By Jones Osborn II

In recent years, it has become common for signatures on contracts and other legal documents to be transmitted electronically. For example, a party may execute a purchase agreement or lease and transmit a copy to the other party by facsimile or by an e-mail in the "pdf" format. Either method transmits what is essentially a picture of the signed document.

This raises the question: Is an electronic signature sufficient to bind the parties?

In most cases, the answer is "yes."

Federal and Arizona statutes both provide that a signature may not be considered invalid solely because it is in electronic form. This does not mean that every electronic signature is valid, but it does mean that the fact that a signature is electronic does not, by itself, render it invalid.

So when, exactly, is an electronic signature legally binding?

Two Types of Contracts. For purposes of our analysis, we must first divide contracts into two types. First, there are contracts that do not require a writing and a signature to be enforceable. This covers any contract that could be made verbally, such as an agreement to prepare a tax return for a fee of $500, for example. A contract of this type is binding and can be enforced regardless of whether it is in writing. Second, there are contracts which are governed by the Statute of Frauds, which means that they must be in writing and signed by the party against whom they are to be enforced. An example is a contract for the sale of real estate. A contract of this type is not legally enforceable unless it is in writing and is signed.

Contracts Not Requiring a Writing. If the contract is of the first type, the answer is easy. Anything that will prove the parties agreed to the contract is sufficient to make it binding. Therefore, if it can be shown by e-mail or facsimile communications that the parties did in fact reach an agreement, the agreement is enforceable. For this type of contract, the form of communication is not material.

Contracts Which Require a Writing. If the contract is of the second type--that is, if the contract is subject to the Statute of Frauds-- the rules are a little more complicated. First, the law states that to be enforceable the parties must have agreed to conduct the transaction by electronic means. However, this "agreement" can be implied from the context and surrounding circumstances, including the parties' conduct. In most cases, the fact that the parties have exchanged e-mails or facsimiles and have relied on this form of communication should be sufficient to show the necessary agreement. Of course, the parties could specifically agree not to accept electronic copies, in which case hard-copy originals would be required. This is rarely done, however, and in most cases e-mails and facsimiles are routinely sent back and forth and provide a clear implication that the parties have agreed that electronic communication is acceptable. Second, the electronic communication must be capable of being retained and reproduced by the recipient, which is normally not an issue since most facsimiles and e-mails are easily stored and reproduced.

Therefore, in the great majority of cases, facsimile and e-mail signatures in the "pdf" format are just as enforceable as original signatures on a piece of paper.

Other Issues. The foregoing discussion deals with signatures transmitted by facsimile and pdf--that is, signatures that are images of an original signature by pen and ink. However, this is not the only type of electronic signature covered by the law. The law is actually broad enough to cover any kind of electronic signature, if it the communication is intended by the sender to be a signature. Thus, if someone sends an e-mail stating that an offer is accepted and "we have a deal--Joe Smith," there is at least the possibility that the courts would conclude that the sender intended the statement to be a signature binding him to the contract, even though he never picked up a pen or signed a piece of paper. This is certainly not a recommended method of executing a contract, but one should be aware that e-mails of this type may turn out to create enforceable contracts even if the contract is subject to the Statute of Frauds.

In addition, the law also provides for the notarization of a document by electronic means. There are detailed requirements set out by statute in order to have an effective electronic notarization; however, this procedure is rarely used. Nevertheless, when it is not possible to obtain an original notarization this alternative may be of considerable value.

The statutes also provide that when records are required by law to be retained, they may be retained in electronic form.

The Arizona statute contains an exception for signatures on wills, codicils, and testamentary trusts, which still require hard-copy pen and ink signatures.

Conclusion. Signatures transmitted by e-mail or facsimile are normally just as enforceable as a live signature on a piece of paper, so long as the parties have agreed, explicitly or impliedly, to conduct business electronically. Nevertheless, for important transactions it is a good practice to follow up electronic signatures with a live signature to avoid potential challenges.

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A.R.S. Section 44-7001 et seq.; 15 U.S.C. Section 7001.