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Electronic Signatures Can Be Virtually Worthless

Twenty years into the 21st Century, physical signatures were already becoming as rare as quill pens when the COVID-19 pandemic emerged, with its “social distancing” and legally-mandated business closures. Since then, signing documents using electronic signatures sometimes seems not just expedient, but necessary. And it is so easy to paste a signature image on a legal document.

So what’s the problem? The problem is that sometimes, an electronic signature is legally worthless because the law requires a physical signature. Knowing when isn’t always simple.

The General Rule: Electronic Signatures Are Legally Recognized

As a matter of federal law, under the Electronic Signatures in Global and National Commerce Act (15 U.S.C. § 7001 et seq.), electronic signatures are valid no matter what state law says. Except when they are not: when a state adopts the Uniform Electronic Transactions Act (“UETA”), to the extent that that UETA doesn’t recognize the validity of an electronic signature in a particular case (15 U.S.C. § 7001(a)(1)); if the state chooses to require physical signatures in statutes related to wills and trusts, family law matters, or under any Article of the Uniform Commercial Code, other than Article Two (Sales) (15 U.S.C. § 7003(a)). Enough exceptions and pitfalls exist that checking for them is advisable.

The Many Exceptions and Pitfalls

Electronic signatures can be used on many, if not most, types of contracts and many types of notices. But here are some areas in which electronic signatures are likely worthless or fraught with pitfalls:

Electronic Signatures Are Valid Only If Parties Agree

Generally, federal law does not require the acceptance of electronic signatures: the parties must agree to accept them. 15 U.S.C. § 7001(b)(2). Maryland’s UETA (MD Commercial Law CODE ANN. § 22-101 et seq.)(“MUETA”) provides that, “If a law requires a signature, an electronic signature satisfies the law,” (MD Commercial Law CODE ANN. § 21-106(d)). But MUETA’s scope is limited “to transactions between parties, each of which has agreed to conduct transactions by electronic means.” MD Commercial Law CODE ANN. § 21-104(b)(1). The agreement can be inferred “from the context and surrounding circumstances,” or proven either by a separate agreement or by a provision “in a standard form contract . . . [if] that provision is conspicuously displayed and separately consented to.” MD Commercial Law CODE ANN. § 21-104(b)(2) and (3). The term “standard form contract” is not defined, but the conservative approach would be to insert a consent clause in all contracts, in bold font, and have the clause separately initialed by the parties.

Even If Parties Agree, Not All Documents Can Be Signed Electronically

MUETA does not govern in the following areas of law (among others), many of which do not recognize the legal validity of electronic signatures:

  • Laws governing execution of wills, codicils, and testamentary trusts, which normally do not permit electronic signatures, although some have recently been relaxed by Governor Hogan’s Emergency Order to permit electronic signatures and remote witnessing during the period of his COVID-19 Emergency Order.
  • The Maryland Uniform Commercial Code, other than §§ 1-107 and 1-206 and Titles 2 and 2A. Article 3 of the UCC requires that instruments such as promissory notes be manually signed.
  • The Uniform Computer Information Transactions Act (MD Commercial Law CODE ANN. § 22-101 et seq.), which permits electronic signatures in computer information transactions.
  • Laws governing certain kinds of notice, such as cancellation of utility service, acceleration of mortgages, and termination of health insurance.
  • Laws governing adoption, divorce, or other family law matters.

MD Commercial Law CODE ANN. § 21-102(b). If a document falls within one of these areas of law (and this is not a comprehensive list), further analysis is needed to determine whether electronic signatures would be permitted.

Signing Electronically Makes Proper Witnessing Difficult

The ability to sign electronically does not overcome all of the legal hurdles to remote execution. For example, in the execution of a will, the testator or testatrix, the witnesses, and the notary (if one is used) all have to be able to see each other sign the will when everyone is together (virtually). Being able to accomplish this requires careful video-conferencing choreography that can be challenging for many participants. In Maryland, if a notary is used, the signing session must also be recorded by video. That means that any mistakes in the execution will be carefully preserved for any subsequent challenge to the will.

The Concluding Caution

Under the right circumstances, use of electronic signatures makes it possible to create binding legal documents without having to bother with the delivery and storage of physical documents. Electronic signatures will be legally valid if the document is governed by law that permits electronic signatures and the parties agree to them. Parties who want to agree to permit electronic signatures should include and separately initial a provision in their contract that expresses that agreement in bold font.

Author: David Greber
Articles have been Reprinted with permission from the charlotte observer and Mike Hunter.

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