Electronic execution

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Being the process of gathering evidence of offer and acceptance of a contract using digital authentication technology. Not just pasting a scanned signature onto a pdf.

Electronic execution is an unglamorous subject that, with all the excitement about artificial intelligence, receives less attention than it really should — though Mystic Meg here predicts that might change in 2020 with the planet’s entire negotiation capability sequestered in box rooms and attics, without any means of arranging a physical signing.

For a properly-implemented digital execution strategy will not just keep your ISDA ninjas safe from pandemic, but will yield productivity and data control benefits out of all proportion to the simplicity of the technology. This, Mystic Meg feels, will have a far bigger impact on productivity than chatbots, natural language processing or the forthcoming Singularity. It’s just not as sexy.

The contract versus the written agreement

The contract, consensus ad idem is an immaterial thing. It has no physical extension. It does not intrude on the mortal plane. Its best Earthly representative is the written agreement, a memorial on parchment wherein the parties do their best to set out the boundaries of their compact. The document is not the contract; the contract is not the document — they are spirit and flesh; a Platonic ideal and its flickering shadow on the grotto wall.

But if there should be some executed paper — for most contracts there need not, but let’s just say there is — a court will be disinclined to look beyond its “four corners” when divining the parties’ commercial intentions in signing it. This is in part convenience, in part laziness, but in part the fair assumption that, since the parties were bothered to write down the important parts of their agreement, anything they didn’t write down either didn’t exist or can’t have been important enough to justify memorialising. In this way the Platonic form of the contract and its bodily extension into our decadent organic realm become one. It’s rather biblical.

Since an issue that has attracted the attention of the Queen’s Bench Division must be important, the Court’s doubt will benefit not one party or the other, but the paperwork both of them signed. The Lord is not your witness, so the signed written record will have to do.

This rule against extraneous evidence — as with so many historic principles of the common law, these days a diminished thing — is known as the “parol evidence” rule.

The unilateral contract

Curiously, the foregoing is less obviously true in the case of a unilateral contract which is signed by neither parties: for example the famous carbolic smoke-ball. In that unique case, the immaterial consensus ad idem and the written form of the contract, albeit unsigned, are coextensive. There is no other articulation of the agreement.

But does it work, legally?

Cue voluminous, sombre, tedious monographs on the legal effectiveness in different jurisdictions of electronic signatures. These are mainly confined to the specific issues arising where a local jurisdiction prescribes some form to the way one enters into a special type of contract — one relating to the conveyance of real estate, for example, or a deed.

So — unless your instrument is a deed or lease or has such peculiar formal execution requirements — and most confirmations, instructions and even master trading agreements which pass between the operational teams of financial institutions won’t — it needn’t be that complicated. Generally, digital signatures are fine and, in many respects, better than handwritten signatures, especially a scanned, emailed facsimile of a handwritten signature which could easily have been forged.

For a signature – any signature — is simply a means of gathering and recording evidence and that your counterparty agreed to your transaction or gave the instruction that your records say it did. It is an audit trail. It is due diligence. You will only need that evidence should you wind up arguing with your counterparty about your contract. The moment your counterparty denies signing it, or confabulates a claim that the terms of your bargain where different from the ones written down on this piece of paper — that is the moment where your counsel, Sir Jerrold Baxter-Morley, K.C. pulls out your agreement, slaps it on the registrar’s desk, pointing his spittle-flecked fat little fingers at your adversary’s signature and triumphantly declares, “Well M’Lud, this here is unequivocal evidence of the defendant’s agreement to the contract says otherwise!”

So how would you feel were it not a dog-eared contract with a hastily-appended scribble on it, but a two-factor authenticated, time-stamped, distributed ledger-registered digital record of your counterparty’s authorised officer’s assent? Most well adjusted merchants would say, “rather better”.

It doesn’t matter if it is a hand-inked signature scratched on onion skin with a quill and waxen seal, a two-factor-authenticated digital signature or, for that matter, a series of unambiguous semaphore messages from a person atop a distant hill whom you sincerely and plausibly believe to be your client. If it is your client, and you have a record of its assent, however communicated, it will be hard for your client later to claim the contrary.

See also

• No oral modification
• Parol evidence