Electronic contracts and signatures in Brazil and the COVID-19 crisis
Although electronic agreements are generally lawful, valid and enforceable in Brazil, some precautions must be taken to avoid legal risks, especially considering the current COVID-19 pandemic and social isolation measures. In this brief article we will highlight some of these precautions
The COVID-19 pandemic and the social isolation measures imposed to control the situation caused a direct impact on economic activities, moving a large mass of professionals to remote work as a means of maintaining business continuity. However, the situation led to the necessary review of how to develop a series of common activities in the daily routine of the companies, including finding means of entering into contracts necessary for the development of the business.
Digital transformation is a reality in Brazil and many companies have been relying upon electronic contracts in order to reduce costs and doing business deals more efficiently. However, many companies are still reluctant in adopting electronic contracts and signatures and some of them are not aware that this means of contracting not only is feasible, but also legal valid and enforceable as any other physical contracting.
Requirements for a valid electronic contract
Brazilian courts generally recognize that electronic agreements, like any other physical agreement, are in principle lawful, valid and enforceable in Brazil, as long as they meet the following requirements:
- the parties have legal capacity to enter into a contract;
- the agreement has a legal and determined or determinable purpose; and
- there is no specific formalities required by law (e.g., the acquisition of real estate depends on the execution of a written public deed, which is not compatible with all forms of e-signature).
Therefore, if the requirements above are met, electronic agreements have the same validity as physical ones. The Brazilian Civil Procedure Code expressly acknowledges the validity of electronic documents as proof.
Requirements for a valid electronic signature
There are no requirements regarding how electronic agreements could be executed, provided that the party’s willingness is clearly evidenced. However, it is crucial that the parties adopt proper measures to preserve the security of the technological means chosen for contracting, both in relation to the authorship of the signature and in relation to the content of the document itself.
In this regard, the technology tools chosen by the parties must be able to demonstrate:
- Authenticity. Proof that the signature actually belongs to the person it identifies; and
- Integrity. Proof that the content of the document has not been changed after being signed.
ICP-Brasil digital certificates: presumption of authenticity and integrity
The Provisional Measure 2,200-2, of August 24, 2002 (“MP 2,200-2”) created the Brazilian Public Key Infrastructure (“Brazilian PKI” or “ICP-Brasil”) to ensure the authenticity, integrity and validity of documents in electronic form, as well as to enable applications that use digital certificates. Therefore, signatures using ICP-Brasil digital certificates issued by certifying entities, upon confirmation of the applicant’s identity, are presumed authentic and true, unless proved otherwise.
However, the ICP-Brasil digital certificate, although more commonly used in the corporate environment, has very restricted use among the general public, due to the bureaucracy and the high cost of distributing and maintaining card or token-based digital certificates.
In this regard, the ICP-Brasil-backed electronic signatures are normally limited to high-value, high-volume transactions including foreign exchange transactions, factoring (accounts receivable) and transactions carried out directly with the Brazilian government.
Other means of e-signature
In any event, the MP 2,200-2 itself and Brazilian courts recognize that, besides the ICP Brasil digital certificate, other means of e-signatures could be used, provided that the parties accept them as valid and are able to demonstrate authenticity and integrity of the signed documents. Therefore, parties could rely on a variety of technology tools, such as checkboxes, opt-in devices, e-mail replies, among others.
For practical purposes, it is important that the parties are able to demonstrate the contract execution and to confirm that the person on the other side is capable and duly empowered to do so, as well as that the document has not been modified after signing. Several vendors provide the market with ready-made tools capable of ensuring adequate legal security for electronic contracting, including allowing the modulation of security layers to be implemented, according to the complexity of each contracting.
In addition, there are no impediments for companies to develop their own means for obtaining electronic signatures, provided that legal and technical assessment have previously been carried out to make sure that such means meet Brazilian law requirements for a valid electronic contracting and signature.
Therefore, it is highly recommended to adopt safe tools for validating the identity of the parties, as well as to prove the integrity of the contractual arrangement (for example, use of cryptography, hash codes, blockchain, among other technologies.).
Recent changes as a result of COVID-19 crisis
Provisional Measure No. 951/2020 (“MP No. 951/2020”), published on April 15, 2020, changed the procedure for issuing digital certificates within the scope of the ICP-Brasil, thereby authorizing the issuance of digital certificates remotely, without the need for the applicant to be present at the establishments accredited to issue such certificates (Registration Authorities).
MP 951/2020 revoked Article 7 of MP 2,200-2, which required the Registry Authorities to act in person with the applicants in order to validate their identity. With MP 951/2020, Registration Authorities can issue electronic certificates remotely, provided that they adopt other means of verification that guarantee a level of security equivalent to the face-to-face verification, observing the applicable ICP-Brasil’s technical standards.
The amendment follows the legislative changes resulting from the COVID-19 pandemic, which led to social distancing and the determination to close establishments in different locations of the country, so as to avoid presential interactions. This change is crucial to facilitate the issuance of ICP-Brasil certificates remotely, thereby enabling companies to migrate to ICP-Brasil-backed electronic signatures in order to remain carrying out more complex business transactions.
However, further regulation is expected in order to define the procedures to enable the Registration Authorities to carry out remote identity verification to ensure safe and reliable issuance of ICP-Brasil digital certificates.
Conclusion and recommendations
The digital transformation has been pushing Brazilian companies to paperless solutions since the beginning of the last decade. The new reality imposed by the COVID-19 crisis is now encouraging companies to adopt electronic contracting as an alternative to maintain their routine business deals and transactions.
As per the above, electronic agreements are generally lawful, valid and enforceable in Brazil, though precautions must be taken by the parties to ensure the authenticity of the signature and integrity of the content of the document.
Therefore, we provide the following recommendations to ensure the validity and enforceability of electronic contracts and signatures, especially during the COVID-19 pandemic:
- Before adopting e-signature, it is important to verify if there is any legal or regulatory limitation for the execution of the agreement by electronic means or requiring a specific form of e-signature;
- It is essential to verify if the technology adopted for e-signing is able to guarantee the authenticity of the signature (proof that the signature actually belongs to the person it identifies) and the integrity of the document (proof that the document was not modified after signing). This verification should cover the entire signature flow and comprise both legal and technical aspects;
- The security of the selected signature method should be compatible with the criticality and relevance of the agreement. In this regard, more simple agreements can be signed through less secure means (such as e-mails or checkboxes) so as to avoid bureaucracy, whereas more complex and sensitive agreements should be signed in a manner that guarantee more security regarding its authenticity and integrity (such as ICP-Brasil and other electronic certifications);
- The agreement’s provisions should foresee the adoption of e-signatures, since the parties must expressly agree with its use when they are not relying upon ICP-Brasil certification.
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