Electronic Signatures under US Law
As with transactions under Scots and English law, MBM is able to complete US transactions digitally through our chosen e-signature platform, DocuSign. Signing documents electronically under US law is valid, and indeed conducting business transactions electronically has been common practice in the US for some time.
What constitutes a contract under US law?
There are several US federal and state laws which apply to the existence and terms of a contract - these are referred to collectively as the “statute of frauds” as their purpose is to avoid fraud on contract terms.
Under US law, certain categories of agreements are enforceable only if they are in writing and signed.
The statute of frauds covers various kinds of contracts, including certain agreements governed by the Uniform Commercial Code (UCC), a codified sets of laws governing commercial arrangements which has been adopted in most US states. Generally, the statute of frauds gives a party the right to avoid certain contracts that are not:
- In a writing that reasonably:
- identifies the contracting parties;
- recites the subject matter of the contract so that it can reasonably be identified; and
- presents the essential terms and conditions of the parties' agreement.
- Signed by the party to be bound by the contract or by his lawful agent.
The UCC requires that the following contracts be in a written, signed record that complies with the statute of frauds:
- Contracts for the sale of goods priced $500 or more
- Agreements that create a security interest in personal property if the property is not:
- in the secured party's possession
- a certificated security, or
- collateral that consists of deposit accounts, investment property, letter-of-credit rights, or electronic chattel paper if the secured party has control over such collateral
- A lease contract under which the total payments due are more than $1,000.
How are contracts executed under US law?
As above, under the statute of frauds the general requirement is that a contract is signed by the party to be bound by the contract or by his lawful agent. US courts generally use common sense and commercial experience to determine whether a signature is valid and creates an enforceable contract, including whether the signing party executed or adopted the signature with the present intention to authenticate the writing.
What is classified as an electronic signature?A signature may be any symbol that a party makes with the intent to authenticate a record or contract, although there is not a complete list of all possible authentications under the statute of frauds. A valid signature may, for example, include a traditional ink signature or initials, be typed, printed or made with a rubber stamp, and be located in any part of the document.
To determine if a signature is valid and creates an enforceable contract, courts generally consider whether the signing party executed or adopted the signature with the present intention to authenticate the writing. Courts have held that an email with a typed name can qualify as a valid electronic signature, provided that it shows intent to sign.
Are electronically signed contracts legally enforceable under US law?
Most states also now give electronic signatures the same legal effect as traditional signatures in certain transactions.
The relevant law for electronic signatures (or e-signatures) in the US is principally found in two pieces of legislation, one with State based application (UETA) and the other applicable Federally (E-SIGN):
The Uniform Electronic Transactions Act (UETA) (1999):
- The goal of UETA is to remove barriers to electronic commerce and to provide parties a legal framework for using electronic signatures and records in business transactions.
- UETA gives an electronic signature the same legal effect as a traditional, written signature in certain transactions.
- Under UETA, electronic records have the same legal effect as paper contracts.
- UETA applies only to transactions where each party involved in the contract has agreed to conduct the transaction electronically.
- UETA applies to purely intrastate transactions and other matters of state law.
- Since 1999, 47 states (including California and Delaware), the District of Columbia, Puerto Rico and the Virgin Islands have adopted the UETA.
- Three states (New York, Illinois, and Washington) have not adopted the UETA, but each has adopted statutes relating to electronic transactions to protect the legal enforceability of electronic signatures.
The Electronic Signatures in Global and National Commerce Act (E-SIGN) (2000) 15 U.S.C. §7001-7006:
- Enacted in 2000, E-SIGN’s goal is to ensure the validity and legal effect of electronic contracts and signatures used in transactions that are in or affecting interstate or foreign commerce.
- E-SIGN’s goal is to incentivize prompt and uniform adoption of UETA and provide a federal baseline in the event UETA is not adopted or not uniformly adopted.
- E-SIGN applies to Federal enactments, documents, interstate and foreign transactions and State procurement.
- Except under limited circumstances, E-SIGN pre-empts state laws governing written contracts that affect interstate or foreign commerce to the extent such laws are inconsistent with E-SIGN.
- E-SIGN includes additional requirements for contracting with consumers.
The UETA and E-SIGN have similar goals and similarities:
- aim to effectuate the legal validity of electronic signatures and records;
- voluntary, and procedural rather than substantive enactments;
- technology neutral; and
- provide that a signature, contract, or other record may not be denied legal effect, validity, or enforceability solely because it is in electronic form or an electronic signature or record was used in the contract's formation.
There are three states which have not adopted UETA - New York, Illinois and Washington. However, these three states have adopted statutes relating to electronic transactions to protect the legal enforceability of electronic signatures.
Courts in these states have ruled that electronic signatures have the same legal effect as manually signed signatures in various situations, including when a party:
- Clicks a button online to verify that he agrees with the terms of a contract;
- Types his name or signature at the end of an email; or
- Attaches an electronic signature on a loan or license agreement.
Requirements in US contracts for a valid electronic signature
For an electronic signature to be legally binding in the US, generally it must meet the following requirements:Intent to sign
- As is the case with traditional ink signatures, electronic signatures are valid only if each party to a document intended to sign.
- The parties must either express or imply their consent to do business electronically.
- The context and circumstances under which the document was signed indicates the attribution of an electronic signature.
- Electronic signatures must be connected to the document being signed.
- The ESIGN Act ensures the validity of electronic signature records as long as they accurately reflect the agreement and can be reproduced as required.
The validity of signatures on behalf of a legal entity may vary from state to state.
There is generally only one level of signatures in the US (i.e. in DocuSign parlance, “standard”).