR Legal Counsel
We encounter periodic questions from members who ask whether an "electronic signature" or an "electronic contract" is binding in the context of a residential real estate purchase agreement. It is possible for a party to use an electronic signature, an electronic contract or an electronic transmission to crete a binding agreement for the sale of real estate, but there are some issues of concern that can make such a method less straightforward or less certain than the traditional process of utilizing a written purchase agreement with written signatures. Traditional contract formation
Let's first consider the basics of contract formation, as applied to a residential real estate purchase agreement. The following elements are critical to having an effective contractual agreement for the sale of real estate:
1. A written contract containing essential terms; AND
2. Signatures by all parties on the agreement which reflect final agreement on the terms; AND
3. Delivery of the agreement, once accepted, to the party whose offer or counteroffer is being accepted.
Traditionally, a buyer might present a written offer to a seller, signed by the buyer. If the seller agrees with the terms presented, the Seller might sign that offer and deliver it back to the buyer or the buyer's agent, creating a binding and enforceable agreement. Courts and the real estate industry have typically recognized both this "traditional" method, as well as the use of fax transmission to facilitate the delivery or transmittal of the offer and acceptance. Applying electronic or technological advances to contract formation issues
Although caselaw on whether email is an acceptable and recognized transmission/delivery method continues to evolve, in this author's judgment it is reasonable to expect that a court would likely recognize email transmittal as acceptable as a fax transmittal. Key to that determination may be having a record that the email was received (similar to a fax confirmation), so having a delivery/read receipt or requesting that the recipient acknowledge receipt of the email would be advisable.
In the above analysis, we are suggesting that if a buyer prepares and signs an offer, scans a conforming copy of the offer and transmits that conforming scanned copy to the seller by email, then the seller accepts the terms of the offer by printing, signing and re-scanning the signed contract and delivering that accepted copy to the buyer by email, such a process should create an enforceable contract that it is difficult to challenge. Hurdles, limitations, and restrictions informing an enforceable purchase agreement using electronic signatures or electronic records
After starting from the premise above, a question that arises from time to time is whether an "electronic signature" or "electronic contract" is binding and enforceable.
The controlling law in Minnesota is the Uniform Electronic Transactions Act ("UETA"). This act is somewhat involved and complex, and it defines "electronic record", "electronic signature", and various related terms.
UETA applies only
to transactions between parties who have "agreed to conduct transactions by electronic means". MN Stat. 325L.05(b)
. Determining whether the parties have agreed to conduct business by electronic means "[...] is determined from the context and surrounding circumstances, including the parties' conduct." Id.
Since the provision above limits the scope of the act's application, it is advisable to have a written agreement between the parties to conduct the transaction electronically, should the parties so choose. Even in such an instance, parties to such a transaction would be well advised to discuss further issues or concerns with their own legal counsel.
The determination of "whether an electronic record or electronic signature has legal consequences is determined by [UETA] and other applicable law." MN Stat. 325L.05(e)
. This provision underscores that there is subjective or interpretive component to whether an electronic signature or electronic record is binding.
There is a scarcity of Minnesota appellate court decisions issued interpreting UETA, so the law in this area is still quite unsettled and untested.
Despite the restrictions or limitations identified above, the intended scope of UETA and enforceability of electronic records, contracts and signatures is intended to be broad. See MN Stat. 325L.07
. For example, the act indicates that "a record or signature may not be denied legal effect or enforceability solely because it is in an electronic form." Id. Similarly, a contract cannot be denied enforceability "solely because an electronic record was used in its formation." Id.
In conclusion, the simple answer to the broad question of whether an electronic signature or electronic record may be used in the creation of an enforceable real estate purchase agreement is yes, subject to some limitations as outlined. Additionally, anyone wishing to cut new ground in this area has to recognize that until the caselaw interpreting UETA as it is applied to real estate purchase agreements is more definitive, there will be a degree of risk for the parties transacting business using this medium. Any contest over whether the agreement is enforceable may be more open to scrutiny and interpretation than in a "traditional" contract formation dispute where no electronic means or mechanism is used.