Digital signatures enable paperless contracts and can speed up business transactions. The 2001 E-Sign Act was meant to ease the adoption of electronic signatures, yet the mechanics of what makes up an e-signature were left deliberately wide open. Eleven years later, there is still widespread mistrust of e-signatures, even though they contain more evidence that a particular person signed a document at a particular time than a traditional pen-and-ink contract does.
How can you be certain that your e-signed documents will hold up in a court of law? Which best practices should you follow when using digital signatures in your business?
For answers, I talked with Dallas copyright attorney Bhaveeni Parmar, who uses e-signatures in her practice and in frequent applications with the United States Patent and Trademark Office. I also spoke with Ken Moyle, chief legal counsel of digital signature company DocuSign, as well as its founder Tom Gonser.
Why This Matters
Like it or not, it's common for clients to dispute a contract by questioning its original validity. Such a client could claim that a digital signature fails to comply with the Federal E-SIGN Act and run with it all the way to court.
The root of the legal problem here lies with the enforceability of the contract, says attorney Parmar. If a signatory can successfully argue that he or she didn't understand what they were accepting certain terms on signing a contract, there may be a case there. This is why you see checkboxes on websites as you sign up for a service or order a product, asking you to acknowledge that you understand the terms of the contract before proceeding with an order. A user checks that box will have a hard time later arguing that they didn't understand what they signed.
There will be less frequent arguments over the contract itself, since a legal team usually crafts contracts to avoid such disputes. Parmar hasn't been involved in any cases where digital signatures used by her clients have been questioned, and she isn't convinced there will be many cases surrounding them in the future as long as clients use the appropriate level of security for each case.
The Three Security Levels of E-Signatures
According to Parmar, there are three levels of electronic signatures. The first and least bulletproof on the ladder is to use a picture of your signature on any document, whether it's a PDF, DOC, DOCX, or other file type. Parmar would not recommend using this for most commercial purposes, even though it would be legal if the signing parties could prove their intent. A party could prove this with supporting evidence, such as emails requesting the services referred to in the contract, but Parmar says it is best not to chance it for a business transaction.
The second class of signatures, which Parmar uses all the time in her practice, is signing one's name to a document electronically by typing your name in one of the following formats:
For submissions to the Federal court system: /s/Angela West
For submissions to the Patent & Trademark Office: /Angela West/
Both the // and the /s/ methods are considered to be legitimate signatures under the Federal E-Sign act, and acceptable enough for the legal industry. Parmar recommends using these on lower-priority contracts--such as an agreement for low-value, non-recurring services--where enforceability is unlikely to be called into question. To keep the consumer disclosure portion of the Act in mind, a line should be added to the contract clearly indicating that the signatories have the option to opt out and sign with a paper signature instead.
The third level, or the "Cadillac" level, is comprised of services like DocuSign and Adobe EchoSign, which follow the letter and intent of the Federal E-Sign Act, even considering international laws in the makeup of their services. These should be the choice for high-value transactions, such as real estate contracts.
Each service offers a free membership level. Adobe EchoSign gives you five free signatures per month and stores the last five documents that you signed. The $14.95 level gives one user unlimited e-signatures,and prices go up from there. Using Adobe Reader, EchoSign now lets you sign with your finger on a smartphone or tablet. DocuSign offers a free trial and also starts at $14.99 per month for one user. It also offers a REALTOR Professional product.
The Federal E-Sign Act states that if a business is required to keep a record of a contract, it must also keep an electronic record. This requirement goes a step further by requiring that all signatories have access to the signed file--and residence on a company server is an unacceptable method of storage. Services like Adobe EchoSign and DocuSign, however, let you keep a copy of the contract online on their servers, which all signatories can access.
When Not to Use an E-Signature
Parmar suggests a few applications in which you would want an original pen-and-ink signature rather than an electronic one. Where a deceased person may be involved, such as with a health insurance policy or estate documents, a paper signature is a must since the person isn't around to be questioned about intent in signing the document. Eviction notices, court orders, foreclosure notices and product recall notices should also contain a signature, based on Parmar's broad reading of the E-Sign act and experience in her practice.
Changing Your Habits
If you’re using copied and pasted signatures on digital contracts, stop now. Parmar suggested that for my own business, I should at least go with the double-slash electronic signature method. But because I frequently do business across international borders, I'm going to go with a "Cadillac" option for my next contract.