Sign on the Dotted Line – The Legality of Electronic Signatures

The legal requirement of the parties to a contractual agreement to execute their signatures effectuates not only the execution of the agreement, but identification and proof of enforcement against the parties to be charged to the agreement. As important the signature requirement is for agreements across the world and in all areas of commerce, it is not always easy or convenient to get signatures; in fact, waiting for signatures on a contract can delay business transactions. To avoid delays and keep up with the ever-changing world of technological advances, digital signatures are becoming an accepted practice.

Digital signatures enable paperless contracts and can expedite business transactions with remarkable efficiency in the business world. The leading authorities on E-Signatures (electronic signatures) as they are referred to, are The United States Electronic Signatures in Global and National Commerce (ESIGN) Act and the Uniform Electronic Transactions Act (UETA) – both of which have four major requirements for an electronic signature to be recognized as valid under U.S. law: (i) intent to sign; (ii) consent to do business electronically; (iii) an association record of the signature reflecting the process of the creation of the signature; and (iv) record retention by both parties.  

The 2001 E-Sign Act was meant to ease the adoption of electronic signatures, yet the mechanics of what an E-signature consists of were left unrefined. Many years later, and in society today, there is still widespread mistrust of E-signatures, even though there are strong arguments stressing they contain more evidence that a particular person signed a document at a particular time than a traditional pen-and-ink contract does. Given the so-called “mistrust” for E-signatures, the ultimate and obvious questions raised are: How can you be certain that your e-signed documents will hold up in a court of law? Which best practices should you follow when using digital signatures in your business? 

An unfortunate reality and unintended consequence of E-signatures from an attorney standpoint is a client’s willingness to dispute a contract by questioning its original validity. Such a client could claim that a digital signature fails to comply with the necessary statutes like the Federal E-Sign Act and use this argument in a court of law. One consistent argument used for potential legal problems with an electronically signed document relates to the enforceability of the contract. The party signing the contract may argue they did not in fact sign the entire agreement and their signature was planted electronically to agree to terms they did not read. This is why many online agreements (like terms and conditions for many software programs) mandate users to check a box before proceeding to indicate they read the actual contract language. Additionally, the language of the contract can also be a problem, which is why a lawyer should look over a contract before an individual or a company release the contract into the public domain; specifically, it is often questionable whether there is compliance with the E-signature requirements of ESIGN or UETA. Strict compliance with the statutes in the process will greatly increase the enforceability of the contract and eliminate legal claims challenging E-signatures.

Based upon the foregoing, what can be done to ensure compliance?  It is important to understand that there are three levels of electronic signatures. The first but weakest form is to use a picture of your signature on any document, whether it's a PDF, DOC, DOCX, or other file type. It is not recommend for most commercial purposes, even though it would be legal if the signing parties could prove their intent. A party could prove this with supporting evidence, such as emails requesting the services referred to in the contract, but it is risky for a business transaction, especially transactions with lots at stake.

Another class of signatures is signing one's name to a document electronically by typing your name in one of the following formats: /s/Jon Doe/. Both the // and the /s/ methods are considered to be legitimate signatures under the Federal E-Sign Act, and acceptable enough for the legal industry. Nevertheless, one important note is to keep the consumer disclosure portion of the Act in mind, a line should be added to the contract clearly indicating that electronic signatures are accepted, and the signatories have the option to opt out and sign with a paper signature instead. This will help defeat any argument that an executing party may make regarding their lack of knowledge of the effectiveness of the signature, or that an E-signature was truly binding at that stage. It is also worth noting there are legitimate services like DocuSign and Adobe EchoSign, which follow the letter and intent of the E-Sign Act, even considering international laws in the makeup of their services. These services are prevalent for high-value transactions.

Ultimately, using pen-and-ink signatures rather than an electronic one may never die as a common practice for contract execution; thus, it may be best to understand the situations where pen-and-ink signatures are desired. For instance, where a deceased person may be involved, such as with a health insurance policy or wills, trusts, and estates documents, a paper signature provides greater strength to proving signatures and intent since the person signing may not be around to be questioned about intent in signing the document. Given the confusion this area of contract law raises, it is always vital to seek the assistance and opinion of an attorney to ensure the particular legal situation contains an enforceable signature. Don’t leave a major deal or life changing agreement to chance simply because picking up a pen seems taboo, you never know when your signature may not have the same effect it used to have.