Yes, E-signatures Are Enforceable

Guest post by Daniel I. DeWolf, Samuel Asher Effron and Rachel Gholston – Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

We are often presented with the question of whether electronic signatures are enforceable. The answer is yes. There is an entire statutory regime under both state and federal law which gives validity to electronic signatures. This article will give a high level overview of best practices for optimizing your use of electronic signatures.

Background

Forty-seven states have adopted the Uniform Electronic Transaction Act (UETA). [1] At the federal level, the Electronic Signatures in Global and National Commerce Act (E-sign Act) recognizes the validity of electronically signed agreements. Though there are some variations among these laws, the goal of a simple and effective way to recognize electronically signed documents has been largely achieved through the UETA, the E-Sign Act and New York’s Electronic Signatures and Records Act (ESRA).

Definition of Electronic Signature

The UETA, the ESRA, and the E-sign act have very similar definitions of an “electronic signature.” Both the UETA and the ESRA define an “electronic signature” as “an electronic sound, symbol, or process, attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record.” The E-sign Act defines an “electronic signature” as “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 broad definition of “electronic signature” is intended to avoid favoring one type of technology or format over another. There is no proscribed method or platform.

Under all three statutes, the validity of an e-signature lies in the intent of the parties and in the act, either the act of providing the electronic assent or the act of adopting an electronic signature. The act and the intent are two separate though related conceptions. The action alone does not prove intent. It must be clear that the action is understood by the signatory as agreeing to or acknowledging the contents of the record. The connection between the electronic transmission and the assent being provided must be clear and direct. Showing the intent to be bound can be achieved by providing clear disclosures to the signing party before accepting the electronic signature, such as a contractual provision that makes clear that such an agreement can be signed by electronic means or electronically delivered counterparts. This is no different than the assent language commonly found on signature pages of contracts requiring manual signatures. The signing party should be expressly alerted to the significance of the action being taken. Under all three statutes, if all parties agree to use electronic signatures, a document signed by electronic means will have the same validity and effect as a document signed with “wet ink”.

Verification

An electronic signature must be provided or adopted by the person to be bound by the document. Electronic signatures function effectively when there is a reliable method of verifying the signing party. Companies can verify the signing party’s identity by using password-protected logins, PIN numbers, or third party service providers that have their own well-established verification methods, or, if signatures are sent by email, by identifying the email address of the sender.

Recordkeeping is also crucial when relying on electronic signatures. The UETA requires that records that are required by law to be furnished to your counterparty must be retainable, i.e. able to be printed or stored by that party. [2] Your digital record retention policy may be inadequate for operating under an e-signature model. Many companies archive electronic files in formats that are costly to access or worse, they delete the records after a certain period of time. Agreements signed by electronic means should remain easily accessible to a company. The records should include both the agreement itself and information about the verification process, such as login records or some other form of audit trail.

Conclusion

Electronic signatures are generally enforceable [3], but the steps you take with respect to verification and disclosure can make all the difference if a dispute arises about the validity or enforceability of the electronic assent. The ability to retain and reproduce electronically signed agreements is at the heart of enforceability as these records may be admitted as evidence in a proceeding. By using an approved format, verifying the signatory, employing language of intent and keeping good records, you can optimize the effectiveness and enforceability of agreements signed electronically. You should consult with your attorney to determine whether the steps you’ve taken are appropriate to achieve this goal.

[1] Though New York is among the minority of states that has not adopted the UETA, it has its own comprehensive electronic signature law known as the Electronic Signatures and Records Act.

[2]   Section 12A-108(a) of the UETA.

[3] There are other categories of documents which are not enforceable if signed electronically and are excluded from the E-Sign Act, the UETA, and/or the ESRA, including, but not limited to, testamentary documents, court documents, notices of insurance cancellation, eviction notices and documents conveying real property. Consult with an attorney for a complete analysis of whether your documents may be among the excluded types.


Daniel I. DeWolf, Member Chair, Technology Practice Group, Co-Chair, Venture Capital and Emerging Companies

Daniel is Co-chair of the firm’s Venture Capital & Emerging Companies Practice Group and Chair of our Technology Practice Group. In addition to his active legal practice, he is an adjunct professor of law at the NYU Law School and he has a wealth of experience in private equity and venture capital, having co-founded Dawntreader Ventures, an early stage venture capital firm based in New York.

Biography

Samuel Asher Effron, Associate

Sam’s practice focuses on general corporate representation, securities law matters, and transactional work, including public and private offerings, mergers and acquisitions, venture capital financings, debt and venture capital fund formation, federal securities law compliance and reporting, and corporate governance matters. He is also a key contributor to MintzEdge, an online resource for entrepreneurs that includes useful tools and information for starting and growing a company.

Biography

Rachel Gholston, Associate

Rachel provides a broad range of client services to early-stage companies, investment funds and public companies in matters including corporate governance, securities offerings, acquisitions and compliance. For early-stage companies, Rachel represents both companies and investors in venture capital financing transactions. In her investment funds practice, she counsels investment advisors with respect to fund formation and regulatory compliance. Her general corporate and securities practice spans multiple industries, including clean energy, life sciences, and FinTech.

Biography

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

About Mintz

What now has grown to eight offices and 500 attorneys all started in Boston during the height of the Great Depression: Two young Jewish lawyers who knew what it felt like to be excluded established a practice where they and others could practice law in a welcoming environment.

The heart of the firm is our founding partners’ guiding principle of providing excellent legal services in an atmosphere of mutual respect, dignity, and tolerance. This has been our foundation ever since we opened our doors in 1933.

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