Twitter, email, and PDFs have made the pace of closing deals impossibly fast. Businesses across all industries are not only electronically purchasing supplies, selling inventory, and discussing other business enterprises, but are also using electronic means to agree to the terms of these transactions. With these technologies comes convenience but also uncertainty: if no one put pen to paper, was a document actually signed? When conducting business online or through other electronic means, it is more difficult to ensure the parties understand what they are agreeing to, or that someone is who they say they are. Yet while using electronic signatures with contracts and documents may carry greater risk of being challenged, versus pen-and-ink signatures, that risk can be reduced if certain best practices are observed.
The Legal Framework
The Electronic Signatures in Global and National Commerce Act (ESIGN Act) was enacted in 2000, and provided that a contract or signature relating to interstate or foreign commerce “may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” The most important requirement to make an electronic signature valid is that the signatory must have the intent to sign the contract. The business must retain a record of the transaction, which may be in electronic form, and it needs to be accessible to everyone who is entitled to access it by law and can be accurately reproduced for later reference.
Every state except for New York, Illinois, and Washington has adopted the Uniform Electronic Transactions Act to govern electronic signatures made in intrastate commerce. New York enacted its own Electronic Signatures and Records Act (ESRA) in 2000 and a best practices guideline was later issued to supplement it. Like the ESIGN Act, ESRA requires that e-signing a document be voluntary and that the signor must have intent to sign the contract. But certain types of documents are excluded from ESRA, including wills, trusts, decisions consenting to orders not to resuscitate, and powers of attorney.
The Usual Methods to E-Sign a Document
There are several different methods of electronically signing a document. Likely the riskiest method is to use a bitmapped image of the signor’s signature that’s been inserted into a word-processed document. This method is far too easy to challenge as a forgery or fraud, since it is difficult to prove that the alleged signatory actually affixed the image to the contract. However, it can be recognized as a legal signature if the signatory’s intent can be proven through emails or other communications, but it is best to not take chances with this method for real business transactions.
A better way to sign electronic documents is to use one of the following formats, typing your name with the backslash or with the letter “s,” standing for “signed”:
/John Doe/ or /s/Jane Doe
This method is recognized under the ESIGN Act and is often used by lawyers to sign judicial and government agency documents. They are best used when there is little chance that the document will be contested and the parties want to clearly show their assent.
To further reduce the amount of risk, use a third-party, e-signature service such as Adobe EchoSign (www.echosign.adobe.com) or DocuSign (www.docusign.com). These services are designed specifically to comply with the requirements of the ESIGN Act, and may take into account international laws as well. They further comply with the ESIGN Act by storing a copy of the contract on their servers so that all parties may access it at any time. If you’re not using either of these services, the signor can write directly on the PDF, or sign, scan, and send it back. Signing via an email reply, in the form of “I agree,” however, is risky because no proof of assent is shown on the contract itself, and it would be difficult to prove that the claimed sender of the email is who he says he is.
The more steps you take to prove intent to sign and be bound by the contract, the harder it is to argue that the signor did not actually sign and intend to be bound.
Additional Best Practices for E-Signing
Below are some additional best practices to avoid complications when conducting business with electronically signed documents:
Lauren Mack is a law clerk and Kaiser Wahab is a business, venture, and tech/IP attorney at the NY firm of Wahab & Medenica.