Are Electronic Signatures Legal?



By: Arati R. Thaly

Do electronic signatures have the same effect as manual signatures? With the prevalence of e-commerce, it is important to understand when it is appropriate to use or not use electronic signatures.

There are two statutes that address this question, namely the Electronic Signatures in Global and National Commerce Act 2000 (ESIGN) and the Uniform Electronic Transactions Act 1999 (UETA). Both ESIGN and the UETA establish the legality of electronic signatures, subject to certain exceptions.

 

ESIGN (Federal Level)
ESIGN created a standard across the United States for the legal recognition of electronic signatures “with respect to transactions in or affecting interstate or foreign commerce” (Section 7001 ESIGN). 

ESIGN grants states the power to “modify, limit, or supersede” the provisions of Section 7001 with respect to state law if (1) a state’s version is identical to the UETA, or (2) a state implements an alternative law that sets out the procedures for use and acceptance of electronic signatures (as long as the procedures are consistent with the provisions of ESIGN and do not require or prefer the use of a specific technology in the process). If a state takes a non-UETA approach after the enactment of ESIGN, that law must make specific reference to ESIGN. 

The exceptions to the legal validity of electronic signatures under ESIGN are comparable to the exceptions under the UETA, to the extent that both statutes exempt most transactions under the Uniform Commercial Code (UCC) and under laws governing the creation and execution of wills, codicils, or testamentary trust.

In the event of any inconsistency between the exceptions under ESIGN and UETA, the ESIGN exceptions appear to prevail. However, it is advisable to comply with exceptions under both statutes, as the issue of whether there is an inconsistency may not always be clear.

UETA (State Level)
Forty-seven states and the District of Columbia have adopted the UETA. The states that have not adopted the UETA are New York, Illinois and Washington.

The UETA states that a signature may not be denied legal effect or enforceability solely because it is in electronic form. The UETA applies only to transactions between parties, each of which has agreed to conduct transactions by electronic means. Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct. Incorporating an express provision in your contracts in this regard helps to clear this hurdle.

The UETA, however, does not apply to a transaction to the extent that it is governed by (i) a law regulating the creation and execution of wills, codicils, or testamentary trusts; (ii) the UCC except for certain sections, including those on Sales and Leases; (iii) the Uniform Computer Information Transactions Act; and (iv) other laws, if any, identified by a state. 

Also, under the UETA, any document that requires a notary signature may be signed electronically. However, the UETA does not eliminate any of the other requirements of notarial laws. So, for example, the notary must still be physically present in the room with the party whose signature is being notarized.

New York, Illinois and Washington
Although New York and Illinois have not adopted the UETA, they have adopted other legislation with specific provisions providing that electronic signatures are legally valid. Both New York and Illinois provide, however, that electronic signatures cannot be used for negotiable instruments and other instruments of title, where possession of the instrument is deemed to confer title. This would include items like checks, stock certificates or motor vehicle titles. Parties to a contract should be careful to refrain from using electronic signatures for negotiable instruments where parties are incorporated or residing in New York or Illinois. 

Washington has not adopted the UETA or other similar legislation. If a state does not adopt the UETA or other similar legislation, then ESIGN will apply. Therefore, ESIGN applies in Washington, and the use of electronic signatures in Washington are legally valid, subject to specified exceptions as discussed above.

Conclusion
Each state’s specific version of the UETA should be reviewed to see which particular exceptions apply (the exceptions noted above might differ from jurisdiction to jurisdiction), and to see if they are consistent with the ESIGN exceptions. If you have questions or would like more information, please contact Arati R. Thaly.