Many loan transactions are closed today with parties delivering to the lender or lender’s counsel an e-mail with scanned PDF copies of signed loan documents. Increasingly often, the original “wet ink” hard copy paper document never makes it to the lender. This is especially true for documents signed by parties other than the borrower, such as a landlord lien waiver. After the fog has cleared from a closing, a loan officer may call to ask if she really needs to chase down the original document or if having the PDF copy in the loan file is sufficient. Putting aside any internal bank policy requiring original documents, what the loan officer really wants to know is whether that PDF received by e-mail is enforceable against the other party in a court of law. The answer is probably yes.
Recognizing that business in today’s world is often conducted at least partially electronically, forty-seven states have adopted the Uniform Electronic Transactions Act (UETA) to facilitate electronic commerce. The three states that have not adopted the UETA, Illinois, New York, and Washington, have adopted other statutes allowing for the enforceability of electronic signatures and records. The UETA acts as an overlay statute to clarify requirements for originals or signed writings in other laws. UETA gives electronic records such as scanned PDFs of signed documents the same legal effect as paper records. For example, Section 7 of the UETA provides that an electronic record will satisfy another law’s requirement that a record be in writing. With respect to evidentiary rules, Section 13 of the UETA states that a record may not be excluded from evidence solely because it is in electronic form.
For the UETA to apply to a transaction, the parties to that transaction must agree to conduct business electronically. The good news is that this requirement can be satisfied informally and can be inferred from the parties’ conduct. Going back to the landlord waiver scenario, the parties agreed to conduct business electronically when the landlord e-mailed a PDF of the signed waiver to the lender and the lender accepted that PDF for closing. Despite the ability to infer an agreement to apply the UETA, it is good practice to include language in loan documents providing that delivery by PDF is the same as delivery of a paper original or otherwise opting in to UETA.
Even if the UETA does not apply to a transaction, the lender may still be able to enforce the landlord waiver with only a PDF copy. The scanned PDF copy can still be admissible as evidence of the landlord’s agreement. In federal court, the evidence rules provide that a duplicate is admissible to the same extent as an original unless a genuine question about the original’s authenticity is raised or the circumstances make it unfair to admit the duplicate. Similarly, most states use a version of the “best evidence rule” which allows a copy to be admissible as evidence unless the party seeking to admit the copy lost or destroyed the original with fraudulent intent. In our landlord waiver situation, the lender never received an original so it could not have caused the original to be unavailable and should be entitled to use the PDF copy as evidence of the terms to which the landlord agreed.
Banks still need to obtain originals of certain loan documents such as negotiable promissory notes. Also, many real property recording offices still require original mortgages or deeds of trust. Nevertheless, the law’s accommodation of electronic records, such as PDF copies of loan documents, is extremely helpful for banks and their lawyers who are trying to close deals as efficiently as possible. To take full advantage of laws like UETA, banks should include provisions in their loan document forms allowing for electronic delivery and also update their policies to permit electronic storage of loan documents. Doing so will save the loan officer asking about the landlord waiver (and her lawyer) time and money from tracking down an original.
More information about the UETA can be found here.