For centuries a person’s signature has been required to complete a binding contract. The signature is how a person certifies they understand both their obligations under the contract and what they are entitled to in return.
While it’s now commonplace to execute contracts electronically, without regard to distance, for all of human history until 2000, when the Electronic Signatures in Global and National Commerce (ESIGN) act was signed (and e-signed) by President Bill Clinton, all parties to a contract typically gathered together to sign the contract. Witnessing the signing was as important to sealing the contract as the signature itself. Of course, the internet has nothing to do with paper and everything to do with people interacting, even conducting business, without regard for where they are located.
That posed a problem for traditional contracts, which is why the E-SIGN Act was so revolutionary. It declared that a properly executed and e-signed contract is equally enforceable as a signed paper contract. The law works because it established a process to create the trust people have long had for a contract signed in their presence.
ESIGN act requirements
- Intent to sign
- Consent to do business electronically
- Opt-out clause
- Signed copies
- Record retention
1. Intent to sign
The foundation of a valid e-signature is a clear demonstration of the intent to sign. While this is important, it’s not usually difficult to establish. A party to the contract can demonstrate their intent to sign by first agreeing to have their identity verified, such as by providing an email address or typing in a code they agreed to receive on their cell phone. Afterward, they “sign” their name with the mouse or their finger (or perhaps just type in their name), or simply click a plainly labeled “accept” button.
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2. Consent to do business electronically
E-contracts are routine, but the law still treats them as novel by requiring the parties to the contract to explicitly agree to do business electronically. The language of the contract must stipulate that the parties have the option of receiving paper documents but have agreed to instead work electronically.
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3. Opt-out clause
In addition to making it clear the signer has the option to conduct business on paper documents, you must also include a simple mechanism, such as a “decline” button, that allows them to terminate the electronic contract process. This is a normal component of the signature workflow.
4. Signed copies
Just as you would with a paper document, you must ensure that all parties to the signed contract receive a copy for their files. Electronic signature solutions typically distribute contract copies immediately after the signing is complete.
5. Record retention
The ESIGN Act requires signing parties to keep records of legal documents, but this requirement is typically met simply by distributing copies to the signers, or even just making clear they can readily download a copy.
E-contracts are fundamental to building a business in the internet age, but aside from being transmitted digitally, where e-signatures are valid, there is no legal difference between an electronically-signed contract and one signed by hand. What matters more than how you sign is that you trust the person with whom you are entering into a contract.
Consult your attorney for information on your particular legal needs regarding e-signatures.
AS ALWAYS, CONSULT AN ATTORNEY BEFORE RELYING ON ANY FORM CONTRACT OR CONTRACT TEMPLATE. THE CONTENT ABOVE IS FOR INFORMATIONAL PURPOSES ONLY.