Electronic signatures for contracts: Legally valid or risky?

While electronic signatures are widely used these days, there is still an element of hesitation when we are evaluating them, especially for legal paperwork. This article should hopefully clear up all of that.

Definition and laws on electronic signatures:

“Electronic Signature” – The term means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.

The United States of America

The laws for electronic and digital signatures in the United States are fairly straightforward. The United States Electronic Signatures in Global and National Commerce (ESIGN) Act states that an electronic signature can be considered to be valid as long as they comply with the following requirements: (a) show intent to sign the agreement; (b) establish that there was consent to do business electronically which could be done by analyzing the circumstances; (c) the system used to create signature must maintain a record of how the signature was created or that the document was executed using an electronic signature; and, (d) the electronic signature records must be capable of retention and reproduction for future reference.

The Uniform Electronic Transactions Act (UETA) states that (a) a contract cannot be denied legal enforceability on the grounds that an electronic record was used to create it; (b) a record or signature cannot be denied legal effect or enforceability because of its electronic form (c) if a law requires a record to be in writing, an electronic record satisfies the law and (d) a law requires a signature, an electronic signature satisfies the law.  

New York and Illinois have not adopted UETA.

Europe and the United Kingdom  

European Union Regulation No 910/2014, commonly known as Electronic Identification and Trust Services for Electronic Transactions (eIDAS) governs the modalities of electronic signatures in Europe and the United Kingdom. One of the objectives of this regulation is to remove existing barriers to the cross-border use of electronic identification means used in the Member States to authenticate, for at least public services.  

The regulation creates categories of electronic signatures to address the different levels of electronic signatures. They have provided definitions for three types of esignatures - Electronic signature, Advanced electronic signature and Qualified electronic signature. They could vary from a simple name in an email to a signature attached by using an external device that only the holder/owner has access to.

Singapore

Similar to the EU, electronic signatures are recognized in a tiered manner. When it comes to the most basic signature mechanism (like the email example mentioned above) the signatory could be asked to prove, either by itself or with additional evidence that a method was used to identify the person and to indicate that person’s intention in respect of the information contained in the electronic record’.

Are esignatures valid for all legal paperwork?

While they are completely valid for all your business purposes, electronic signatures are generally not legally valid for the following types of legal documents:

• Adoption papers

• Any court documents

• Divorce papers

• Your will or testament

How will esignatures help with contracts?

  1. Identity of the signer is authenticated: This is done by a digital certificate. An esignature software has an algorithm that will issue a private key with a matching public key. Once this private key is received, a signature will be produced along with a message that is being signed. Finally, the verification algorithm will use the public key and the signature to authenticate the person signing. This offers a higher level of security in comparison to paper-based wet signatures since nobody can sign in your place.
  2. Tamper-proof: “hashing” is a process where a unique fingerprint is created for the content in a contract. So if any clause is edited or removed, the hash will change. You can track this in the signature software
  3. Perfect for remote work: Work has fundamentally changed during COVID times, and esignatures will ensure you and your team can adapt to remote work easily
  4. Execute faster, collaborate better: whether it is working within your own team, working with sales and procurement teams, or external stakeholders, esignatures make collaboration easier. Time to execute a contract also comes down

Does SpotDraft offer esignatures for its contracts?

Absolutely! Our aim is to ensure that we take away all the heavy lifting when it comes to contract work. SpotDraft provides the highest standard of protection to your documents. It protects the legality of your electronic signatures by preserving an audit trail. The audit trail consists of signatory names, email addresses, signatory IP addresses, trusted timestamps and status of completion.

Final note:

There are some discrepancies in certain jurisdictions with certain esignature software. It is always good to ensure this box is checked, and you are good to go!

While esignatures are a super important step in digitizing your contracts, it is far from the only one. There is a universe of automation that can make contract work seamless and fast. If you are interested in how SpotDraft can power your legal team, just let us know and we’d love to give you a tour.

Further reading:

https://www.approveme.com/e-signature/what-counts-as-an-esignature/

https://acrobat.adobe.com/content/dam/doc-cloud/en/pdfs/adobe-sign-us-guide-e-signatures-wp-ue.pdf

https://docs.google.com/document/d/1Ha1mfP7EJ5Rr6-H1LmlvOF49wRV7LXwTFnbYPW2B4Wg/edit

https://blog.signaturit.com/en/what-is-the-legal-validity-of-electronic-signatures