Electronic Contracts - Still as Good as Paper Ones

Electronic Contracts - Still as Good as Paper Ones

The American courts have taken another pass at the recurring question of whether electronic documents and signatures are as good as written ones. The decision in Forcelli v Felco Corp finds that yes, an arrangement of electrons in silicon can be just as valid in law as an arrangement of dye on a dead tree.

The US decision involved a specific statutory requirement that to be binding against a party, a settlement agreement must be in "writing subscribed by him or his attorney". The decision focused on the statutory requirement within the ambit of the State's laws, and interpretations of what is required for a settlement agreement to be "subscribed". Counsel for the defendant was appealing enforcement of a settlement agreement made by email. The finding hinged on the fact that counsel for the defendant had purposely included a personal signature on the settlement correspondence, and thus had fulfilled the requirement imparted by the statute for subscription. However, underlying the entire discussion was the overall question about the equivalency of electronic documents to paper ones.

While avoiding academic discussions about the nature of interpersonal contracts, the heart of contract law acknowledges that an agreement between parties is independent of the physical (or non physical) documents between them. This supports the ability to have legally binding oral contracts, electronic contracts, and implied contracts when there is no paper document, and conversely sometimes a finding of no binding contract even when there is a paper record. There are a few areas of law that do require a written paper documentation of a contract, for example a will or sale of land, but these are the exceptions to the rule.

Canadian and International Law

In many Canadian jurisdictions, there are numerous statutory enactments supporting the legal force of electronic contracts. The Electronic Transactions Act in British Columbia is one that states a document in electronic form satisfies a requirement that a contract be in witting. It also allows for electronic copies to count as originals, provided there is a reliable assurance to the integrity of the document. Similar statutes have been enacted in other provinces.

Internationally, there have also been United Nations conventions regarding the use of electronic documents in contract law, in particular the Convention on the Use of Electronic Communications in International Contracts. The convention is similar to the Electronic Transactions Act in that it allows an electronic document to satisfy any requirement that a contract be in witting, unless otherwise expressly required to be in paper. Behind the Convention is the theory of non-discrimination based on the medium of a contract. This theory simply expands the notion that a contract is not a physical document, and legal rights can be established regardless of the form the contract takes.

The Benefits of E-Contracts

Many see the equivalency of electronic and paper documents in modern life as a foregone conclusion. With the prevalence of electronics in both personal and business life, a strict requirement for paper records would paralyze modern commerce. Clearly, contracts have been, and continue to be, executed using electronic communications, and courts have been recognizing the reality of this fact.

The Concerns of E Contracts

However there are still some concerns from using electronic documents in place of paper ones. One issue is the ease with which a large volume of contacts can be entered into electronically. One study found that the simple act of actual reading every Privacy Policy that one consents to each year would take a full month. When one includes all the other electronic contracts entered into, it is not difficult to imagine an individual entering into more contracts than they could conceivably read. This inability to read every contract also has implications for the legal requirement of mutual assent to the contract, which requires both parties to intend entering into the contract. When voluminous contracts are entered into by clicking to accept, there are valid concerns over actual understanding and intent of the party clicking.

What Was Really at Issue?

The real issue at the heart of the recent US decision was that the defendant had a motion for summary judgment granted after entering into the settlement agreement, and wanted to avoid being bound by it. There was no real concern over the validity of the electronic agreement, only remorse from the defendant after entering into it. As such, their counsel pursued all opportunities to secure the best outcome for their client, and in this case that involved pursuing avenues to avoid enforcement of the agreement. The only reason the defendant thought they had a potential case was due to specific statutory enactments, and ambiguity over what it meant to be subscribed. At the core, the defendant's case was not so much a concern over electronic documents than an attempt to argue the agreement had not been properly formed. Going forward it seems likely that parties will continue to challenge the validity of electronic documents where it is to their advantage, but rulings like this one will continue to reiterate their equivalency in law.


Alex Buonassisi is an IPilogue Editor and a JD Candidate at the University of British Columbia.