Since early 2020, fewer face-to-face transactions have been possible because of mandatory social distancing. These restrictions changed the way lawyers and clients handled contracts and other business and personal transactions. The remote work environment reduced ink-to-paper signatures and increased the use of electronic signatures for contracts. Parties to a contract use the click of a button, sign on an electronic notepad, add their signature to the end of an email, or upload a picture of their signature to software. This development has led to questions about authenticity, validity, and enforcement of contracts.
Although an oral contract can be valid, with some exceptions, most contracting parties prefer a written agreement with signatures. In the family law area, a premarital agreement must be in writing and signed by the parties. In Virginia, by statute, a marital settlement agreement incident to a separation or divorce must be in a signed writing (unless made in open court). In D.C. and Maryland, where case law allows for an oral divorce settlement, written and signed agreements remain the most common choice.
Forms of Electronic Signature. The most common method of executing a contract is by parties signing using ink on paper. Other methods of signifying a party’s adoption of a contract are permissible. A signature can be stamped, engraved, recorded, or printed. A Virginia Circuit Court case, Pierce v. Foreign Mission Bd. of the So. Baptist Convention, recognizes “any mark, symbol, sign, or other thing” if the person intends the mark as their signature. Historically, when illiteracy was more common, the use of an X, a cross, or a thumbprint could substitute for a conventional signature. There are also a variety of ways to sign electronically. A party can use software that allows them to type in their signature, or signify adoption through an electronic recording, with an electronic pen, by clicking an “Accept” button, by adding a symbol, or by applying a scanned image of a handwritten signature to a document. Some more advanced systems allow a user to upload their thumbprint to their computer or access a document with a pin or password.
Validity of Electronically Signed Documents. Most states, including D.C., Maryland, and Virginia, have enacted the Uniform Electronic Transactions Act of 1999 (“UETA”). UETA eliminates obstacles to electronic trade by giving electronic records and signatures the equivalence of physical records and handwritten signatures. In addition, the federal Electronic Signatures in Global and National Commerce Act of 2000 (“ESIGN”), provides for electronic records and signatures. If the electronic record accurately reflects the parties’ agreement and can be reproduced as needed, ESIGN gives the contract legal validity. Both acts require a court to enforce such a contract if otherwise valid. Electronic signing is not an option for some contracts and transactions. UETA and ESIGN contain several exceptions which limit their use. The ESIGN Act defers to state law for adoption, divorce, and family law. For example, Maryland’s enactment of UETA does not apply to transactions to the extent they are controlled by laws “governing adoption, divorce, or other family law matters.” Maryland’s other laws determine whether documents regarding divorce, alimony, child support, and child custody can be signed electronically.
Both D.C. and Virginia enacted UETA without the family law exception. Both D.C. and Virginia law require a premarital agreement to be in writing and signed by the parties. In both jurisdictions, UETA provides that when a law requires a writing or signature an electronic record or an electronic signature will suffice. Therefore, it appears that an electronically signed premarital agreement is permissible. Electronic signing under UETA is not an option where a statute requires handwritten signatures, a formal notarial process, a seal, or witnesses to be present, for example, for a will, codicil, or testamentary trusts, but a number of states rushed to authorize (either legislatively or via Executive Order) the electronic signing and/or remote witnessing of estate planning documents during the COVID epidemic—leading to a hodgepodge of different, confusing, and sometimes conflicting requirements. These problems have yet to be ironed out. At this time we recommend no change in the way clients execute estate planning documents.
Federal law governs certain transactions that affect parties to a marital agreement or a divorce. The federal Employee Retirement Income Security Act (“ERISA”) governs employer-sponsored retirement plans. Spouses during a marriage or after a marital separation may agree to waive spousal survivor rights under ERISA. ERISA requires that the spouse’s consent be in writing and witnessed by a plan representative or a notary. ESIGN permits the act of witnessing to be done remotely with the witness signing electronically. Similarly, ESIGN appears to permit a waiver of spousal rights in a federal civilian pension, such as the Federal Employees’ Retirement System (“FERS”) pension. The Office of Personnel Management (“OPM”) prescribes the rules and protocols for such a transaction.
Where electronic signing is generally permissible, the contract must still comply with other requirements. The signing person must intend to sign in that manner. The electronic signature should be clearly attributable to the person who signed and be affiliated with the specific document or record signed. In Maryland and Virginia, if a standard contract provision allows transactions to be conducted electronically, then the parties must separately consent to that clause. In Maryland, D.C., and Virginia, if a law requires retention of records, an individual complies with the law by keeping an accurate and accessible electronic record. For an electronically signed contract to be effective, it must be a type that is permitted under ESIGN and the applicable state UETA, and comply with all requirements of intent, consent, and authenticity.
Authentication of Electronic Signatures. Just as a signature on physical document can be forged, or the document tampered with, so can an electronic signature or document. Software such as Adobe Pro, DocuSign, HelloSign, or Sign Easy can store the signed document with a timestamp and protect the record from tampering. Software with an embedded digital certificate of the document’s history allows an expert to track the IP address, to see who sent the document, how it was sent, and the date it was accessed and signed. Certain sophisticated tools allow tampering, but those changes can be detected. Software with two-factor authentication requires a person seeking access to the document to prove their bona fides with a password, a pin, or by answering questions.
As the world reopens, many ways of doing business that changed as a result of the pandemic will persist; businesses and individuals will likely continue to conduct transactions virtually.