Electronic Signature Contract: Everything You Need To Know
An electronic signature contract is valid as a contract signed with a pen and paper, as per Electronic Signatures in Global and National Commerce Act of 2000.3 min read
An electronic signature contract is a legal agreement that is as valid as a contract signed with a pen and paper, according to the Electronic Signatures in Global and National Commerce Act of 2000 (ESIGN). This law specifically governs interstate and international commerce. At the state level, e-signed contracts are governed by either the Uniform Electronic Transactions Act or a separate state-specific law. Most businesses are concerned about whether an e-signed contract or legal document will be admitted in court proceedings.
Purpose of E-Signed Contracts
If your business deals with legally binding documents and contracts, allowing e-signatures is much faster and more convenient than other methods. You are no longer required to ship a contract to the signor, fax a copy of the document, or email a copy with a scanned signature. However, for an e-contract to be legally valid, it must have the same attributes as a paper contract.
Judicial Treatment of E-Signed Contracts
Because the ESIGN act prevents electronically signed contracts from being "denied legal effect," judges have rarely deemed this type of signature invalid. However, the signature in question must have been gathered with compliant authentication, certification, and technology. The judge will consider how the contract is signed when determining its validity. Factors that are considered include:
- Intent on behalf of the signatory.
- The security level of the signed document.
- The likelihood that the signed document was altered or tampered with.
- Whether security, authentication, or audit log discrepancies or weaknesses exist.
- Whether the terms of the agreement itself are consistent and clear.
- The legal capacity of each party to consent to a contract.
- Whether consideration (an item of value) was offered by both parties.
- Whether either party signed under undue influence or duress.
- Whether errors exist in the agreement.
For this reason, it's important that your business use the highest security and authentication standards when providing and/or accepting e-signatures. You should also have an attorney review and execute all business agreements to increase the likelihood that they will be upheld in court.
Security for E-Signed Contracts
If your business maintains an e-signature system, it should have the same security protocols required by banks and financial institutions. This ensures that third parties cannot tamper with your legal contracts and documents. The failure of security measures can be used to call a document's validity into question in court.
Your system should also incorporate time-stamped audit logs. These allow verification of the exact time when a document was created, signed, viewed, and archived. The logs should be secured with a checksum, digital signature, or another method to prevent tampering.
With biometric authentication, physical traits are used to identify and authorize individuals. One example is RightSignature, which measures the exact timing and speed of a signature as it is written. This can be used to provide proof that a specific individual signed the document in question.
You can also capture a signor's IP address and link it to his or her individual email account as a way of confirming identity. Digital checksums such as SHA-1 electronically document each step along the way as the contract is created and signed. This prevents tampering by recording all modifications and changes.
Some systems capture a photo of the signor using his or her smartphone camera or webcam. This establishes a clear record of that individual's identity. Other systems confirm the signor's phone number by requiring entry of a code sent by text message or email, or require the person to enter his or her driver's license number to confirm identity.
Using these methods, you can create a signature certificate that is admissible in court. This provides a convenient and readable way for the judge to view the signor's full information along with audit logs and validity data. This is necessary if your legal document is challenged in court.
Keep in mind that the higher the level of authentication available for your document, the more likely it will be admitted as legally valid. However, avoid authentication methods that make e-signatures more complex and difficult than traditional pen and paper signatures. For best results, combine several different security approaches that work in concert with one another.
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