Electronic Contracts Are So Convenient But Are They As Good As Paper?

November 17, 2014

I aways slept better when the signed original was in my file.  I liked it even more if the signatures were written in different colored ink.  And I never lost a fondness for those old fashioned notary seals that put an impression right into the paper that you could actually touch and feel.  So I find it hard to say that electronic contracts are as good as paper. But they are.

If a landlord e-mails a signed and notarized lease to the tenant, and the tenant e-mails it back to the landlord signed and notarized, under Subchapter II of Chapter 137 of the Wisconsin Statutes, they have a deal.  Instead of an original writing, the agreement is embodied in the “electronic record.”  Section 137.15 says that the lease is not to be denied legal effect or enforceability because it is in electronic form or because an electronic record was used in its formation.

Best Practices.  The “electronic record” may be as good as paper but it is not the same.  There are some practices that should be followed when contracting in electronic form.

An Agreement to Deal in Electronic Form is Necessary.  Chapter 137 applies to validate an electronic contract only if the parties have agreed to conduct their transaction in electronic form.  Section 137.13(2) says that this agreement can be determined from the conduct of parties.  In the case of our landlord and tenant, their conduct in exchanging emails with the lease attached bearing their respective signatures would evidence their agreement to enter into the lease in electronic form.  But it would be better practice to include in the landlord’s initiating email a statement to the effect that by returning the executed lease by email, the tenant signifies its agreement to enter into the agreement electronically.  The agreement of the parties to deal with each other electronically should also be recited in the agreement itself.  A statement to this effect in the lease in our example would not only shore up the electronic execution of the lease, but would also, under Section 137.16, permit notices, etc. under the lease to be given electronically.

Authentication.  An effort to enforce an electronic agreement might be met with the defense that the agreement being enforced contains different provisions than were agreed to.  Or it might be met with the defense that the person who signed for the defendant was not authorized to sign or that the signature was not genuine.  These risks apply to both electronic and paper contracts, but the opportunities for protection are actually greater with electronic contracts.

Comprehensive Security. Third party vendors can set up security systems that preserve documents and (through passwords and access keys) create a comprehensive history of document development, execution and submission, including exact times, specific computers and specific operators involved.  Some companies will even send employees to testify in court to support a document’s authenticity.  Some businesses require comprehensive security.  A business, for example, involving large sums of money being moved around in split-second transactions, will want all available protection.  Fortunately, most businesses that could benefit from contracting in electronic form do not.

Stroud Clients.  In the business that has gotten along well in the past using paper, sufficient protection can be achieved by creating an electronic record of the same measures that were taken when paper contracts were used.  For example, it would be good for the landlord in our example to preserve electronically not only the signed lease that came back from the tenant but also the tenant’s email that transmitted it.  This corresponds to keeping in the file, the letter that returned a signed paper contract.  Creating a system for adequate security should, therefore, start with a look at the current paper contracting procedures.  Opportunities to introduce corresponding and added routine security procedures for electronic contracting should be easy to identify and implement.  They involve a team effort by the contracting people, the IT people, and the attorneys who know how the law deals with contract enforcement and electronic transactions.

If you have any questions about how the information in this article may affect you or your business, please contact Ron Todd at rtodd@stroudlaw.com or (608) 257‑2281 or your Stroud attorney.

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.