Digital Signatures for Social Enterprises
Updated: Dec 22, 2020
As social enterprises have high standards of governance and transparency, abiding by the changing times of the virtual world becomes increasingly important. As someone who works on many contracts, and whose job involves getting documents signed regularly, I’m happy to share practical tips regarding signatures in the digital age, especially now that fewer transactions will take place face to face.
Digital signatures are widely accepted in the business world for various purposes. Even without any formal standards, it has long been an accepted practice to accept scanned signatures (originally faxes, but those are rarely used anymore) as if they were hand-signed. Courts routinely accept these documents as genuine absent a challenge or some evidence that they are not what they seem. The law has long allowed the parties to a contract or transaction to agree that an electronic signature will be as binding as an original. So for most purposes, especially in business, we can expect the continued widespread use of non-certified, scanned, and digitized signatures in private transactions. Since that reflects current practice, most people won’t have to do anything differently than they are already doing.
That said, in the past 20 years, more formalized and verifiable forms of digital signature – especially for use in connection with digital documents and forms – have become available. These digital signatures use software that verifies the signer’s identity and embeds that verification into the document itself using encrypted certificates. This technology allows anyone to verify the signer’s identity, much as notaries public do.
The federal Electronic Signatures in Global and National Commerce Act (ESIGN), passed in 2000, grants legal recognition to electronic signatures in interstate commerce, provided the parties have agreed to treat them as originals.
The Uniform Electronic Transactions Act (UETA) was first proposed in 1999 and has since been adopted in forty-seven states, the District of Columbia and the U.S. Virgin Islands. UETA says when a law requires either a writing or a signature, an electronic record or an electronic signature can be used as long as the parties to the transaction have agreed to proceed electronically.
Three states have not adopted ESIGN as of May 2020. Illinois relies on its own statute, the Electronic Commerce Security Act, which mirrors UETA and ESIGN. Washington State repealed its Electronic Authentication Act (EAA) in 2019 and currently has no state-mandated standards for e-signatures. However, the law that repealed EAA substituted ESIGN definitions for use in the state, which is effectively the same as having adopted ESIGN, except that other forms of electronic signature may also be acceptable. New York is the only state that still requires documents to be notarized for real estate transactions, but the state does allow electronic signatures to be used for other purposes, including government filings, if they comply with the state’s Electronic Signatures and Records Act (ESRA). ESRA states that compliant e-signatures are to be given the same legal validity and effect as hand-written signatures and paper-based records within the state, subject to certain exceptions.
Language regarding electronic signatures has become standard boilerplate in most modern agreements, mostly to satisfy UETA and ESIGN requirements. However, even without explicit agreement, UETA and ESIGN provide that contracts, signatures, and records cannot be denied legal effect solely because they are in electronic form. Additionally, they state a contract relating to a transaction cannot be denied legal effect solely because an electronic signature or record was used in its creation.
For some purposes, such as health care, tax, banking, real estate, adoptions, divorces, wills, some waivers and releases, and other purposes, hand-written, “wet ink” signatures or notarization are still required in many such situations. But even the business of notaries has changed with the times. Notaries can now certify documents electronically, and some states, including New York, have signatories verify their identities using audio-visual means, eliminating the traditional “in-person” requirement that has historically been the rule. In some cases, these liberalized rules have been adopted to facilitate commerce during the COVID-19 crisis. Whether the flexibility continues beyond the Coronavirus remains to be seen.
The bottom line is that, for general purposes, electronic, uncertified, unverified signatures are fine. In some cases, if more security is desired, there is an absence of trust between parties, or for official government or court documents, you may need to provide an electronic signature that meets the UETA or ESIGN standards (or ECSA in Illinois and ESRA in New York). In other situations, original, wet signatures are still required. Notarization can be done electronically, almost everywhere.
Many people are now using online platforms and services to provide certified and verified signatures, assuming that they will be better than uncertified, unverified signatures. But don’t assume that all e-signature systems are the same, or that they all comply with UETA, ESIGN, ECSA or ESRA, or that everyone will accept electronic signatures. Electronic signatures are everywhere, but it still pays to be sure that the method you are using is appropriate and correct for the specific use for which it is intended. My suggestion: don’t guess, ask. Or even better, make sure your documents specifically allow for electronic signatures. It’s better to be safe than sorry. As social enterprises, we lead the way with our practices, showing responsibility, and abiding by the new landscape with how governments evolve and grow in these unprecedented times.