There is clearly a proliferation and growing reliance on electronic signatures to execute agreements and other legal documents.
But how do you know that an electronic signature is legally valid? Many agreements and disclosures will self-servingly say “electronic signatures are as good as originals,” but understanding whether an electronic signature is valid—and how that’s determined—is a slightly more involved process and ultimately central to being comfortable that you have a valid and binding agreement.
Here are some key legal considerations in determining when an electronic signature may be considered binding and enforceable.
1. Which law applies—federal or state?
The two main sources of law that govern electronic signatures in the United States are:
(a) the Electronic Signatures in Global and National Commerce Act (E-Sign Act)1
(b) the Uniform Electronic Transactions Act (UETA) (to the extent adopted by an applicable state)2
The E-Sign Act is a federal law that applies to interstate commerce transactions (i.e., transactions affecting more than one US state) and transactions between US and non-US companies or nations. As the E-Sign Act is based on the concept of federal law preemption (i.e., legal matters that only the federal government can regulate), anything not covered by this federal law is effectively left to the individual US states to regulate.
The UETA is a “uniform” or model law proposed by the National Conference of Commissioners on Uniform State Laws in 1999 with the hope that it would be adopted by the various states to create a uniform regime. So far, 49 states, the District of Columbia, Puerto Rico and the US Virgin Islands have adopted some version of the UETA applicable to “intrastate” transactions (i.e., happening within the state and not covered by the E-Sign Act). New York is the only state that has not adopted the UETA but instead enacted similar legislation that in many practical respects resembles some of the key UETA requirements.3
Broadly speaking, the aforementioned state and federal e-signature laws provide, with limited exceptions, that an agreement may not be denied legal effect or enforceability solely because it is in electronic form and that if a signature is required, an electronic signature will do.
While many commercial transactions are governed by the E-Sign Act due to the broad definition of “interstate commerce,” contracting parties are free to choose which e-signature laws they want to govern their relationship. For example, they may utilize a choice-of-law provision to apply the UETA (in the form adopted by the applicable state) or another applicable state statute if not inconsistent with the E-Sign Act.
2. Which transactions or documents are subject to the E-Sign Act or UETA?
The E-Sign Act and UETA do not apply to all transactions. The parties must have “agreed to conduct the transaction electronically”4 in order for the E-Sign Act or the UETA to apply.
Even if parties agree to “conduct the transaction electronically,” not all documents can be executed electronically. Certain types of transactions and associated documents are excluded from the E-Sign Act and the UETA (as adopted by the applicable state). These generally include the creation and execution of wills and trusts, transactions subject to select provisions of the relevant state’s Uniform Commercial Code and transactions concerning select family matters.5 The exceptions will differ depending on the version of the UETA adopted by the applicable state or other applicable state law. The transactions excluded by the E-Sign Act and UETA cannot be executed electronically unless another applicable law authorizes electronic execution.
3. How is an electronic signature shown and enforced?
The E-Sign Act and the UETA (as adopted by the applicable state) define “electronic signatures” broadly: any sound, symbol or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record. Accordingly, an electronic signature is most likely to be enforceable if it can be shown to have met at least the following three requirements:
(i) The signature must be capable of being “authenticated” or “deemed attributable” to an individual person. A signature is attributable to a signer if it was the act of that person. The act may be shown by the context and surrounding facts and circumstances at the time of execution, including by the confirmation of any security procedure, such as entering a password or a PIN, or any two-step authentication method and by providing to the signer an explanation that the use of such password or PIN or second authentication would uniquely identify the signer.
(ii) The party using an electronic signature must have “intended” to execute a transaction through that signature and demonstrated an intent to be bound by the electronic signature, which may be demonstrated by circumstantial evidence such as emails, recorded conversations or conduct consistent with having intentionally signed the agreement. A written agreement signed electronically may not be enforceable if a party who signed the written agreement did not intend to sign it.
(iii) The signature must be "logically associated" with the record. This requirement is relatively straightforward to satisfy if, for example, a party attaches a graphic symbol to an electronic document through commonly used electronic signature platforms such as DocuSign, SignNow, PandaDoc or HelloSign. However, certain types of electronic signatures, such as a webpage clickthrough or typed letters at the bottom of an email, are not always embedded in the electronic record. To meet this requirement then, a party would have to show that a signature is tied to the electronic record through, for example, an audit trail.
The above describes certain key considerations regarding the use of electronic signatures in transactions. However, determining whether and how to use electronic signatures in a particular transaction, including whether the parties want to limit certain types of electronic signatures, must be tailored to parties’ specific needs and the facts of such transaction.
5 For a complete list of exceptions, see 15 U.S.C. § 7003 (E-Sign Act); see also, e.g., Cal. Civ. Code § 1633.3(b), (c) (California UETA); Del. Code Ann. tit. 6, § 12A-103(b) (Delaware UETA); N.Y. State Tech. Law § 307 (ESRA).