A recent Eastern Cape High Court Decision (Borcherds v Duxbury) has focused the law on the ever-increasing use of electronic agreements and e-signatures.
Unfortunately, the judgement, instead of giving clarity and guidance, introduces doubt and uncertainty into this fast-growing category of technology.
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.
Generally speaking, electronic documents and agreements are legal. However, there is a special exception: agreements for the sale of immovable property are still not permitted.
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 functional equivalent of paper-based transactions.
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.
The Ecowash Appeal Court declared that an exchange of data messages bearing the names of the parties at the foot of the emails constituted a valid agreement.
Examples of acceptable electronic signatures would include:
- Your typed name at the end of an email;
- a scanned image of a handwritten signature embedded into a Word document; and
- a so-called digital signature.
Examples of acceptable electronic agreement formats, provided they incorporate electronic signatures, as above, would include:
- Agreements by email;
- Agreements by WhatsApp;
- Agreements by SMS.
However, the 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”; (this is where a signature is manually signed, using the liquid ink of a pen). These agreements cannot benefit from electronic signatures and 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….”
Recently, the High Court, (Borcherds v Duxbury), 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, actually validated the Sellers’s acceptance of an offer to purchase.
Borcherds (“the First Purchaser”) emailed his Offer to Purchase to Duxbury (“the Seller”) which was received on his cell phone. Duxbury then imported the offer to purchase into the DocuSign App. He then “signed and initialled” using his sample signature and initials.
Duxbury then received a competing offer to purchase for more money. He then wanted to abandon the first sale, (the Borcherd’s sale), so that he could sell to the second purchaser for a higher purchase price.
Then Borcherds launched an urgent application to the High Court and interdicted (prevented) Duxbury from transferring the property to the competing purchasers.
Duxbury in reply then, argued that his initial electronic sale, via DocuSign, was invalid.
His first point was that his own electronic signature was invalid, as he did not comply with the Alienation of Land Act, which we referred to above. The Seller also contended that his electronic signature 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 referred to previous court cases and many definitions on the meaning of “sign” and “signature”.
The judge also observed in passing that:
“had the agent taken the trouble to present the offer to the seller personally and obtain his signature,…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 a signature may conceivably be satisfied by a so-called electronic signature, where a handwritten signature is digitised and attached to an electronic document,”
The judge accordingly declared, that by affixing his signature and initials to the contract utilising DocuSign, that the contract, (created using electronic signatures), was valid and that the seller was bound to give effect to the Electronic Sale, as demanded by the first purchaser. The seller was ordered to transfer the property to Borcherds.
Because, a digitised photograph of a “wet” signature, which 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.
However, the Judgement does not mention key provisions of the ECTA, which should have been 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 using electronic signatures), was valid. This is 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 by bodily movement resulting in a record of information.
The Alienation of Land Act 1981 must have intended to refer to physical handwriting on paper or similar material. So long ago was the earliest legislation passed on this point – in 1905 – when computers, Emails, WhatsApp and Smart Cell Phones did not exist.
As the judge cautioned, it is still preferable to take the trouble to present the offer to the seller personally.
The Borcherds case is really interesting, as it tells of extraordinary ironies.
Firstly, the Seller chose to accept an emailed offer to purchase and signed electronically to accept it via DocuSign; then he argued the opposite; that his electronic signature was invalid.
Secondly, the Court surprisingly held that the electronic contract was lawful, which the Seller did not want.
Thirdly, the Court probably would have decided that the electronic contract was invalid after all if it had taken note of the exclusion of immovable property agreements, in Schedule 2.
We will only obtain 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.
Denoon Sampson is the Director at Denoon Sampson Ndlovu Inc, currently ranked the ‘number 1’ top performing conveyancer by First National Bank Limited. He has 30 years of experience as a conveyancer, specialising in the full spectrum of property-related law and is often called upon to give talks or contribute content on related matters.