Developments in technology in the last decade have sped up signing and delivery of contracts. If you are like everyone else, you sign and scan documents, letters and contracts to others regularly. But should we be comfortable that what has become easy and generally accepted is actually enforceable? Or could there be an enforceability issue with the commercial lease, agreement of purchase and sale for land or other contract that you just completed? Well, unless you have exchanged originally signed copies with the other side, there could be an enforceability problem with your contract.
In 2000, the Province of Ontario adopted the Electronic Commerce Act, 2000, S.O. 2000 (the “Act”). The purpose of the Act was to provide a coherent set of rules for the exchange of electronic information, and the effect of the Act is that electronic documents have become functionally and legally equivalent to their paper-based counterparts. Essentially, the Act codified the everyday practice of using email, faxes, and other electronic means of communication to form legal relationships by stating that contracts, information, and other documents are not invalid or unenforceable simply by virtue of their being in an electronic form. Essentially the Act allows the exchange of contracts and other documents via electronic means that cannot be altered (e.g. facsimile, pdf scan).
However, subsection 31(1) of the Act indicates that the Act does not apply to “documents, including agreements of purchase and sale, that create or transfer interests in land and require registration to be effective against third parties.” Therefore, a document that transfers an interest in land and that requires registration to be effective against third parties is specifically excluded from the documents permitted to be signed and delivered electronically.
So what types of documents are excluded and should not be delivered electronically (unless followed up with originally signed copies being delivered)? Agreements of purchase and sale, leases, offers to lease, options to purchase land, easements and possibly other documents are all excluded, perhaps some of these subject to certain exceptions which are beyond the scope of this short article. With respect to a lease, however, leases for a term of less than three years if the land is in the land titles system, or for a term of less than seven years if the land is in the registry system, are protected (they don’t need registration to be effective against third parties) and so could be signed and delivered electronically; however most leases are on lands in the land titles system and for a term of greater than three years, so most leases would be excluded and parties should, out of precaution, not rely on the Act to enforce a lease delivered electronically.
If the contract you are dealing with either does not create or transfer an interest in land (e.g. a reciprocal operating agreement or restrictive covenant agreement), or does not require registration to be effective against third parties, should you choose to deliver and accept a signed copy electronically, ensure that the documents being exchanged are delivered in a manner than can be stored for future access and that they cannot be altered.
Canadian courts have not considered any cases yet regarding the enforceability or unenforceability of a document that was delivered electronically, contrary to subsection 31(1) of the Act. Because courts seem to want to uphold the bargains made by parties and because of the prevalence and acceptance of electronic delivery of all types of contracts in our society today, we expect that eventually, when a Canadian court is tested on this enforceability issue, it will uphold enforceability of such documents. In addition, other countries have similar legislation, allowing electronic delivery of contracts, without the restriction of a section like subsection 31(1) of the Act. However, to date, Canadian courts are untested on the issue. We note however, that parties have been exchanging documents in the excluded category for a number of years and the fact that the issue has not been considered by a Canadian court may be telling that parties are not seeking to argue non-enforceability based on electronic delivery; this could mean that society so generally accepts electronic delivery that the risk is quite low of having the other side make such an argument.
The prudent practice however, until a Canadian court endorses the enforceability of electronic delivery of these types of documents, is to execute and deliver original signature pages or signed copies when dealing with agreements of purchase and sale, leases, offers to lease, assignments of lease, easements, options to purchase land, and any other document that transfers an interest in land. If, for the sake of expedience, you exchange signed documents such as these by electronic delivery, it would be prudent to follow up with the exchange of originally signed copies.