Are Contract eSignatures Legal? Will eSignatures Hold up in Court?

03/11/16

CobbleStone Software eSignatures

Electronic signatures are a must to streamline your contract management process.  They allow organizations to create efficiencies that expedite preexisting processes and reduce financial costs.  However, there are still individuals and organizations that question whether or not contract electronic signatures are legal and whether eSignatures will hold up in court.  The question is valid; potential litigation is a serious threat to any organization.  Judicial decisions and legal precedent in the United States have left very little ambiguity on whether or not contract electronic signatures are equivalent to handwritten signatures.  Organizations that use eSignatures should take comfort knowing that the courts have been on their side since 1869.

Howley v. Whipple (Supreme Court of New Hampshire 1869)

In 1869, Ulysses S. Grant was president of the United States and the use of Morse code through telegraphs proposed new challenges in contract law.  Although Howley v. Whipple was decided on a matter of agency, language in the decision set a precedent for the idea that a legally binding signature was not strictly ink on paper, but rather a symbol associated with consent.

When a contract is made by telegraph, which must be in writing by the statute of frauds, if the parties authorize their agents, either in writing or by parole, to make a proposition on one side, and the other party accepts it through the telegraph, that constitutes a contract in writing under the statute of frauds: because each party authorizes his agents, the company or the company’s operator, to write for him: and it makes no difference whether that operator writes the offer or the acceptance in the presence of his principal and by his express direction, with a steel pen an inch long attached to an ordinary pen holder, or whether his pen be a copper wire a thousand miles long.  In either case the thought is communicated to the paper by use of the finger resting upon the pen: nor does it make any difference that in one case common record ink is used, while in the other case a more subtle fluid, known as electricity, performs the same office.

The idea that a medium, whether that be the telegraph or the internet, might replace the need for a traditional “John Hancock” existed closer to, John Hancock, than to the modern day.

UETA – Uniform Electronic Transactions Act (1999)

The Uniform Electronic Transactions Act (UETA) was proposed by the National Conference of Commissioners on Uniform State Laws, primarily to allow banks to keep electronic forms of checks, as opposed to physical copies, for easier storage and security reasons.  Forty-seven states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have all adopted the UETA.  The three states that did not adopt the UETA all have their own legislation concerning electronic signatures: New York (Electronic Signatures and Records Act), Illinois (Electronic Commerce Security Act), and Washington (Electronic Authentication Act).  These individual state laws generally reflect the UETA and, in Washington’s case which had a law predating the UETA, was updated to reflect the act.

(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.

(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

(c) If a law requires a record to be in writing, an electronic record satisfies the law.

(d) If a law requires a signature, an electronic signature satisfies the law.

This language from the 1999 Uniform Electronic Transactions Act has been used in various cases to uphold the legality of electronic signatures for contracts, forms and other legal documents.

ESIGN - Electronic Signatures in Global and National Commerce Act (2000)

The Electronic Signatures in Global and National Commerce Act (ESIGN) is a United States federal law regarding the legality of electronic signatures in interstate and foreign commerce.  While individual state laws, individually or as a result of the Uniform Electronic Transactions Act, mostly apply to intrastate commerce, the ESIGN act applies to almost everything else.

Notwithstanding any statute, regulation, or other rule of law (other than this title and title II), with respect to any transaction in or affecting interstate or foreign commerce— (1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

In 2010, the United States Congress recognized June 30th as “National ESIGN day" which is significant evidence of the government’s willingness to stand by this particular act of legislation that ensured validity to agreements consented to electronically.

Barwick v. GEICO (Supreme Court of Arkansas 2011)

Many cases have been tried on the basis of the legality of eSignatures since the UETA and ESIGN acts.  In a relatively recent case, a client challenged that their refusal of medical coverage was not legally binding because GEICO required the signature to be “in writing” and the client had signed the refusal electronically.

An “electronic signature” means 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. Ark. Code Ann. § 25-32-102(8). The issue in this case is whether an electronically generated record satisfies the requirement of section 23-89-203 that a rejection of coverage for medical benefits must be memorialized in writing. In our view, the meaning of section 25-32-107(c) could not be more straightforward when it states that “if a law requires a record to be in writing, an electronic record satisfies the law.” We perceive no conflict between these two statutory provisions, and they can be read harmoniously to mean that an electronic record fulfills the requirement of a written rejection of coverage.

This instance, among others, affirms the provisions set forth in the UETA and the legality of electronic signatures.  Contract eSignatures have been proven to be legal and to hold up in court.  The only question that remains is how an organization can fully take advantage of electronic signatures to help streamline their contract management, electronic sourcing, and other fundamental business processes.  Contact CobbleStone Software today to learn how to leverage electronic signatures in Contract Insight™ contract lifecycle & eSourcing software solutions.

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George Miller

Written by George Miller

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