Electronic execution

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Electronic execution is the process of gathering evidence of offer and acceptance of a contract using digital authentication technology. Not just pasting a jpeg of your scanned signature onto a pdf.

This unglamorous, but important, topic usually gets swamped by modish A.I. yogababble — though old Mystic Meg here predicts that might change in 2020, with the planet’s entire negotiation capability sequestered in box rooms and attics, without any other means of executing completed legal contracts.

For a properly-implemented electronic execution programme will not just keep your ISDA ninjas safe from pandemic, but will yield productivity and data control benefits exceeding all business projections. This, Mystic Meg feels, will be far more transformative than the slew of useless chatbots the general counsel keeps wittering on about or, for that matter, the forthcoming Singularity, in which said chatbots will take over the planet and convert our weeping fleshsacks into juice for their batteries.

That is to say, electronic execution is much-needed and long-overdue innovation. One we don’t talk about much. It’s just not sexy.

Now, before allaying the usual pat paranoid fears about it, a brief indulgence in the common law jurisprudence of the contract:

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 electronic execution work? Is it legal?

TL;DR: Yes.

But cue voluminous, tedious monographs on its legal effectiveness in different jurisdictions and for peculiar contract forms. These are mainly confined to where a local jurisdiction prescribes some arcane 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 one of those peculiar contracts with formal execution requirements — and most confirmations, instructions and even master trading agreements which pass between the operational teams of financial institutions won’t be — it needn’t be that complicated. Generally, a digital signature will be fine and, really, better than a handwritten signature, especially a scanned, emailed facsimile of a handwritten signature which can easily be forged.

Now. Any signature is simply a means of gathering and recording evidence that the person providing it agreed to the contract or gave the instruction that it sits under. It is an audit trail. It is due dilly. You will only need it should your counterpart deny it agreed to the contract, or gave the instructions. In most contexts that arise between professional financial services firms, this is highly unlikely to happen. The argument will not be to the fact of the contract, but to its terms, the meaning of those terms, and what informal accommodations the parties subsequently made to each other that might modify those terms.

Parties tend not to deny the existence of contracts they have been happily performing until the moment of the dispute. The moment one does is the moment where the other’s counsel, Sir Jerrold Baxter-Morley, K.C., pulls out the contract, slaps it on the registrar’s desk and points his fat little fingers at the parties’ signatures.

So how would Sir Jerrold Baxter-Morley, K.C. feel were his dramatic reveal not a dog-eared contract with a hastily-appended scribble on it, but a time-stamped, distributed ledger-registered digital record auditable back to the two-factor authenticated assent of each counterparty’s authorised officer? Most well-adjusted legal eagles would say, “rather better”.

It doesn’t matter if it is a hand-inked signature scratched on onion skin with a quill and sealed with a waxen crest, 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