Contracts, Electronic Signatures, and Digital Signatures

In 2011, then-President Obama made waves by electronically signing a bill into law using a device known as an "autopen." Although his predecessors had used the facsimile device to sign routine items like letters, this was its first use for an official Congressional document. It also breathed new life into the question: Are electronically generated signatures legal?

The Electronic Signatures in Global and National Commerce Act (ESIGN), enacted in 2000, made electronic signatures legal under federal law. The Uniform Electronic Transactions Act (UETA) provides a model for states to copy in creating their own regulations. Forty-nine states and the District of Columbia use UETA and ESIGN. New York's Electronic Signatures and Records Act (ESRA) law recognizes electronic and digital signatures.

Electronic vs. Digital Signatures: What's the Difference?

Although people often use "electronic signatures" and "digital signatures" interchangeably, they differ in some critical ways.

Electronic signatures, or e-signatures, are any electronic procedure indicating a document's acceptance. It may be a handwritten signature, as is sometimes used in emailed documents. It can be as simple as a PIN entered into a cell phone as part of a two-step authentication process. Any verification on an electronic document can be an e-signature.

Digital signatures may not be signatures at all. A digital signature is a certificate attached to a transmitted document that authenticates the sender's identity. The trust service provider (TSP) assigns the digital signature. It links the e-signature with the document.

The ESIGN Act allows the use of electronic signatures on legal documents. Digital signatures are not required. They provide another layer of security and verification for e-signatures.

ESIGN Requirements

The ESIGN Act makes all electronic signatures legally valid. It declares all documents are valid, even if signed electronically. To be legally binding, electronically signed documents must contain these elements:

• Intent to sign: As with ink signatures, an electronic signer must show they intended to sign the document. E-signature laws allow users to type their name and click a checkbox to indicate their acceptance of the document.
• Consent to electronic format: Contracts and other documents should contain a clause stating the parties agree to the use of electronic signatures. These documents usually have a "click to agree" or checkbox next to this statement.
• Opt-out: There must be an option for signers to print and sign the document manually. The opt-out instructions must be readily available during the electronic signature process.
• Signed copies: Like any contract, signers should receive copies of the document signed by both parties. Most online forms allow customers to print the signed contract immediately after signing.
• Record retention: The ESIGN Act requires all signed documents to be available for reproduction at the client's request. Maintaining an electronic record also protects the business owner in case of legal action.

UETA and Other State Laws

UETA has the same effect on enforceability for contracts and other documents as the ESIGN Act has federally, but it's within states. In most cases, UETA controls within the states. Whenever a contract or document is enforced across state lines, ESIGN comes into play. If a document complies with one, it should comply with the other.

All US states and territories except New York are UETA compliant. New York has its own Electronic Signatures and Records Act, which mirrors UETA. New York is also ESIGN compliant.

Digital Signatures and Trust Verification

Even with old-fashioned "wet signatures" signed with ink, there is always uncertainty about who signed a document once it has left the signer's possession. People attempted other methods of verification, such as notarization, to establish a "paper trail" and prove the signer did sign the document.

Trust service providers (TSPs) use the Public Key Infrastructure (PKI) for attribution and verification today. TSPs issue PKI certificates to validate the sender and, in some cases, to encrypt the signature.

For instance, TSP company DigiCert lets companies install up to 5000 certificates on their preferred e-signature program. Adobe, DocuSign, and Juro are popular e-signature providers. DigiCert encrypts the signature with a two-step authentication key. The sender must provide the user with a separate email containing the authentication code.

International requirements for digital signatures and trust service providers are more stringent. In some countries, the government issues or verifies all PKI certificates.

Putting Pen to Paper

Some documents resist the electronic form. Most states' UETA laws contain exemptions for documents that must have "wet ink" signatures. These documents may be invalid in court if they are signed electronically. These types of paper documents generally pertain to court documents and health and safety matters. Some of the most common wet signature documents include:

• Court orders, ranging from summons and complaints to family law and divorce orders

• Testamentary documents, such as wills, trusts, codicils, and amendments. State laws affecting testamentary documents may include witness signatures and notarization. They are not amenable to one-click signatures  
  • As of January 2024, six states and Washington D.C. follow the Uniform Electronic Wills Act of 2019. Those are: Colorado, Idaho, Minnesota, North Dakota, Utah, and Washington. Six more states have enacted their own non-uniform e-wills acts: Arizona, Florida, Illinois, Indiana, Maryland, and Nevada. More bills are in the works. Ask your attorney before you create such a document, since it may not be valid in your jurisdiction.

• Notices affecting health, safety, or domicile. Eviction, foreclosure, utility termination, and termination of benefits must all appear over a wet-ink signature

• Real estate deeds often need wet-ink signatures, although sales documents other than deeds may not. Buyers will need legal advice about their state and jurisdiction on this matter

Most of these documents require wet-ink signatures to fast-track legality and approval. People are less likely to challenge a "real" signature than an electronic one, despite better authentication for a digital signature.

Legal Assistance for E-Signatures

Small business owners can benefit from the convenience of e-signatures. You should get legal advice before adding electronic signatures to your business model. Discuss your options for electronic and digital signatures with a small business attorney in your area.