E-signatures – 700,000 reasons to proceed with care
The use of electronic signatures to execute business to business contracts has increased significantly, particularly since covid. A recent decision[i] serves as a timely reminder to exercise caution when using electronic signatures to enter into contracts.
A business lender advanced a line of credit and other finance for about $600,000 to its’ corporate customer. One of the conditions of the funding was to obtain a personal guarantee from the company’s two directors (who were married, but separated, at the relevant time).
The husband was responsible for the day to day running of the company.
The Application for Trade Credit Terms, together with a suite of other documents including a personal guarantee, were emailed to the company (to the husband’s email) by DocuSign on behalf of the lender.
The documents were signed using the DocuSign platform.
The husband and the wife had separate DocuSign accounts. The husband’s account was set up to apply one of five pre-determined typescript signatures (two of those purported to be his wife’s signature).
The wife’s DocuSign account was set up to apply a PDF version of her handwritten signature and/or a PDF of her initials that she had uploaded to her account.
However, the husband had access to his wife’s DocuSign account and company email address.
Before the funding was advanced, the lender identified that the documents had not been executed correctly, including that the signature of the directors on the personal guarantee had not been witnessed.
Although it sent an email to the company for this to be rectified, the lender still proceeded to advance the funds and did not follow up the correct execution of the documents.
Also, a second version of one of the agreements was re-signed after some funds had been advanced to the company.
The lender did not have any direct dealings with the wife until the company defaulted in March 2018.
The loan was not repaid and the debt owed by company to the lender increased to over $700,000. However, the company had been placed into liquidation and the husband director had been declared bankrupt.
The lender sought to recover the amount outstanding from the wife relying upon her personal guarantee.
THE ISSUE FOR DETERMINATION
The wife disputed that she had signed the documents and disputed that she had given her husband consent to sign any documents on her behalf.
The lender limited their claim at the hearing to the initial loan documents which were executed (not the further versions signed later).
The Court was required to decide whether or not the wife used her DocuSign account to sign the initial loan documents (including the personal guarantee).
The Court had regard to DocuSign metadata evidence together with mobile telephone location evidence.
Also, in determining whether or not the wife had signed the loan documents, the court relied upon evidence given by the wife’s mother regarding her location at the time the guarantee was allegedly signed using the wife’s DocuSign account.
The Court found that:
- The husband had used his wife’s DocuSign account to sign the initial loan documents without her knowledge or consent.
In making this finding, the Court found that the husband was an unreliable witness. The husband’s position was that his wife had signed all of the documents (even the further versions).
However, the metadata evidence presented at trial showed that the husband had signed the second version of one of the agreements by using his DocuSign account to apply a pre-determined typescript signature he had for his wife. Based on this evidence, the husband changed his evidence during the trial and claimed that his wife had given him consent to sign the further version of one of the agreements on his wife’s behalf.
The lender failed to ensure compliance with its own procedures.
The lender failed to:
- require the husband and wife directors to provide identification documents.
- require the company to provide contact details for the wife and the wife’s driver licence details as specified in the application form.
- enforce the requirement that the guarantee be signed in the presence of an independent witness.
- ensure that contact was made with the wife as part of the credit check.
- require the wife to provide a voice sample.
- before the loan was settled, require the agreements to be re-executed when it identified that the documents had been signed incorrectly by the wife using DocuSign.
The lender’s compliance procedures were simple steps expressly provided for by the loan documents that could have been enforced prior to advancing any funds to the company which could have identified the wife as a willing signatory to the documents.
None of the contemporaneous documents, including text messages and emails between the husband and wife, showed that the wife was aware that the finance with the lender had been concluded or that she had signed the documents. This corroborated the wife’s denial that she signed the loan documents.
This recent case provides a sobering lesson to take care when your business is using electronic signatures to enter into contracts.
The finding that the lender could not enforce the guarantee against the wife was not solely due to the use of DocuSign. The court found that, due to a series of factors considered together, that the lender could not rely upon the electronic signature applied to its’ loan documents (including the lender’s failure to comply with its’ compliance procedures).
To reduce the risks of not being able to enforce a contract signed electronically:
- Check that the contract can be signed electronically (not all legal documents can).
- Verify that the person signing electronically has authority to do so.
- Identify the signatory by asking for an identification document to be provided.
- Reach out to the signatory to confirm they are aware of the document and intend to be bound by it.
- Send an email to the signatory to confirm any discussions you have with them about the contract.
- Ensure that your business has an electronic signature protocol in place, including a checklist that staff must follow when electronic signatures are used to sign contracts.
WE’RE HERE TO ASSIST
We assist businesses across varied industries, regardless of their size or structure, to resolve disputes involving their business contracts.
Our approach is to provide practical advice to deal with a potential issue early to reduce the risk of the dispute escalating or proceeding to contested litigation.
For more, contact us today for an initial general consultation so we can discuss your circumstances and review your options together.
Disclaimer: This article is intended to provide general information in summary form only. The contents do not constitute legal advice. Formal legal advice should be obtained for your specific matter.
[i] Marketlend Pty Ltd v Blackburn  NSWDC 358