It’s been a while since contracts and other legal instruments and documents were exclusively signed pen to paper. Now, with most of us working from home due to the COVID 19 pandemic, electronic signatures are more vital than ever for conducting business and personal affairs. Whether you are sending a document for electronic signature, or you have received a request to electronically sign a document, it is important that you take the proper steps so that when “e signed,” the document is as legally binding as you intend it to be.
The validity and enforceability of electronic signatures in the United States is governed by a federal law called the Electronic Signatures in Global and National Commerce Act (ESIGN Act). The ESIGN Act provides that electronic signatures have the same legal standing as traditional inked signatures, and executing signatures will not be declared invalid solely because signed electronically. The four basic requirements for a legally binding electronic signature set out in the ESIGN Act are: (1) the person signing the document must have the intent, in fact, to sign the document; (2) the parties must consent to use and accept electronic signatures for the document; (3) there must be a method to verify that the intended signatory is the person that actually signed the document; and (4) the parties (or those legally authorized) must be able to access a record of the document, if necessary.
Here are a few practical suggestions when utilizing electronic signatures for a document:
- Circulate a Final Version of the Document in .PDF Format First. In transactions, there are often multiple drafts, revisions and comments frequently circulated by email. Have you ever sent a document through an e-signature platform only to spot a typo or receive a call that someone is not going to sign because it did not reflect the agreed upon terms? Avoid the headache of “voiding” electronic envelopes or recirculating corrected documents by first sending an email of the final form in .PDF format before asking others to sign it. By emailing a final form of the document first, it is an additional measure to confirm the understanding of all parties. Once everyone has agreed to the final form in .PDF format, send that same version for electronic signatures.
- Know the Vocabulary. Although often used interchangeably, electronic signatures and digital signatures in some circumstances are different terms. This could be an important distinction to understand when reviewing a document for e signature. Electronic signature is a general term for signing a document with a computer application, as opposed to old-fashioned pen and paper. Digital signature generally indicates an enhanced definition, often requiring additional measures such as a specific authentication process for the signatory and encryption security to ensure the document has not been altered. It is important that the parties have a mutual understanding of the terminology, however it is used, so that all parties are in agreement and understanding to the requirements of the method used for document execution.
- Draft Language in the Contract to Support Use of Digital Signatures. To avoid possible confusion at a later date, include language in the document itself reflecting and confirming the parties’ agreement to the use and acceptance of electronic signatures. The language may be as simple as, “The parties acknowledge and agree that this [Document Name] may be executed by electronic or digital signature, which shall be considered as an original signature for all purposes and shall have the same force and effect as an original signature.”
- Consider the Email Address. To the extent possible, use an email address that is private and exclusive to the signatory. Many of us have several email addresses – an email for work, a personal email, and sometimes even a family email address. Always ask the recipient for his or her preferred email address, but also consider whether it is the best place to send the document. For example, a recipient may not want a personal document sent to his or her work email address for electronic signature because it is possible that the document will be stored on the employer’s server and may be accessible by his or her employer. The recipient may not have intended for the employer to have access to the information contained in the document. Another consideration is the use of a shared email account. Avoiding sending a document for electronic signature to a shared account reduces the likelihood of an issue arising around who actually signed the document.
- Familiarize Yourself with the Extent of Your Electronic Signature Application’s Functionality. Most electronic signature applications now include helpful tools to and enhance the process and maintain control on your end of the exchange to push documents across the finish line. DocuSign, for example, has built in features that can automatically remind a signing party to electronically sign their document. These reminders can be customized so the recipient receives an automatic incremental reminder that the document is awaiting their signature. Another helpful hint is to utilize expiration dates to move the signing process forward. If the signing party isn’t aware of when the electronic document expires, it will not be as motivating as a document that has a clear expiration date and timeline. A final tip is to understand if your application has a void feature. This feature is helpful if the document has been distributed to multiple recipients and subsequently needs to be changed. Applications with a void feature can notify the parties that the document they received has been voided and allows you to recirculate a fresh version for signatures.
- Consult an Attorney. It is important to note that certain types of documents are not covered by the federal ESIGN Act and certain industries, geographies, and recipients have enhanced regulations. If you have a question or concern about the legality of using an e signature on a document, please contact an experienced attorney.
If you would like to learn more about the issues in this blog article, please do not hesitate to reach out to a Burns & Levinson attorney.
This article should not be construed as legal advice or legal opinion on specific facts or circumstances. This alert is not intended to create, and receipt of it does not constitute a lawyer client relationship. The contents are for general informational purposes only
David Amidon has almost 30 years of experience helping a wide array of clients, serving as both general counsel and transactional counsel to a broad and diverse group of entrepreneurs, start-up and emerging ventures, middle-market companies, private equity and venture capital funds, investment banking firms, private investors, and public companies. He can be reached at email@example.com or 617.345.3578.
Amanda Adam is an associate in the Business, Finance and Transactions department and a member of Burns & Levinson’s corporate practice group. In her pro bono work, Amanda has represented clients with asylum and immigration matters, CORI sealings, and low-income debt cases.