Digital contracts make life easy. And, they are legal.
What are the benefits?
- Save Money.You’ll save on postage, which is the biggest expense — even if you are paying for a signature service.
- Save time. The mail can be a guessing game. Email is instantaneous, and signing online takes minutes. A contract can be sent, signed, and received within an hour.
- It’s easy. With only a few mouse clicks, you can save the electronically signed document into an encrypted, secure, external hard-drive. It saves space in your office and minimizes filing mistakes.
By digitizing your documents, you can make the contract signing process so much easier. You email it to the signee in a format that they can’t change. All they have to do is read it, digitally sign it, and send it back. No pen, paper, or fax machines involved.
It may be easy, but is an electronically signed document legal? Yes!
First, let’s touch on the “E-Sign Act” – officially called the “Electronic Signatures in Global and National Commerce Act,” (15 U.S.C. 7001).
“IN GENERAL.—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.”
The biggest take away from this is that an electronic signature “MAY NOT be denied legal effect, validity, or enforceability solely because it is in electronic form.”
However, the phrase starts with “IN GENERAL.”, which means there are exceptions. Some states also may have additional regulations. You should consult with an attorney to make sure the e-signatures are valid.
A state may require more E-sign regulations, but they can’t relax the federal regulations. The federal law always wins.
According to a research project done at Duke University, there are three main reasons why the government legalized e-signatures. Here are the reasons:
- E-sign allows Americans to use and sign legally binding contracts online,
- E-sign increases business efficiency by speeding up the contract process, and
- E-sign strengthens consumer protection as it relates to eCommerce, by mandating disclosures and retention of accurate records, and further, by creating specific exceptions where signatures must be on paper for public policy reasons.
Faxes and Scans
What if someone asks for a faxed document? Or has you print, sign, scan, and return? The issue lies with whether the document meets the “Best Evidence” rule, not whether it is faxed, digital, or duplicated.
What is the Best Evidence Rule?
The Best Evidence Rule says that the original copy of any document is superior to a copy. The original should be placed into evidence, and the copies (photos, scans) are admissible only if the original is unavailable. These are called secondary evidence. This rule is found within the Federal Rules of Evidence Article X, Rules 1001-1008.
While faxes, scans, copies, and pictures may be acceptable, it is always best to use a PDF or the printed original document. Of particular note here, the “Best Evidence” rule is limited to writings; it does not apply to pictures, videos, etc.
Criteria for Validity
The document needs to show the following in order to be admissible in court:
- That there is an effort to prevent fraud.When digitally signing something, there should be measures in place to prevent fraudulent signatures. Programs you may choose to use online should have this built in.
- That the document is unaltered.A PDF of the document tends to fulfill this requirement; it’s a “published” document that cannot be altered, except for the addition of the electronic signature or designated blanks requesting further information via free-flow text.
- The contents of the agreement are legally valid and enforceable.This is a “duh” inclusion, but necessary to say. A judge will evaluate whether its terms are clear and consistent, the parties had legal capacity to sign, whether consideration was exchanged , whether one party was under duress or undue influence, and whether a party or parties signed by mistake or without knowledge of the contracts meaning.
Which e-signed contracts are unenforceable?
It’s important to remember that not all digitally signed contracts are enforceable. These are a few reasons a contract may be deemed invalid. Check with a local attorney for all the details.
- If that document is a will, codicil (a subsidiary part of a will), or a testamentary trust.
- If a document is relating to adoption, divorce, and other family law matters.
- If a document is a court order, notice, or another court document such as a pleading or motion. The court wants to make sure that the right party personally signed the legal document.
- If a document is a notice of default, repossession, foreclosure, or eviction,
- If the document is a notice of cancellation or termination of health or life insurance benefits.
- If the document is a notice pertains to a product recall that affects public health and safety.
- If the document is one that the law requires to accompany the transportation of hazardous materials.
How do clients sign a digital contract?
Signing the contract digitally involves several options. If you use a site that embeds the contract or choose to email it, you may have different options. Some have a spot your client can sign with the mouse and others provide a signature after typing in your name, which becomes legal binding.
Make sure you read the manual for the program you choose to use. Like actually read it so you understand it.
Digital Signing Systems Options
If you’re looking for a signing system, go to our Recommended Digital Contract Signing Tools blog post. All have been tested and are lawyer approved. (They may include affiliate links.)