Are Electronic Signatures Legal?

August 24, 2017 - Posted by: admin - In category:

taxes - No Responses

Yes. Any other questions?

Ok, if you are asking the first question, you likely want to know a little bit more on this subject, so let’s consider a few things related to electronic signatures.

When President Clinton signed the ESIGN ACT (the long name of that law is the Electronic Signatures in Global and National Commerce Act) on June 30, 2000, he did so without a pen and paper.  In a fitting act of history, he used an electronic signature to execute that new law.  We could pause here at examine the “chicken and egg” question this might raise.  In other words, if the purpose of the ESIGN Act was to make it “legal” to sign documents electronically and President Clinton signed that document/law electronically, did that work?  Ok, probably only an attorney with a little too much time in his hands would care about that question…so let’s move on.  In any event, there has been no challenge or concern about that point, to my knowledge, and the ESIGN Act has indeed been the law of the land for 17 years and counting…

The ESIGN Act deals with both e-signatures and electronic records, and both items are very commonly used in the business world today, far more than they were in the year 2000.  In that regard, it would seem that the ESIGN Act has had its intended effect of sanctioning the wider use of electronic transactions and this has, in turn, likely had a significant impact on the manner in which business transactions are done across a wide spectrum of the commercial world.  Per the Act, under federal law, an e-signature has generally been given the same status as a traditional signature done via paper and pen.  All other aspects of contract law remain the same–i.e., the requirement of offer, acceptance, consideration, “meeting of the minds,” etc.

Because of the doctrine of federal preemption (i.e., federal law trumps (no pun intended, really!) state law in many instances), the ESIGN Act permits the use of electronic signatures in all fifty states.  Relating to those circumstances where state law governs the enforceability of a document, every state now has its electronic signature law, and most states have adopted the Uniform Electronic Transactions Act (UETA).  Utah is among the states adopting UETA,  Part of the of that law, enacted by the Utah legislature is copied below.

46-4-201. Legal recognition of electronic records, electronic signatures, and electronic contracts. 
(1) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
(2) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
(3) If a law requires a record to be in writing, an electronic record satisfies the law.
(4) If a law requires a signature, an electronic signature satisfies the law.

As mentioned above, most states have adopted some version of the UETA and in any event, given that almost all of what is done via the internet falls squarely within “interstate commerce,” the ESIGN Act will usually have application when you and I are sitting in front of our computers.  One way or another, in most instances, when we “click through” on a website to agree to terms of use, or when we purchase something and as part of that purchase, agree to the terms of such transaction, we are engaging in electronic transactions which are just as legal, valid and enforceable as if we had been given a paper agreement to which we had signed our “John Hancock” via pen.

None of that should be surprising to you or me.  Most of us have engaged in electronic signature transactions multiple times in the last month.  Further, when it comes to dealing with federal and state governmental agencies, most of us have been e-signing for a long time.  I don’t remember when I last filed my taxes by signing the tax return with a pen.  Rather, I have been e-filing taxes for more than a decade.  So if we can e-sign and e-file tax returns and otherwise submit “formal” records and acknowledgments to governmental agencies via the electronic method, why should we have any concerns about e-signing documents and otherwise conducting business electronically?

I have heard of the concern that electronic signatures can be easily forged and such electronic transactions are otherwise more susceptible to fraud when compared to the more traditional method of signing papers.  Frankly, I don’t buy that reasoning for a second.   Let’s face it, fraud is fraud, and if someone is “clever” and devious enough to forge or otherwise fake someone’s electronic signature, they would almost certainly have the same propensity and ability to do so with a paper and pen.  In fact, I believe that the use of electronic signatures can in some ways provide a safer and more reliable method of conducting business transactions (compared to paper and pen).

For example, during my decade or so of working for large firms in Chicago, almost all of the transactions I worked on were doing via fax or pdf signature pages.  I can recall only two in-person signings where the parties gathered in a conference room to sign papers and exchange documents in the traditional manner. Those deals were highly significant matters, and the in-person signings were done mostly because of a desire to have the attendant ceremonial effect of an in-person event.

On the other hand, I was part of scores and scores of corporate transactions, involving billions and billions of dollars, where the signings were done by the attorneys exchanging faxed or e-mailed copies of signature pages.  Not the entire signed documents, just the signature pages.  Before closing, we would sometimes spend weeks or months drafting, revising, negotiating (and arguing over) all of the related transaction documents, but this was also done via e-mail and teleconference communications.  Once we arrived at the point of having “final” documents, those were exchanged via e-mail.  Then, at the time of closing/signing, the attorneys would trade copies of executed signature pages, to be “held in escrow.”  When we received word from the business folks that they were ready to close (often, when the banks were ready to release funds), we would then get back on a conference call to have a “release of signature pages, ” and that was it–the deal was closed.

What I have just recited is the way that business transactions have been done for the past few decades.  Before the advent of e-mail, faxes were the communication medium for exchanging signature pages.  The key point, for purposes of this discussion, is that these deals were closed via an electronic copy of a signed signature page. Post closing, sometimes weeks or months after the fact, legal assistants and junior attorneys would then be tasked with attaching the finalized versions of legal papers to the signature pages.  During the interim period between closing (via conference call and email) and assembly of the “closing books,” the designated law firm would receive a series of mailed packages containing the actual paper/pen signature pages.  The legal staff would then match up final legal documents with paper signature pages.  Obviously, the parties would have signed different pieces of paper, rather than the same piece of paper.  The multiple signature pages would be collated and assembled as one and the “closing books” would be prepared, copied and then re-distributed to the respective parties.  The most important business executives and law firm partners would receive a closing book containing “original” signature pages, while most of the many other parties to the transaction would receive copies of the same.

Again, that process and those circumstances just described are pretty much how thousands upon thousands of high dollar corporate deals were handled for years and years, in every major city around the world.  You will be quick to observe as part of that process of matching up signature pages to final versions of legal documents, it would be very easy for someone to make the wrong match–to put signature pages with the wrong document or at least to match a signature page with a version of a legal document which was not actually the final and fully agreed version.  Yes, humans make mistakes, and such errors occurred all the time (though never on my watch…:).  Likewise, there is nothing that would practically prevent an ill-intending person from intentionally matching up a signature page with a document which was not intended by another party to be the final version of the agreement. Again, fraud is fraud and those so inclined to commit fraud will likely find a way to do so whether we are working with paper and pen or electronic signatures.  Happily, Adobe, among other companies, has come up with a solution to this dilemma.

What is now known as Adobe Sign and which was previously called EchoSign (same product, different name) is a nifty program which enables people to e-sign documents in a manner that provides a detailed “trail of evidence” relating to who viewed the document, when and from where.  Adobe Sign also shows the time, date and location (computed used/IP Address) of signature by each person. Then, perhaps my favorite part, once the document is signed, the document becomes a locked/certified pdf.  That means there is no question whatsoever about what document was signed, what pages were contained in that document when signed, who signed it (or at least whose computer was used) and when it was signed. There is no practical concern about someone mismatching signature pages with the legal document–it is the complete legal document that is signed, rather than just one solitary piece of paper.  Finally, it is incredibly convenient!!  I am not a paid endorser of Adobe (though I certainly should be), but I could not be a bigger fan of that product, with all of its many attendant benefits and advantages.  In truth, there are several other products in the market similar to Adobe Sign.

I should note that notwithstanding all of the above, including the long history of electronic signatures, the ESIGN Act, and the related state statutes, there are a handful of legal documents that still require the traditional manner of paper/pen signature (often accompanied by notarization).  Such “old style” documents include Wills (though not trust agreements, ironically), real estate deeds and a handful of other documents. As an attorney, I have don’t understand why people are still required to use a pen to sign their Will.  Afterall, a Will for a person with $100 requires paper and pen (usually also two witnesses and notary), but Bill Gates can establish a trust for $50 billion and e-sign the trust.  That makes no sense.  Further, at least in the state of Utah, attorneys are now required to e-file Wills submitted for probate proceedings.  This means that the attorney files an electronic copy of the Will.  Likewise, almost all submissions of court papers by attorneys (at least in Utah) are now done via e-filing, in other words, electronic signature.

Regarding the real estate deed, the county recorder in Utah typically requires the submission of the “original” signed and notarized deed, but the recorder then scans and keeps an electronic copy of that paper and returns the original to the sender.  How does that make sense?  Further, I must use a pen to sign a deed for a parcel of land worth $1,000, but I can transfer $50 million to anyone in the world via electronic check, wire transfer or EFT.  Again, how is that logically consistent?  The answer–it isn’t.  Rather, it is mostly just a matter of the laws relating to Wills and real estate transfers (and the persons working in those areas) being very much out of date and behind the times.

To summarize, electronic signatures are legal, valid and fully enforceable in almost all instances and this is the case per both federal and state law. While there are a few puzzling and nonsensical exceptions to this happy rule, hopefully, the shelf-life of such exceptions is short, and those can be easily remedied soon with the same common sense approaches which have led to the almost universal adoption and acceptance of electronic signatures in the commercial and legal world.

Leave a Reply