by Nick Gromicko, CMI® and the InterNACHI® Legal Team
As the digital age progresses, paper contracts are quickly becoming outdated. Many inspectors now use InterNACHI’s Online Agreement System, and even those who don’t may be asking clients to approve agreements by fax or email. We want to provide a brief overview of the law regarding electronic signatures and offer some helpful tips to inspectors who rely on them.
You must first understand the difference between a digital signature and an electronic signature. A digital signature is one type of electronic signature. A digital signature has a digital certificate behind it that makes use of a technology known as public-key cryptography. Many states have enacted statutes that recognize and regulate the use of digital signatures; however, the process may be too complex for the average home inspector’s needs. An electronic signature, on the other hand, could be anything – a faxed signature, an email agreeing to contractual terms, or even a text agreeing to terms.
There is a federal statute that applies to electronic signatures known as the Electronic Signatures in Global and National Commerce Act (ESIGN). However, ESIGN only applies to interstate transactions. For instance, an inspector in Omaha, Nebraska, who performs an inspection across the river in Council Bluffs, Iowa, is engaged in an interstate transaction and could rely on the federal law. But most home inspections are intrastate inspections, rather than interstate, so ESIGN would not apply to those, and a detailed discussion of it is not necessary.
There is also a uniform act known as the Uniform Electronic Transactions Act (UETA). Forty-seven states have adopted some form of the UETA, but Washington, Illinois and New York have not.
Many inspectors are confused about whether electronic signatures are legally binding. We believe that most inspectors are worrying too much about this for the reasons below.
I agree that I may execute this agreement by fax or by an email or text agreeing to its terms. I understand that if I execute this agreement in that fashion, this agreement will be legally binding just as if I had signed an original paper document. I understand that the inspector is relying on this representation as proof that I agree to the terms of this agreement, and that I may not later deny the existence of a binding agreement.
For instance, if an inspector agrees to perform an inspection for $300 and the customer promises to pay him that amount, the customer is estopped from denying that a contract existed because the inspector reasonably relied on the client’s promise. Promissory estoppel has five elements: (1) a promise, which (2) the promisor should reasonably expect to cause the promisee to change his position, and (3) which does cause the promisee to change his position, (4) justifiably relying upon the promise in such a manner that (5) injustice can be avoided only by enforcement of the promise. In effect, the customer’s promise and the inspector’s reliance on it form a binding contract.
Whenever a lawyer sues someone for breach of contract, a good lawyer will also include a claim based on unjust enrichment, just in case the court determines there was no binding contract. The lawyer might also allege that the customer made a promise that the inspector relied on and is therefore estopped from denying the existence of a contract. These are alternative theories of recovery; you only have to prevail on one of them to win.
Generally, you cannot recover your attorney's fees if you win on an unjust enrichment theory, but you can if you win on a breach of contract theory and your contract contains an attorney's fees provision. Thus, while the doctrine of unjust enrichment provides an important fallback theory for inspectors, the best approach is to argue that there was a binding contract, as evidenced by the customer’s faxed signature or an email or text confirming that the customer agreed to the terms of the agreement.
As a practical matter, it is nearly impossible for a customer to argue that no binding contract existed if the customer faxed their signature to the inspector or agreed to the terms of the agreement by email or text. At a trial, the inspector’s lawyer could, for example, simply hand a copy of the email to the customer and get the customer to admit that he or she sent the email approval to the inspector on the date indicated in the email. In Mark's experience, he has never seen a court reject this as proof of a binding agreement.
If you're an InterNACHI member and have any questions about your inspection agreement, contact email@example.com.