Electronic signatures and OTPs

As we live in an online world, and because of the recent pandemic, electronic signatures are becoming more commonplace – and an increasing number of buyers and sellers are asking to sign their OTPs electronically.

The ins and outs of subject to bond approval clauses

By law, contracts for the sale of immovable property – also known as offers to purchase (OTPs) – must be in writing and signed by all relevant parties. However, Schedule 2 of the Electronic Communications and Transactions Act (ECTA) excludes electronic signatures when it comes to contracts for the alienation of land. In other words, these contracts may not be signed electronically.  

The ECTA also identifies two types of electronic signatures (normal and advanced) and defines exactly what an electronic signature is. It’s worth noting that the ECTA came into effect in 2002 and it may be time for the legislature to revisit its restrictions.

What does recent case law say?

In a 2020 decision handed down by the High Court, Eastern Cape Division, the Court considered the issue of an electronically signed OTP. 

In this case, the parties concluded an OTP with electronic signatures (the first offer). The seller then received a subsequent offer at a higher price (the second offer). The conveyancing attorney informed the first buyer that, based on the 72-hour clause in the first offer (which demanded that the buyer make the contract unconditional within the 72-hour period), the seller would proceed with the second more favourable offer. The first buyer then approached the court for an order enforcing the first offer, as their offer was already unconditional in that all suspensive conditions were met. The conveyancer also neglected to formally invoke the clause. 

The court found that the conveyancing attorney did not act strictly in accordance with the 72-hour clause in the agreement. The conveyancer interpreted the clause to favour the seller but had no valid reason to do so – this clause did not make provision for the entertaining of an offer with a higher price. 

The seller and second buyer then attacked the validity of the first offer based on the electronic signatures. The court found that:

  • It was the intention of the parties to the first offer to enter into a valid and binding agreement.
  • The intention or substance of an agreement should take precedence over form. 
  • The signatures were, in fact, those of the parties scanned into an electronic application. 

The court also referred to the making of a mark as a signature, which is acceptable in common law. 

The outcome

The court found in favour of the first buyer and made a cost order against the seller and the conveyancer, with payment by one absolving the other. As a result, electronic signatures will now be regarded as valid in the Eastern Cape, and it’s only a matter of time before this issue will be adjudicated in other provinces – and possibly even the Supreme Court of Appeals. Let’s hope that sanity and logic prevail when this happens. 

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Electronic signatures and OTPs

As we live in an online world, and because of the recent pandemic, electronic signatures are becoming more commonplace – and an increasing number of buyers and sellers are asking to sign their OTPs electronically.

The ins and outs of subject to bond approval clauses

By law, contracts for the sale of immovable property – also known as offers to purchase (OTPs) – must be in writing and signed by all relevant parties. However, Schedule 2 of the Electronic Communications and Transactions Act (ECTA) excludes electronic signatures when it comes to contracts for the alienation of land. In other words, these contracts may not be signed electronically.  

The ECTA also identifies two types of electronic signatures (normal and advanced) and defines exactly what an electronic signature is. It’s worth noting that the ECTA came into effect in 2002 and it may be time for the legislature to revisit its restrictions.

What does recent case law say?

In a 2020 decision handed down by the High Court, Eastern Cape Division, the Court considered the issue of an electronically signed OTP. 

In this case, the parties concluded an OTP with electronic signatures (the first offer). The seller then received a subsequent offer at a higher price (the second offer). The conveyancing attorney informed the first buyer that, based on the 72-hour clause in the first offer (which demanded that the buyer make the contract unconditional within the 72-hour period), the seller would proceed with the second more favourable offer. The first buyer then approached the court for an order enforcing the first offer, as their offer was already unconditional in that all suspensive conditions were met. The conveyancer also neglected to formally invoke the clause. 

The court found that the conveyancing attorney did not act strictly in accordance with the 72-hour clause in the agreement. The conveyancer interpreted the clause to favour the seller but had no valid reason to do so – this clause did not make provision for the entertaining of an offer with a higher price. 

The seller and second buyer then attacked the validity of the first offer based on the electronic signatures. The court found that:

  • It was the intention of the parties to the first offer to enter into a valid and binding agreement.
  • The intention or substance of an agreement should take precedence over form. 
  • The signatures were, in fact, those of the parties scanned into an electronic application. 

The court also referred to the making of a mark as a signature, which is acceptable in common law. 

The outcome

The court found in favour of the first buyer and made a cost order against the seller and the conveyancer, with payment by one absolving the other. As a result, electronic signatures will now be regarded as valid in the Eastern Cape, and it’s only a matter of time before this issue will be adjudicated in other provinces – and possibly even the Supreme Court of Appeals. Let’s hope that sanity and logic prevail when this happens. 

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Follow Snymans on Facebook for more legal information, tips and news about property.