Electronic Signatures
A client and I were negotiating final changes in a real estate sales contract with the parties poised to sign. Buyer and Seller were familiar with each other, and proposed exchanging scanned copies of the executed contract in lieu of original signature pages. It’s something that happens all the time. My client, who is quite astute, asked me if everything blew up could we enforce the contract without original signature pages. And right then and there I knew this was worthy of an article for the Springfield Business Journal.
So is it acceptable to use electronic signatures on legally binding documents? And what exactly is considered an electronic signature?
The short answer is yes, electronic signatures are accepted on most documents and contracts as being legally binding. An electronic signature can take a variety of forms. It could be as simple as a typed name (e.g. /s/ Thomas C. Pavlik, Jr.), a digital image of a signature that has been handwritten (i.e. a traditional scan), or even just a symbol. The key is whether it captures the intent of a person to be legally bound.
What’s the legal basis for this? Electronic signatures have been recognized since 2000 when the Federal ESign Act was signed into law. Most states then followed suit and adopted their own polices. In Illinois, the general rule is that electronic signatures are recognized just like written signatures so long as the electronic signature takes on the characteristics of an ordinary signature - meaning it is not easily forged and becomes invalid if the document is altered in any way.
Illinois law provides that parties may establish their own requirements for what constitutes an electronic signature. Therefore, although not technically necessary, it’s a good idea to include provisions in a contract that the parties agree that facsimile or scanned signatures are intended to be legally binding. I generally use language similar to this:
“In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature page were an original thereof.”
As with everything, there are a few exceptions to this rule. Certain documents cannot be signed with an electronic signature. These documents include wills, trusts, and documents by which title to property is transferred (e.g. deeds, car titles, and bills of sale). Negotiable instruments (e.g. promissory notes) are a separate category with specific rules – suffice to say that I don’t see electronic signatures becoming commonplace in this regard.
Electronic signatures are becoming so common that Federal Courts and some State Courts now allow for electronic filing of court documents. The Sangamon County Court has not yet adopted electronic filing and signatures, but Cook County has. When a document is submitted to the court through electronic filing, the documents are signed with an electronic signature. This is a perfect example of how technology is changing the way things work.
Even some State Agencies have adopted the use of electronic signatures on their documents. For example, when forming an LLC or Corporation online in Illinois, all the documents are executed and submitted with electronic signatures.
The Internal Revenue Service works with electronic signatures as well. When you submit your taxes online through e-filing, you are using a form of electronic signature to verify you are in fact the person who submitted the tax forms. This is done through an electronic PIN number.
In an effort to make electronic signatures more secure there is another layer to the electronic signature called digital signature. They may sound similar, but in fact they are separate things. A digital signature adds security to an electronic signature. Again, an electronic signature shows the intent of a person in an electronic transaction. The digital signature doesn’t capture that intent. It offers additional indicia of genuineness. A digital signature alone would not be legally binding.
A digital signature is an encryption procedure that secures the data and helps verify the authenticity of the signature. It allows one to trust that a signature is valid through the use of a public and private key pair. All parties know the public key but only the signor knows the private key. This makes the signature unique to each individual – essentially a digital fingerprint. Because the digital signature is unique, it cannot be copied, tampered with, or altered. The authenticity of an electronic signature backed with a digital signature is far less likely to be questioned. Adobe and MS Word offer versions of digital signatures.
Because of rules put forth by the state regarding the Act establishing the permissibility of electronic signatures, there may be a requirement that such signatures be created using a “secured procedure.” The rules are a bit short on specifics, so savvy parties would be well advised to include some sort of digital signature on top of the electronic signature.
As we advance into a more technologically savvy world, expect electronic signatures to become much more common, but also expect complications as the law struggles to catch up with that technology.
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