Originally published on March 26, 2020
To slow or stop the spread of COVID-19, or the coronavirus, federal, state and local authorities and health organizations across the world are strongly advising, and in many cases requiring, people to stay home, practice social distancing and avoid social gatherings. The coronavirus pandemic has also forced most companies to encourage or mandate that employees work from home for the foreseeable future. As the number of individuals working from home continues to increase, some businesses and organizations may be considering how and whether documents and contracts traditionally signed in “wet ink” (i.e., an original physical signature in ink on a sheet of paper) may be signed electronically with an e-signature due to an inability to transmit a “wet ink” signature.
Federal and local governments are recognizing these trends and have taken immediate action to further limit the spread of the coronavirus. For example, in New York, Gov. Andrew Cuomo issued an executive order easing the requirement for in-person notarizations by permitting the use of remote or electronic notarization through May 7, 2020.1 Moreover, U.S. Senators Mark R. Warner and Kevin Cramer have introduced the Securing and Enabling Commerce Using Remote Electronic (SECURE) Notarization Act of 2020 to permit immediate nationwide use of remote online notarizations, a type of electronic notarization where a notary and signer are in different physical locations.2
In addition, the Securities and Exchange Commission (SEC) also adopted temporary final rules for Form ID filers and for issuers subject to reporting obligations under Regulation Crowdfunding and Regulation A to address the needs of companies affected by the coronavirus.3 To make fillings on the EDGAR system, applicants must complete an online Form ID application. Rule 10 of Regulation S-T requires applicants to upload, as a PDF attachment to the Form ID filing, a manually signed notarized document that includes information required to be included in the Form ID filing and confirmation of the authenticity of the Form ID filing. Recognizing that obtaining an in-person notarization in a timely fashion during the coronavirus pandemic is impracticable or impossible, the SEC granted temporary relief from the Form ID notarization process by adopting a new temporary paragraph (c) to Rule 10 of Regulation S-T that allows filers to gain temporary access to the EDGAR system without initially providing the required notarization. Pursuant to the temporary relief, the Staff at the SEC is permitted to create EDGAR accounts and issue EDGAR access codes from March 26, 2020 through July 1, 2020 based on a manually signed document without the requisite notarization, provided that the filers indicate on the face of the signed document that they could not obtain the required notarization due to circumstances related to COVID-19.4
Despite the fact that most transactions today can be negotiated and closed electronically, signatures are an area that has been slow to adapt, and many parties still utilize “wet ink” original, physically signed signature pages and documents. This may be attributed to uncertainty regarding the legality of e-signatures, a lack of understanding of e-signature legal requirements and how to utilize them, security concerns, or industry custom. The preference for “wet ink” signatures is surprising given that the first patent for a fax machine was granted in the 1840s and various types of fax machines and remote proof-of-signing devices were in commercial use in 1900.5 A fax is an e-signature and has been around for so long that one wonders why there are concerns regarding e-signatures as a “new technology.”
The widespread use of smartphones and personal computers now permits nearly everyone the ability to transmit signed documents remotely using digital technology similar to a fax, even if they do not have access to a fax machine, by printing and manually signing the document, photographing the executed signature page with a smartphone, and sending an email of the photo to a counterparty with an acknowledgment that it is the signatory’s executed signature page to the agreement. The iPhone Notes app even enables users to take photos of multiple pages (or a full agreement) and save them as one file for transmission, similar to a scanner. The use of this technology is not unlike how a fax machine works by scanning a document and transmitting a digital image of the scanned document that can be stored digitally on a computer and printed.
Types of Electronic Signatures
Due to its broad definition, an e-signature can take many forms, such as typing an “/s/” in front of a person’s name to represent a “conformed” signature in a form or document, clicking “accept” or similar attestations in an online agreement to represent a signature, emailing a scanned signature, faxing a signature, or sending an email that says “I agree.” There are two types of e-signatures typically used in the United States: electronic signatures and digital signatures.
Electronic signatures are the most common and encompass any electronic process that indicates acceptance of an agreement or record. For example, electronic signatures may include a scanned image or photograph of a person’s ink signature, a mouse-created signature on a screen, a signature at the bottom of an email, or a typed name. Digital signatures, on the other hand, use a certificate-based digital ID, typically issued by a certificate authority, that is unique to each signer and is used to demonstrate proof of signing. A certificate authority is a trusted third party that validates a person’s identity and generates a public and private key pair on his or her behalf. When a person digitally signs a document, he or she uses this private key to “sign,” and then a mathematical algorithm creates an encrypted digital signature. The digital signature is also timestamped and, if modified after signing, will become invalid. DocuSign is an example of a digital signature platform.
Deciding which e-signature method is best for you or your business will largely depend on the nature of the agreement(s) or contract(s) being signed. You may want to consider whether the method you will use provides any assurances that the document was genuinely signed by the person purported to have signed it, balanced against feasibility. Ease of use in these difficult times may also be important. A scan of a “wet signature” may not be feasible for those newly forced to work remotely who have not historically been accustomed to, or who are not set up with, a home office containing a scanner or fax machine.6
If you are concerned about security, you may want to consider using a digital e-signature process, which can maintain a comprehensive audit trail of signing events and a unique electronic signature that is encrypted and tamper-evident. A digital e-signature may minimize the risk of a challenge to the validity of a signature and, by extension, the consequences of a successful challenge. For example, inputting an image of a wet ink signature into a word processing document provides less assurance than using an electronic platform. Courts have recently relied on a DocuSign audit trail as evidence of a signer’s intent to be bound by the terms of their contract.7 Despite enhanced security measures, electronic contracts and signatures and digital signatures can still be legally challenged on the same grounds as paper contracts with wet ink signatures, including for forgery, mistake and duress.
When You Can Use an E-Signature
The use of an e-signature is legally binding (with certain exceptions) under U.S. federal law. On June 30, 2000, President Bill Clinton signed the Electronic Signatures in Global and National Commerce Act (ESIGN Act) into federal law. The ESIGN Act confirmed that electronic signatures have the same legal standing as “wet ink” signatures under U.S. federal law. Although state law, rather than U.S. federal law, applies to the vast majority of contracts in the United States, the ESIGN Act has broad application to contracts because it applies to contracts for interstate commerce.
Forty-seven states, including Delaware (the most popular U.S. jurisdiction of organization for companies), the District of Columbia, Puerto Rico and the U.S. Virgin Islands have adopted the Uniform Electronic Transactions Act (UETA), which works in conjunction with the ESIGN Act to ensure the validity of digital contracts and electronic signatures under both federal and state law. The UETA provides that (1) a record or signature may not be denied legal effect or enforceability solely because it is in electronic form;8 (2) a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation;9 (3) if a law requires a record to be in writing, an electronic record satisfies the law;10 and (4) if a law requires a signature, an electronic signature satisfies that law.11
In order for an electronic signature to be valid under the UETA it must satisfy two key requirements. First, the electronic record or electronic signature must result from a person’s action in order to be attributed to that person.12 This ensures that a signature is not attributed to a machine or a computer instead of a person intending to sign a document. The act of a person may be shown in any manner, including showing the effectiveness of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable. Second, the UETA only applies to transactions between parties that have agreed to conduct the transaction electronically, which is determined “from the context and surrounding circumstances, including the parties’ conduct.”13 It is common for agreements to include specific terms and conditions with respect to the effectiveness of electronic communications and signatures to avoid ambiguity regarding the intent of the parties. For example, if parties intend to exchange electronic signatures, it is advisable to include an express provision stating that delivery of an executed counterpart of a signature page by email or facsimile shall be effective as delivery of a manually executed counterpart.
New York (one of the most popular U.S. state laws chosen to govern commercial and financial contracts), Illinois and Washington have not adopted the UETA, but New York and Illinois each passed their own statutory provisions making electronic signatures and records legally enforceable.14 In 2000, New York adopted the Electronic Signatures and Records Act (ESRA), which gives electronic signatures and electronic records used or accepted in New York State the same legal validity and effect as “wet ink” signatures and paper-based records, subject to similar exceptions provided by the ESIGN Act and the UETA. Like the ESIGN Act and the UETA, the ESRA broadly defines 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.”15 The breadth of this definition encompasses a number of methods for companies to provide an electronic intent to agree to be bound by a contract.
Moreover, state legislators are also beginning to recognize the prevalence of e-signatures and documents and are further incorporating these concepts into state law. For example, in June 2019, Delaware adopted amendments to the General Corporation Law (DGCL) to permit electronic documentation, delivery and signatures for a variety of transactions.16 Specifically, section 116(a) of the DGCL provides that any act or transaction contemplated or governed by the DGCL or the certificate of incorporation or bylaws of a corporation may, subject to certain exceptions in section 116(b), be provided in a “document,” the definition of which includes electronic transmissions.17 Moreover, section 116(a) now permits the use of an “electronic signature” on transaction documents, which it broadly defines, similar to the ESIGN Act and the UETA, as an electronic symbol or process that is attached to, or logically associated with, a document and executed or adopted by a person with an intent to authenticate or adopt the document.18
The ESIGN Act and similar state laws allow businesses impacted by the coronavirus to use e-signatures to ensure the safety of their employees, continuity of their business operations, and the enforceability of contracts and agreements. Note that certain documents are not covered by the ESIGN Act and/or state law and, accordingly, cannot be electronically signed (or special procedures may apply). These documents include:
powers of attorney
wills, codicils and trusts
documents and instruments executed pursuant to the Uniform Commercial Code (excluding Articles 2 and 2A)
court orders and notices
official court documents, including briefs and pleadings
notices of default, foreclosure, repossession or eviction
cancelation of insurance benefits
product recalls or notices of material failures
documentation accompanying the transportation of hazardous materials.19
Before using electronic signatures, companies and individuals should consider the applicable state law to determine whether the document they intend to sign, or have signed, can be executed via an electronic signature. It may be problematic to determine the location of a party e-signing an agreement, and that may make it difficult to determine which state law applies to the e-signature. A good choice of law provision should potentially alleviate those difficulties.
Parties should also ensure that they avoid unintended consequences that e-signature laws have created, such as unintentionally creating a binding contract via email.20 For example, a New York appellate court held that an email message may constitute an enforceable agreement when it contained all material terms of a settlement and displayed a meeting of the minds, and the party to be charged, or his or her agent, typed his or her name at the bottom of the email and demonstrated an intent that the typed name be treated as a signature.21 For this reason, companies and individuals should consider using disclaimers in their emails to avoid this unintended consequence. For example, inclusion of automatic disclaimers in company-generated emails could be used to make it clear that material terms have not been agreed to, that the discussion or negotiations remain subject to further approvals (either by a board of directors or otherwise), or that terms of an agreement can still be revoked, rescinded or revised. This may be particularly important when companies or individuals have mutually agreed with a counterparty to accept electronic signatures for a transaction.
Federal and state laws regarding e-signatures provide companies and individuals with flexibility in executing contracts or agreements while employees and customers work remotely due to coronavirus concerns. Companies may wish to consider utilizing this flexibility by implementing e-signature protocols across their organization, while following best practices, to continue business operations during the current disruptions caused by the coronavirus.
5 Jonathan Coopersmith, Faxed: The Rise and Fall of the Fax Machine (Johns Hopkins University Press, 2015).
6 See the above discussion regarding the ability of iPhone users to scan documents through the Notes app.
7 See e.g., IO Moonwalkers, Inc. v. Banc of Am. Merch. Servs., LLC, 814 S.E.2d 583, 587-88 (N.C. Ct. App. 2018) (relying on evidence from DocuSign records to affirm a lower court’s grant of summary judgment against a plaintiff on the grounds of ratification) (unpublished opinion).
8 Unif. Elec. Transaction Act § 7(a) (1999).
9 Id. § 7(b).
10 Id. § 7(b).
11 Id. § 7(c).
12 Id. § 9(a).
13 Id. § 5(b).
14 Washington’s legislature repealed its electronic signature statute in July 2019 (which predated the UETA), and it is presently the only state without an electronic signature statute. The laws of Washington state do contain various statute-specific e-signature provisions.
15 NY State Tech L § 302(3) (2014).
16 Expanding on the amendments to the DGCL made in 2000 to modernize Delaware corporation law in terms of communications technology that added a new section 232 containing the definition of “electronic transmission” and allowed electronic transmissions to be used for written consents by directors and stockholders, meeting notices and notice waivers, written ballots and other communications with shareholders.
17 Del. Gen. Corp. Law tit. 8, § 116(a) (2019).
18 Id. § 116(a)(2).
19 15 U.S.C. § 7003 (2000).
20 See, e.g., Newmark & Co. Real Estate Inc. v. 2615 E. 17 Realty LLC, 80 A.D.3d 476, 477 (1st Dep’t 2011) (finding that an email sent by a party, under which the sending party’s name is typed, can constitute a writing for the purposes of the statute of frauds); Naldi v. Grunberg, 80 A.D.3d 1, 3, 6 (1st Dep’t 2010) (finding that “[u]nder New York law, an email can constitute a writing that satisfies the statute of frauds governing conveyances and contracts concerning real property (General Obligations Law § 5-703) so long as its contents and subscription meet all requirements of the governing statute.”).
21 Forcelli v. Gelco Corp., 109 A.D.3d 244, 251 (3d Dep’t 2013) (holding that “an email message may be deemed a subscribed writing within the meaning of CPLR 2104 so as to constitute an enforceable agreement.”).