Gone are the days where all parties to a transaction sit together in a conference room, sign documents, shake hands and close a deal. Today, it seems like almost all deals are closed via electronic transmission, which begs the question we often receive from in-house counsel - how valid are electronic signatures in commercial transactions?
- Enforceability. The Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN) provide that a document or signature cannot be denied legal enforceability solely because it is in electronic form. This does not, however, mean that all electronic signatures are enforceable. For starters, not all states have adopted the UETA – at last check, Illinois, New York and Washington have yet to join the party – and the UETA applies to intrastate transactions and matters of state law, whereas the ESIGN applies tointerstate transactions and matters of federal law. So first, be sure that your transaction is governed by a jurisdiction where electronic signatures are generally enforceable.
- What’s Included. Electronic signatures include any electronic sound (yes, so don’t accidentally record your sneeze and attach it to an email), symbol or process that is attached to or associated with a document in a logical manner and that is executed or adopted by someone who intended to sign the document (so luckily, if your recorded sneeze isn’t intended to be a signature, it won’t be deemed to be a signature). Most electronic signatures we see are scans of actual old-fashioned signatures, so this isn’t a problem, but remember that almost anything can potentially qualify as an electronic signature if it is intended to be one. There are now several applications that help you use electronic signatures and some applications that will even create a new signature for you if you’re so inclined.
- What’s Excluded. Fortunately, we still live in a world where not everything is done electronically. Electronic signatures are not enforceable when it comes to certain recordable real estate documents such as deeds, as well as certain probate documents and Uniform Commercial Code documents. In addition, the ESIGN doesn’t apply to various family law and court documents, documents such as utility notices and those associated with foreclosures, insurance documents and others. It is also important to remember that the UETA only applies to those parties who have agreed to operate under the UETA. But be careful, because this agreement can be implicit, such as by interacting with the other party on social media or giving them a business card that contains an email address. On the other hand, electronic signatures are effective by default under the ESIGN, unless otherwise agreed. Therefore, be sure that your transaction is a piece that fits into this puzzle before closing a deal on electronic signatures.
- International. The United States isn’t the only one who has tried to make conducting business more convenient. Electronic signatures are recognized in many countries in one form or another, including Brazil, Denmark, France, India, New Zealand, South Korea, Switzerland, Turkey and the United Kingdom to name a few, but it is important to review the laws in those jurisdictions to explore any nuances that may be relevant to your transaction.
There are many issues to consider when closing a deal using electronic signatures, but the above description is intended to give a quick overview of what may and may not be enforceable in commercial transactions when pen isn’t put to paper. Other considerations to discuss with your outside counsel are retention, transmission and other requirements under the UETA, the ESIGN and any other applicable laws.