Electronic Execution of Agreements with Business Customers

Banks increasingly allow business customers and consumers to execute agreements online. Banks should consider best practices to avoid potential pitfalls arising from the generally anonymous nature of executing agreements electronically. State law principles govern the formation of contracts. Most courts recognize, however, that while new commerce on the Internet has exposed courts to many new situations, it has not fundamentally changed the principles of contract. 

Generally speaking, banks must answer the following questions in the affirmative when entering into agreements through the use of electronic signatures by business customers:

• Do the terms of the agreement provide the bank’s business customer’s consent to enter into an agreement electronically?
  
  
• Does the process for collecting the business customer’s electronic signature provide an actual expression (manifestation) of assent to enter into the agreement? 
  
  
• Can the bank reasonably identify the individual electronically “signing” the agreement?
  
  
• Does the individual “signing” the agreement have the authority on behalf of the business customer to execute and deliver the agreement for all purposes in the agreement?

Unfortunately, banks often unknowingly accept unreasonably risks when dealing with business customers because many banks fail to obtain the necessary information to confirm the identity of the person electronically executing the agreement and whether that person is appropriately authorized on behalf of the business customer. 

Banks must ensure that any and all agreements in which they enter with a business customer are “signed” by an authorized representative of the business customer and that the “signature” contains a reasonable manifestation of the customer’s assent to enter into the agreement. To do this, banks must ensure their corporate resolutions provide sufficient authority for electronic execution of agreements. 

Additionally, banks should either (a) include appropriate security procedures in corporate resolutions to confirm the identity of the person executing the agreement (i.e., clicking “I agree”) or utilize one of many third-party services for authenticating the identity of the individual. 

Accomplishing these tasks involves a careful analysis of the language in corporate resolutions used by banks and ensuring a process is in place to satisfy the legal requirements. A failure to do so could result in an agreement that is unenforceable.