Electronic signatures now legal for home sales?
MAIN IMAGE: Denoon Sampson, director Denoon Sampson Ndlovu Incorporated
A recent Eastern Cape High Court decision (Borcherds v Duxbury) has focused the law on the ever-increasing use of electronic signatures.
Unfortunately, the judgement, instead of giving guidance and certainty, introduces confusion and doubt into this fast-growing category of technology.
Rapid growth of e-signature technology
Technology has recently produced many apps which provide for and enable the electronic signature (e-signatures) of contracts.
The benefits and convenience of not having to travel somewhere to sign the document and being able to arrange for the parties to the contract to sign where ever they are in the world at the same time, are very appealing. Of course, the cost and logistics of arranging for original signatures to be couriered around the world can also be dispensed with.
As more and more electronic sign up apps become available, most people take it for granted that electronic signature software programs are perfectly ‘legal’ and will result in valid contracts. Electronic signatures and contracts are given legal recognition and are valid in most cases; but not all.
What the law says about e-signatures
- The Electronic Communications and Transactions Act, 25 Of 2002 (ECTA) gives legal recognition to electronic documents, commercial and general electronic contracts and electronic signatures serving as the electronic functional equivalent of paper-based transactions.
Examples of acceptable electronic signatures would include:
- Your typed name at the end of your email;
- a scanned image of a handwritten signature embedded into a Word document; and
- a so-called digital signature.
The ECTA defines an electronic signature as data; which in turn, is defined as “an electronic representation of information in any form”, which is attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as his signature in an electronic environment.
However, a most important exception is that a contract (a Deed of Alienation) for the sale of
immovable property still has to be physically signed – in ‘wet ink’, and cannot benefit from electronic nor e-signatures.
- The Alienation of Land Act 68 Of 1981; provides that:
No alienation of land…, shall be of any force and effect, unless it is contained in the Deed of Alienation, signed by the parties thereto…
The Borcherds v Duxbury case
The High Court was faced with a dispute over whether or not a digitised photograph of the sellers’s original ‘wet signature’ and initials, which was then imported into software known as DocuSign, validated the sellers’s acceptance of an offer to purchase.
Borcherds (collectively, described as the first purchaser) emailed his offer to purchase and it was received by the seller on his cell phone. Duxbury (the seller) imported the offer to purchase into the DocuSign application and then ‘signed and initialled’ using his sample signature and initials.
The sellers then received a competing offer to purchase for more money and the sellers wanted to escape liability from the first sale, (‘the Borcherd’s sale’), so that they could sell to the second purchaser for more money.
The Borcherds then launched an urgent application to the High Court and interdicted (prevented) the sellers from transferring the property to the competing purchasers. The sellers, in reply then, argued that their initial electronic sale, via DocuSign was invalid.
The sellers argued that their own electronic signatures were invalid, as they did not comply with the Alienation of Land Act, which is referred to above. The sellers also contended that their electronic signatures did not comply with the Electronic Communications and Transactions Act 25 of 2002, and therefore the entire contract, (with Borcherds), was of no force and effect.
The judge then referred to previous court cases and many definitions on the meaning of ‘sign’ and ‘signature’. Numerous judgements confirmed that: ‘signing’ is achieved by making a mark or marks intended to represent the relevant person and this could even be affected by means of a rubber stamp.
The judge also observed in passing that:
had the agent taken the trouble to present the offer to the first seller personally and obtain his signature as well as that of the second seller,…this litigation could have been avoided or substantially reduced in scope.”
The judge then referred to a legal authority: “Contract – General Principles” – by Van Huysteen, Lubbe And Reinecke 5th Edition at page 163 in which it is stated:
The requirement of signature may conceivably be satisfied by a so-called electronic signature, where a handwritten signature is digitised and attached to an electronic document,”
As a result the judge declared, that by affixing their signatures and initials to the contract utilising DocuSign, that the contract, (created by means of electronic signatures), is valid and that the sellers were bound to give effect to the electronic sale, as demanded by the first purchaser. The sellers were ordered to transfer the property to Borcherds.
Key ECTA provisions about e-signatures not mentioned in the judgement
However, the judgement did not mention key provisions of the ECTA, which are worthy of consideration. Because, a digitised photograph of a ‘wet’ signature, that is uploaded into computer software, would be an electronic representation of information which is logically associated with other data and which is intended by the user to serve as his signature in an electronic environment; this digitised photograph of a ‘wet’ signature, would qualify as an electronic signature.
The ECTA has some highly significant provisions, which should be taken into account.
Subsection (4) of Section 4 of the ECTA, provides that:
This act must not be construed as giving validity to any transaction mentioned in Schedule 2.”
Schedule 2, at the end of the ECTA, lists various transactions that may not be concluded electronically. These are:
- Agreements for the sale of immovable property
- Long-term leases of land exceeding 20 years
- A last will and testament
- Bills of exchange (one cannot have an electronic cheque)
Had the Court referred to Schedule 2 of the ECTA, we respectfully believe that it would not have ruled that the contract, (created by means of electronic signatures), was valid because, Schedule 2 specifically excludes agreements for the sale of immovable property.
Essentially, Section 4 (4) of The ECTA reinforces the provisions of The Alienation of Land Act 1981; which still requires that all contracts for the sale of immovable property must be contained in a document (a Deed of Alienation), which is signed by the parties thereto.
Accordingly, the requirement is still that signatures must be made in ‘wet ink’ by a physical hand or bodily movement resulting in a record of information.
The Alienation of Land Act 1981 must have intended to refer to handwriting on paper or similar material and not to any textual computer file or data, such as a digital signature, an electronic signature or an e-signature. So long ago was this legislation passed; such that practically no-one even owned a personal computer. Emails and WhatsApp did not exist.
Critical to make personal contact
As the judge cautioned, is still preferable to take the trouble to present the offer to the seller personally and to obtain the seller’s signature indicating her consent to the sale.
We will only find certainty on the validity of electronic signatures (for the sale of immovable property) when the legislation is amended and is reconciled to permit the electronic sale of immovable property.
Also read: It’s time for e-signatures on property sales
About the author: Denoon Sampson is a Director of Denoon Sampson Ndlovu Incorporated. He has practised insurance litigation and conveyancing. He was also a founder member of Sampson Okes Higgins, which became Denoon Sampson Ndlovu and is a consultant to The Standard Bank on its Electronic Payments and Guarantee process.