Is an 'E-Signature' Legally Enforceable?

A signature has been the universally accepted way to acknowledge acceptance to the terms. But the times have changed! Electronic Signatures (e-signatures) have become the primary means of signing and exchanging documents.

Thanks to technology, a contract can be both transported between the parties and signed by them with a click of the mouse. E-signatures expedite the process and create a secure document signature. But the increased use of e-signatures have raised concerns about their legality, security and admissibility in court proceedings.

To realize the full potential of electronic commerce, state and federal laws have been created that protect and regulate the use of electronic signatures. In June of 2000, Congress passed the Electronic Signatures in Global and National Commerce Act (“ESIGN”) to facilitate the purchase of goods and services over the Internet between consumers and sellers. As the Act covers commercial transactions, it does not pertain to transactions already governed by other specialized areas of the law. These include wills, family law, adoption, divorce, court proceedings, product recalls, health plan and utility cancellation or termination, residential eviction notices, and required documents for the transport or handling of hazardous, toxic, or dangerous materials. However, the Act also provides that there is no requirement for the use of e-signatures except by government agencies.

Illinois provides for the validity of electronic signatures in the Electronic Commerce Security Act, 5 ILCS 175/1 et seq (“ECSA”). Illinois’ ESCA is modeled on ESIGN and the Uniform Electronic Transactions Act (UETA”), which has been adopted by 47 states. The Illinois ESCA presumably covers all the forms of electronic signatures covered under the federal law, but it does provide strict definitions with regard to which technologies or platforms should be used. The Illinois ESCA specifies that information, records, and signatures are not to be denied legal effect, validity, or enforceability solely on the grounds that they are in electronic form [1]. Similar to ESIGN, the Illinois ECSA does not require the use of electronic signatures. The parties may establish “reasonable” requirements as to the type of symbol or security procedure that they will accept as a signature [2]. For example, the parties may express in writing their intent that a facsimile signature will be deemed to be of the same force and effect as an original executed document.

To be “secure” under the Illinois ECSA the e-signature must:

• Be created in a commercially reasonable manner.
• It is applied by all the parties in a verifiable manner.
• It can be relied upon by all the parties.
• The parties agree that the signature is secure.
• It is created using an asymmetric algorithm certified by the Illinois Secretary of State.
• It is created using a valid certificate issued by a Certificate Authority using standards approved by the Secretary of State.

Currently, there are three types of legally binding signatures.

• Wet signature – a wet signature is created when a person physically marks a document. Anything from an X to a “John Hancock” qualifies as a wet signature, as long as it was physically created by the signor.
• E-Signature – an electronic signature is an electronic sound, symbol, or process that acknowledges or adopts an electronic message, transaction or document. Some examples include:
  • A typed name at the end of an email
  • A typed name on an electronic form or document
  • An image of a handwritten signature on a transmitted fax
  • Clicking “agree” or “disagree on a “terms and agreements” contract
  • A handwritten but digitally captured signature made on a tablet or a smartphone (also referred to as a “dynamic signature”)
• Digital signature – a digital signature is an electronic signature that encrypts the document with a specific code that securely associates the signor with the document. Because of its unique identifier, it is often likened to a digital fingerprint. These types of signatures provide the highest level of security, and are typically used on documents that contain non-public personal information. A digital signature is required to:
  • Prove the authenticity of the document and its source
  • Ensure that the document has not been tempered with
  • Verify personal identity

As a general rule the federal law allows the use of electronic signatures in contracts, or other transactions in connection with interstate or foreign commerce. The ECSA mirrors this applicability for commercials transactions within the state of Illinois. This means that with the exceptions noted above the acts apply to any action constituting business or commercial conduct among consumers, such as virtually any transaction involving the sale, leasing, licensing, exchanging or other distribution of both real property and personal property. Even real estate agreements can and often do contain language holding the agreement to be enforceable either by an original or faxed signature.

The laws permit a consumer and a seller of products or services to agree to substitute a faxed signature, a mouse-click on the box marked “I accept,” or even an acceptance over the phone for your hand-written signature, thus binding you both legally to the agreement. All of these forms of consent are “electronic signatures” and satisfy any federal or state laws requiring a hand-written signature or paper record. So long as a court will find an intent by the signatory, (which it usually will), the agreement will be legally binding. This also means that any updates to these agreements will also come in the same format as the original offer and acceptance. Thus, if you clicked “agree” to the terms and conditions on a seller’s website, any updates to the contract will also appear on the same site and prompt you to “agree” with them the next time you visit.

To be enforceable e-signatures must meet 4 factors:

1. Proof of Identity. This is usually accomplished by the signer’s email address to which a hyperlink verifying the e-signature is sent.
2. Sending Copies of the e-Signed Documents. Because there is no final, original copy of a document, each signer must be sent a copy of the same document after it is signed by all parties.
3. Protection of the e-Signed Document. This simple means that that the final signed document cannot be modified. The process should include a tamper-proof protection.
4. Audit Trail. This is a history of the document showing the device, IP address and time stamp to show the access of the document. This information provides a means of showing witnesses who can validate the signature if necessary.

The Illinois ECSA discusses the admissibility of electronic signatures and records into evidence in a legal proceeding. It provides that an electronic signature cannot be rejected simply because it is electronic [3]. Second, electronic signatures cannot be denied admissibility into evidentiary legal proceedings simply because the signatures are electronic or because the signatures are not “original” [4]. If the authenticity is an issue, a trier of fact (a judge or a jury) may consider the manner in which the signature was generated or communicated, the reliability of the manner in which its integrity was contained, the manner in which its originator was identified or the electronic record was signed, and any other relevant information or circumstances [5]. In addition, the Act provides that an electronic signature may be proved in any matter, for example by using a pre-established security procedure [6]. It is important to note, however, that although any electronic signature works like a wet signature under the Illinois law, a digital signature is the best way to prove authenticity. The system used to capture the transaction should be able to keep an associated record that reflects the process by which a signature was created, or generate a different proof that the transaction was executed with an electronic signature.

The bottom line is that as long as the parties use a digital signature such as DocuSign, Dropbox Sign (formerly HelloSign) or Adobe Sign, the E-Signatures will be universally accepted.

As the use of electronic signatures is quickly moving from novelty to necessity, it is important to understand when it is permissible to use certain types of e-signatures. It is important to review your form contracts and purchase order to ensure that they comply with the applicable state laws.

George Bellas was an invited speaker at ABA Legal Tech in Chicago on "E-Signatures, Authentication and Contracts." For a copy of George’s submitted article CLICK HERE. For additional information regarding your particular business issue in Illinois and the Chicago area the experienced Chicago Business Lawyer George Bellas (847.823.9032 or George@bellas-wachowski.com).

[1] 5 ILCS 175/5-110

[2] 5 ILCS 175/5-140

[3] 5 ILCS 175/5-110

[4] 5 ILCS 175/5-130

[5] 5 ILCS 175/5-130

[6] 5 ILCS 175/5-120