Your Ultimate Guide: how does the ESIGN Act recognize electronic contracts as equivalent to written contracts?

The ESIGN (Electronic Signatures in Global and National Commerce) Act has been around for two decades and it still appears as a bit of a mystery and very confusing to some because interpretation, editorialization, and sensationalism are pretty rampant on the internet regarding any topic. For example, the Chinese Government never teleported material from Earth to Space or vice-versa (yet), they used satellites to send quantum-entangled pairs of light particles for a super-secure encryption system in a manner not too dissimilar to what we would normally do with a flashlight to illuminate a dark hallway, or a laser pointer during a presentation. However, many major and minor news outlets spoke of it as if it was the teleportation of material — like it was Star Trek sending Captain Picard to Starbucks.

Like in many other topics of law, science, and pretty much any field, it is easy to get confused or overwhelmed by conflicting information. Before we start talking about the ESIGN Act, here is a link to the Cornell Law School with details about the law itself so that if you get lost at all you can try to make sense of any holes in our explanation, which we will try to avoid. This link is just one of the sources that will be referenced in this article.

Let’s take a look at the text of the law, to see exactly what makes an electronic signature legally binding.

To quote the law itself:

• (a) 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; and
  • (2) a contract relating to such a transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

To answer this, let’s review some legal history first. The ESIGN Act is a law that was championed across Washington by a number of Congressmen and Senators. It would combine a number of smaller pre-existing Bills, Acts, and laws into one neat little package. It was finally signed into law by the, at the time, President of the United States, Bill Clinton on June 30th, 2000 and became effective at the beginning of the Federal fiscal year, October 1st, of the same year. The record-keeping standards were given a period of six months for providers to keep in compliance, starting in March, 2001. Agreements and contracts that were electronically signed before October 1st, 2000 were grandfathered into the law and maintained legal status.

Since then, there have been two amendments to ESIGN, as of August 2020, but nothing very substantial.

It has many clauses that protect businesses and consumers from overriding laws on the State level. Although States may create some restrictions or additions within a specific and fairly rigid scope. So what is an acceptable electronic signature?

The ESIGN Act grants electronic signatures, like the ones above, the same legally-binding status of a wet paper signature with certain rules and restrictions. And if you have ever wondered «what is a typed electronic signature?», it is on the left. A typed electronic signature is one that is represented in a form of cursive with a font that is unique and/or distinguishable. Additionally, if you have ever wondered «what does an esignature look like?», the answer is on the right. A drawn eSignature is one that you may draw with a keyboard and mouse, touchscreen, or stylus on a digital pad.

The law permits the use of electronic signatures in contracts, agreements, and many other forms of media. But what are the restrictions? What can’t an eSignature be used for? The list seems quite extensive, but it is pretty reasonable.

eSignatures are NOT valid for:

• Codicils, wills, or testamentary trusts
• State laws in regards to:
  • Divorce
  • Other legal domestic (family) matters
• A State’s Uniform Commercial Code outside of the particular sections:
  • 1-107 and 1-207 in Articles 2 and 2A
• Court orders or notices
• Official court documents such as:
  • Briefs
  • Pleadings
  • Other documents required in connection with court proceedings
• Cancellation or termination of utilities such as:
  • Water
  • Heating
  • Electricity
  • Etc.
• Credit or material:
  • Defaults
  • Foreclosure
  • Repossession
  • Acceleration
  • Eviction notices
  • “Curing” a rental agreement for an individual’s primary residence
• Cancellation or termination of:
  • Insurance benefits
  • Life insurance benefits (except annuities)
  • health insurance
• Product:
  • Recalls
  • Material failure
  • Other risks with deleterious effects to safety or health
• Any document required for the transportation or handling of:
  • Pesticides
  • Hazardous materials
  • Toxic or dangerous materials
  • Etc.

For some things listed above, such as utility termination notices, it makes perfect sense to protect consumers from not receiving a hard-copy of the notice, and possibly not seeing it at all. This can also prevent companies from using nefarious tactics that might hurt consumers.

However, if you have followed along so far, almost all normally applicable uses are not restricted to paper only. Whether it be for business, agreements, interpersonal loans, contracts, non-disclosure agreements, or terms of service, eSignatures are a very beneficial addition to our global economy and way of life.

There are many interesting things that come into play where eSignatures are concerned. One of them is that if all unaltered documents along with records and information required by the ESIGN Act and State statutes are included, it can be notarized.

The ESIGN Act also, interestingly, protects insurance brokers and agents if something has gone wrong with the eSignature process. This applies so long as their practices were legal and not negligent, wreckless, or harmful. They also must have followed the proper protocols and rules and could not be involved in the process of the development of the electronic signature and records platform/service used.

The law protects consumer rights in a variety of ways. One such way is the necessity of recordkeeping, such as the history of documents, as seen above from the airSlate SignNow Dashboard.

Other provisions include the necessity of consent to electronic records on the part of the signator. If the signator wishes to rescind their consent, they may do so; at which time a paper copy must be provided.

The signator must be made aware, prior to the signature process, of the software and hardware requirements to access and retain copies of their electronic records. If any changes occur that will limit or change how the signator may access their records electronically, they must be informed about how to do so. This also includes any changes to the software and hardware requirements. The individual or organization must also be sure that the electronic records are demonstrated to be accessible by the signator in a reasonable way that isn’t unobtrusive or obfuscated.

Additionally, if the signator wishes to withdraw their consent, there cannot be any fees or conditions that will impose consequences upon their withdrawal of consent.

However, if the signing party wishes to withdraw their consent, anything they have already signed is valid. The only recourse available to them is a termination of the contract or agreement if their withdrawal request is connected to their desire to end the contracted or agreed terms.

The ESIGN Act does not replace paper contracts or agreements, it is simply complementary to its paper counterpart.

It  does not ensure that contractual or agreement clauses which are not enforceable by law, become enforceable. Every normal law that applies to such documents, also applies to e-contracts and agreements. For example, anticompetitive clauses which limit the ability of a potential competitor to work outside of your business after they have resigned or have been terminated will require a hefty legal battle to try to enforce.

It  does not put an end to forgeries, even with electronic records, but it does limit them extensively. It was designed to help businesses stay ahead of the curve, and not lag behind in the national and international market.

So, what counts as an Electronic Signature? A typed signature counts, and so does a drawn one. However, that being said, orally given consent or signatures do not count; recorded or otherwise. An electronic signature, by definition, is data used as an electronic equivalent to a signature, but let’s go a step further.

According to Wikipedia:

«An electronic signature, or eSignature, refers to data in electronic form, which is logically associated with other data in electronic form and which is used by the signatory to sign. This type of signature provides the same legal standing as a handwritten signature as long as it adheres to the requirements of the specific regulation under which it was created...»

And according to the ESIGN Act:

An electronic signature is defined as «an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.»

Additionally, eSignatures are different than digital signatures which are cryptographically encrypted. Digital signatures are very secure, though they can have some weaknesses and vulnerabilities in some cases. Digital signatures are generally considered to be overkill in most use-cases. Electronic signatures are more often than not easier to generate, deploy, and record.

The first laws to recognize electronic signatures were in the days of telegraphs in the mid-1800s. Just imagine receiving an eSignature back then!

To obtain or provide an electronic signature, the process is pretty easy, especially with airSlate SignNow. Let’s dive into our process, and see how we can accomplish this goal.

First of all, we need a document, so let’s just use something simple.

You can make an account with airSlate SignNow by registering with your email, Google account, or Facebook.

After you have logged in, you will be greeted with the dashboard. If it seems a little overwhelming, do not worry, we are focusing on a specific topic.

You can upload your sample document by clicking Start Uploading Documents Now, or by simply clicking and dragging your file into the window.

Once you have done so, the document will populate on your dashboard in the Documents folder. To open it, just click on the document’s name and the editor will open.

Welcome to the airSlate SignNow Editor, and our very cheesy sample document. Click on  My Signature on the bottom left-hand side of your screen, under Edit & Sign. Now, click anywhere on the document (note: your signature will be placed where you click).

In this window, you can either enter a typed signature, upload an image of your signature, or draw your signature. We have an example earlier in the article, but let’s take another look.

Once you have completed your drawn or typed signature (note: you can change your initials if necessary ), simply click Sign.

And voila, we have our signature on a document. The system will remember your signature, so there is no need to redraw it for every document. But what about your clients or customers?

We will not cover every detail here, though you can check out our other articles covering how to send a contract via email with an eSignature for details we might skip here.

We already have our document uploaded, and we will assume you have already placed all of the necessary element fields to be filled out by the recipients. So now it is time to investigate inviting people to sign, and the processes they might encounter.

Let’s either go back to our Dashboard by selecting SAVE AND CLOSE, or by clicking INVITE TO SIGN. Either way, we will end up with the same result with the former having just one additional step.

If you are back at your Dashboard, simply click Invite to Sign, or select More, and Invite to Sign in the dropdown menu.

Once you have selected Invite to Sign, this pane will appear. If you have any special instructions, personal touches, or additional information you would like to add to the email, please select Customize Signer Email to edit the Subject or  Message. There are also a number of  Advanced Options, which we will now discuss.

In the invitation pane, press Advanced Options to expose the available options.

Here, we have a number of settings that may seem a little confusing, but don’t worry, we will go over them.

Under Authentication, you can select whether you would like to authenticate the signer; there are several options available for doing so:

No Authentication will allow them to access the document directly from their email.

Password will allow you to enter a password that you can provide directly to the signer.

Text Message (SMS) will send the signer a message with a PIN. Don’t worry, you type their number in so you know they are the ones who receive it.

Phone Call lets you also enter their number. Before they arrive at the signing page they will need to complete the PIN challenge process with the information they receive from an automated phone call.

Tip: Before choosing your authentication method, please check that they are within our currently served list of international phone numbers. At this time, our list includes: The United States, Canada, The United Kingdom, Australia, Mexico, Spain, Germany, South Africa, Singapore, France, New Zealand, Italy, Belgium, The Netherlands, and Brazil.

Days Until Expiration gives you control over the period of time in which they can access the file.

Send Reminder in X Days will remind them about the document in the amount of days you specify.

Send Reminder every X Days; if you set this to 3, they will be notified via email every three days, until the document has expired.

Send Reminder in X Days before Expiration is a great way to ensure your recipient doesn’t miss out or forget. They will receive an email letting them know that they have X days to complete the document.

Allow Forwarding grants you the ability to limit document forwarding.

Show Decline on Signatures allows for the noted recipient to decline to sign various or all elements.

Redirect after Signing will let you set the page they will be sent to once they have finished signing.

Payment Settings gives you the opportunity to let your customers/clients pay before or after the agreement or contract has been completed.

On Completion will automatically handle what happens when the document has been signed:

• Email document and any attachments to all parties
• Email only document to all parties
• Email document and any attachments only to Signers
• Do not email document or any attachments

Once you have added the recipient Email Address(es), and are happy with the Subject and Message, and are satisfied with your Advanced Settings, press Send Invite.

The recipient will receive an email with the subject and message you entered earlier. So let’s switch from the perspective of the sender to the perspective of the receiver.

Once you have gotten this email from someone, to proceed, simply click Sign Document.

You will be greeted with this pane (shown right) which lets you know who invited you, and how many elements on the document you need to complete.

Click Get Started to continue.
If the sender wishes for your identity to be authenticated, they have several options for doing so:

• Giving you a  Password to access the document
• Having you receive a  Text Message (SMS) including a PIN to enter for access
• Having you receive a  Phone Call with a PIN

For the sender, and receiver, this extra layer of security when dealing with unknowns is very reassuring.

After you have been authenticated, you will be directed to the document. Do not worry, once you have completed one signature, you simply need to click on the subsequent ones to fill them in. There is no need to redo and redraw your information for every element on the screen. This is especially helpful and time saving when dealing with internal Corporate documentation, large financial investments, or international business arrangements.

When you see unfilled fields, clicking on them will allow you to edit them.

Once you have finished filling everything out and made your selections, select Done in the top-right-hand corner of your browser.

Congratulations! You have just eSigned your first document!

Within the European Union (EU), the first primary directives came in 1999 under the title of the eSignatures Directive. However, this law was very different and scattered across every nation. Each nation had its own rules, restrictions, and regulations.

In 2014, the EU moved to unify these standards by pursuing the Electronic Identification and Trust Services for Electronic Transactions (eIDAS). It came into effect in July 2016.

While eIDAS was a great move for the standardization of eSignatures within the EU, each member nation retained some of their own restrictions and limitations. In addition, each member state must define which transactions require an eSignature, as it is not covered within eIDAS. As a result, before pursuing eSignatures with individuals or organizations within the EU, it is beneficial to speak with legal counsel.

eIDAS does maintain that electronic signatures are permissible in a court of law.

There are three categories of eSignatures within the EU:

• Standard/Simple
  • The standard or simple eSignature is the most rudimentary of the three; this can be as simple as a PIN or typing your name.
• Advanced
  • Advanced signatures are ones that can be linked to the signator directly via the signature process and the data generated.
• Qualified
  • Qualified eSignatures are created using a special device with a special certificate.

Essentially, eSignatures have the same power and benefits of their paper counterparts within the European Union. However, due to the categorical differences, in some cases, if your signature is not of higher categories, it may be difficult to process.

The question of who can offer such services can appear a little murky at first. They also maintain a list of qualified and non-qualified trust services.

The law within the European Union also includes electronic seals, for businesses, for utilization in official documentation. Additionally, electronic delivery services, website authentication, electronic documents, and time-stamps; all of which are discussed at great length within eIDAS, within its 42 pages.

While the European Union has laws regarding eSignatures, and you can use normal eSignatures to accomplish your goals in a legally binding way; the laws are complex and difficult to understand. But don’t worry, if you are using a reliable service such as airSlate SignNow, your documents will hold up.

An electronic signature certificate, in its broadest sense, is an electronic signature for businesses and other legal entities. This generally applies to the European Union under eIDAS. Let’s use Belgium’s requirements as an example.

To acquire a legal entity eSignature in Belgium, they must visit the respective official office and present a number of documents. These include:

• Authorization which has been notarized for the applicant to perform the certification processes
• VAT number both of a certified copy and original of the company / legal entity
• Authorization from the owner of the company / legal entity
• A good-standing certificate for the company / legal entity issued within a month of filing for certification processes both of a certified copy and original
• The company’s / legal entity’s registration both of a certified copy and original
• The identification of the representative of the entity both of a certified copy and original

As you can see, it is quite a process.

After your business or legal entity has received the certificate in Belgium, you must renew it in no more than three years. There are also several fees and processes to maintain it.

Belgium’s process, while not the absolute standard, is a relatively good example of the European eIDAS process for businesses / legal entities.

UETA, or the Uniform Electronics Transactions Act, was implemented on a state by state basis; meanwhile, the ESIGN Act is a Federal Law which, while not necessarily superseding State Laws, does unify them.

UETA and ESIGN both have several requirements, which make things a lot easier to follow:

The first is normal to all legally binding agreements and contracts, intent to sign. Without intent, or if forced into signing, the document falls flat on its face.

The second is in regard to recordkeeping. This must include the process involved and how the signature was captured, as well as a statement showing that an eSignature was used. It must also link the electronic signature to the person signing.

The third is the retention of records, and the ability of the signator and provider to be able to access them, and produce the unaltered files when requested, desired, or necessary.

The last requirement is a consent to electronic records and to electronically do business. If there is no consent, or consent has been withdrawn, there are special directives in place; such as requiring physical paper copies to be provided to the signator(ies). In regards to the UETA, a copy of disclosures for consumer consent must be included.

Unfortunately, not all states adopted UETA, and instead opted for their own variation of the law. While they interact in their own ways, it’s best to consult legal experts about any caveats that may be encountered in these states if a significant amount of time has elapsed since the publishing date of this article (the summer of 2020).

The laws by state who adopted different laws are as follows:

• New York: Electronic Signatures and Records Act (ESRA)
• Washington: Electronic Authentication Act
• Illinois: Electronic Commerce Security Act

Partnering with the most comprehensive, yet easy-to-use platform for eSigning documents is exactly what your organization needs to experience massive growth.

We have discussed the United States’ Electronic Signatures in Global and National Commerce (ESIGN) Act of 2000, the US State law known as the Uniform Electronics Transactions Act (UETA) from the 1990’s, the Electronic Identification and Trust Services for Electronic Transactions (eIDAS) from the European Union in 2014. We have also discussed how to self-sign, how to send for signing, and how to sign e-contracts and agreements using airSlate SignNow. And finally, we have generally discussed what is required to sign an eSignature document.

Streamline signature cycles — Send documents for signing to multiple recipients in one go. Set a signing order and assign roles to each signer. Provide a consistent signing experience in-person or remotely.

Reduce document errors — Add signature, date, text, and dropdown fields to a document. Set required fields to collect the data that you need. Provide automated signing guidance so no fields are missed.

Give recipients a fast & easy signing experience — Delight employees, constituents, and citizens with automated signing guidance, an intuitive user interface, and the ability to sign from any desktop or mobile device, even while offline.

Stay secure and compliant — airSlate SignNow complies with PCI DSS, 21 CFR Part 11, GDPR, FERPA, and SOC 2 Type II to ensure your documents are signed, shared, and stored with multiple levels of protection.

Improve visibility and accountability — Get instant notifications once a document is signed. Set up reminders for signers so they are always on top of deadlines. View court-admissible Audit Logs to track who signed your document and when.

Increase team productivity — Create teams within airSlate SignNow to securely share and collaborate on documents and templates. Track all document changes in real time. Keep your team members up to date with instant notifications.

The answer has been thoroughly explained throughout this article, but the short answer is solutions like airSlate SignNow bring reality to laws like ESIGN. Before airSlate SignNow, companies and governments alike struggled to stay in compliance, even with ESIGN’s assistance when doing business digitally. However, now there is a new way of doing business and closing deals smoother and faster while working remotely. Keep your business processes running effectively with powerful eSignature tools and features.

airSlate SignNow prides itself on being a customer-centric platform giving the best user experience needed to help you get more done with less hassle. Benefit from its web-based app, native iOS and Android mobile apps with Kiosk modes that allows you to eSign even while offline, extensions for Google Chrome and Gmail, all topped off with industry-leading features for data compliance and security.

Take your organization to the next level and get registered now. The ESIGN Act laid the foundation and airSlate SignNow is leading the way.