Electronic Signatures: The New Normal Amidst Remote Work

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With government-mandated stay-at-home orders and many people still working remotely, original wet-ink signatures on legal documents have become inconvenient and difficult to obtain. Electronic signatures are not a new phenomenon but with more people working remotely, the demand for electronic signatures used in commerce is more important than ever in order to conduct business and document transactions in a timely and reliable manner. The question many people have is whether electronic signatures are legally enforceable, and if so, what legal documents can be electronically signed, and how? This article explores the landscape of electronic signatures going forward.

Governing Law

Federal and state laws permit electronic signatures. The United States generally has two sources of law that govern the validity of electronic signatures: the state Uniform Electronic Transactions Act (“UETA”) and the federal Electronic Signatures in Global and National Commerce Act (“E-SIGN”). The guiding principle of both laws is that when the parties to a contract have agreed to use an electronic signature, an electronic signature “may not be denied legal effect . . . solely because it is in electronic form.” [1] UETA was adopted in an effort to “remove obstacles to electronic transactions by setting an expansive view of what constitutes electronic records or signatures.”[2] Many states have adopted the UETA and it is the law for most jurisdictions. E-SIGN preempts a state’s law on electronic transactions unless the state has adopted UETA or rules consistent with E-SIGN. In states that have adopted UETA, such as Connecticut, E-SIGN governs only to the extent a state’s version is inconsistent with E-SIGN.

What is an E-Signature?

The Connecticut Uniform Electronic Transactions Act (“CUETA”) defines an electronic signature as “an electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”[3] This definition allows the signatory numerous ways to consent to the terms of the document. An electronic signature can come from a person typing their name in a program such as Adobe PDF, clicking “I Agree” or similarly styled digital icons, using Docusign or AdobeSign signatures, using PINs or passwords, or physically signing an agreement and sending a scan or image of that document as a signature page via PDF.[4] However, both federal and state laws require methods to be in place to confirm and verify the identity of the electronic signatory. For example, CUETA requires security procedures to detect changes or errors.[5]

Validity of Electronic Signatures

Under the provisions of CUETA, an electronic signature cannot be denied legal effect or enforceability solely because the record or signature is in electronic form. [6] Furthermore, CUETA specifies that if a law requires a signature, an electronic signature satisfies the law.[7] CUETA gives legal effect to electronic signatures because the actual use of electronic signatures manifests the parties’ agreement to use them in the first place. Whether CUETA is applicable to a specific transaction depends on whether the parties to the transaction have agreed to conduct the transaction by electronic means, which is determined by examining the context and circumstances of the transaction, as well as the parties’ conduct.[8] In practice, consent could occur by simply asking the other party to a transaction whether they would like to receive their documents via email rather than by mail. Alternatively, lenders, for example, can obtain consent from borrowers or customers, which is typically the case when suggesting an electronic signature platform.[9]

Limitations

It is important to note, however, that certain types of transactions are categorially excluded from E-SIGN and CUETA. For example, both E-SIGN and CUETA specifically exclude transactions involving probate documents, divorce documents, real estate foreclosure proceedings, and transactions governed by Articles 3-9 of the Uniform Commercial Code (UCC). CUETA therefore expressly excludes wills, codicils, and testamentary trusts from the operation of the state electronic transactions laws.[10]  While the absence of inter vivos trusts in the language of CUETA may imply inter vivos trusts can have an electronic signature rather than an original wet ink signature, the legislative history of the UETA enunciated by the National Commissioners on Uniform State Laws (“NCCUSL”) provides helpful insight as to why wills, codicils, and testamentary trusts were excluded from CUETA.  The NCCUSL’s comments on the UETA final draft state that the exclusion of these documents is largely salutary given the unilateral content in which the records are created and the unlikely use of such records in “transactions” as defined by the UETA.[11] The comments provide that an electronic transaction is an interaction between two or more persons, while a document such as a will, trust, or health care power of attorney evidences a unilateral act that is not covered by the UETA. [12] Therefore, because inter vivos trusts are more like regular “transactions” as defined by the UETA, it is possible they may contain electronic signatures, unless the grantor and trustee are the same person. However, this area of law remains unclear, and proceeding with an original wet-ink signature is still advised.

While the UETA does not apply to transactions governed by the UCC other than Articles 2 and 2A (Sales & Lease Agreements), the UCC has its own provisions for electronic authentication. Starting with UCC Article 3 (Negotiable Instruments), nothing in the UETA prohibits the use of an electronic signature on a promissory note. However, because paper promissory notes are “negotiable instruments” under the UCC, having “possession” of the “original” signed note is legally significant.[13] Therefore, the UETA sets forth special rules as it relates to electronic promissory notes. Specifically, the promissory note must be considered a “transferable record” in order to be considered a negotiable instrument. If the promissory note is a “transferable record,” the person identified as in “control” of the record becomes the equivalent of a “holder” under the UCC.[14] In order to be considered a “transferable record” the promissory note must meet certain criteria, which in part requires “a single authoritative copy of the transferable record” and that each copy of the authoritative copy and any copy of a copy be readily identifiable as a copy. [15] Therefore, electronic signatures cannot be used for instruments of title unless an electronic version of such record is created, stored, or transferred in a manner that allows for the existence of only one unique, identifiable, and unalterable version that cannot be copied except in a form that is readily identifiable as a copy.

Under UCC Article 8, securities (other than certificated securities) may be transferred electronically and contracts for their sale or purchase do not have to be in a physical writing. [16]According to the UCC Comments, “the statute of frauds does not apply to contracts for the sale of securities, reversing prior law . . . [w]ith the increasing use of electronic means of communication, the statute of frauds is unsuited to the realities of the securities business.”[17]

Similarly, e-signatures and records can be utilized to authenticate a security interest in personal property under UCC Article 9 (Secured Transactions).[18] Provisions of the UCC expressly provide for the use of electronic signatures and transactions. The definition of “authenticate” does not explicitly include electronic signatures, but it does allow the debtor “[w]ith present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process.”[19] Therefore, a debtor can sign a tangible record (e.g., a security agreement typed on paper) or accept or adopt an electronic record (e.g., a security agreement that is electronically stored) to authenticate a security agreement.

Conclusion

Many legal documents have been signed by e-signatures long before the COVID-19 pandemic. The “new normal” has enhanced demand for the use of e-signatures on legal documents. Utilizing E-signatures can cut down costs, processing times, document errors, and increase productivity. E-signatures are not only more convenient for all parties involved, they are also an effective way to ensure that business continues without unnecessary delays.


[1] 15 U.S.C. § 7001(a)(1).

[2] Steven O. Wise, Electronic Signatures Becoming the Norm during COVID-19 Outbreak (Apr. 24, 2020), https://www.natlawreview.com/article/electronic-signatures-becoming-norm-during-covid-19-outbreak.

[3] Conn. Gen. Stat. Ann. § 1-270.

[4] Wise, supra note 2.

[5] C.G.S.A. § 1-275.

[6] C.G.S.A. § 1-272(a).

[7] Id. at 1-272(d). 

[8] C.G.S.A. § 1-270(b). 

[9] Lauren Captitini, Remote Lending In The Time of COVID-19, (Mar. 20, 2020), https://www.huschblackwell.com/newsandinsights/remote-lending-in-the-time-of-COVID-19.

[10] Conn. Gen. Stat. § 1-268.

[11] Uniform Electronics Transactions Act with Prefatory Note & Comments, page 13 (1999) (final draft), UETA with Note & Comments.

[12] Id.

[13] Captitini, supra note 9.

[14] C.G.S.A. §  1-281.

[15] Id.

[16] C.G.S.A. § 42a-8-113.

[17] Id.

[18] C.G.S.A. §  42a-9-102(7)(B).

[19] Id.

[20] C.G.S.A. § 1-268(c)(2)(B).

[21] Captitini, supra note 9.

[22] Id.

[23] Id.

[24] See eClosing and eSigning Real Estate Transactions, First Am. Title, https://www.firstam.com/title/eclosing/ (last visited March 14, 2021).

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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