Are electronic signatures valid?

09.18.2018
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If you’re a contractor or business owner, you probably require your clients to sign service agreements before you start work for them. While it can be time-consuming and costly to prepare and store paper copies of every agreement, many contractors and businesses are unclear on whether their clients can electronically sign contracts. If a client types their name at the end of a Microsoft Word document, for example, is that legally binding? What about inserting an image of their signature into a PDF? What happens if the client later claims that the contract was invalid?

Electronic signatures can be just as valid as ink signatures, as long as you follow a few requirements. This article overviews requirements under Minnesota’s Uniform Electronic Transactions Act, which applies to sales and service contracts under Minnesota law.

What’s an electronic signature?
An electronic signature is (1) an electronic sound, symbol, or process that’s (2) attached to or logically associated with a record and (3) executed or adopted by someone who intends to sign the record. Examples include typographical (typed), pictographic (image), software-specific (e.g., DocuSign), and PDF-software based signatures.

Are my contracts valid if they have electronic signatures?
Yes, as long as the signature fits the definition above and meets the following two requirements:

  1. Everyone who signs the contract has consented to conduct the transaction by electronic means. Consent doesn’t have to be written or expressly stated. It can be implied from the circumstances, such as whether a customer requested a paper copy to sign. For interactive documents, having a mandatory check box to consent is recommended. For static documents, having a conspicuous statement instructing clients to request a paper version if they do not consent would be helpful. Note that consent can’t be presumed simply from the fact that you and the customer have communicated electronically in the past.
  2. The signatures are attributable to the right people. This just means that the person who was supposed to sign the contract really signed it.

 

What if a client says that our contract wasn’t valid because there wasn’t an ink signature?
Minnesota law states that a contract can’t be held unenforceable solely because it was electronically signed. That said, clients may nonetheless claim that they didn’t intend for their signature to actually be a signature, or that the document they signed has been altered, or that someone else signed the document in their name. It’s good to take some precautions to show the signature’s credibility. Some options to consider:

  1. Emailing a copy of the signed agreement to the client so there’s a record of what the document looked like at the time of signature. This also gives the client an immediate opportunity to object if they did not sign the document. If they do not object, they would have a harder time trying to claim they did not authorize the document.
  2. Having clients sign with their full legal name (e.g., “Robert Smith” rather than “Bob Smith”) and provide an address, email address, and phone number. This additional information is further proof that the right person signed it.
  3. Using a program like Adobe Sign or DocuSign that requires a client to click on a link sent to their email address in order to access the document.
  4. Using a program like SignNow that allows a client to “sign” a document with their finger via a touchpad screen.

 

Also, it’s worth bearing in mind that there is some level risk of a client denying any type of signature, whether ink or electronic. If you take the steps outlined above, your risk of using electronic signatures should not be significantly greater than if you require ink signatures.

If a client consents to one electronic transaction, can I assume they’ll consent to future electronic transactions?
No. The law says that even if a customer consents to one electronic transaction, they can refuse to conduct another transaction electronically. In other words, future consent can’t be presumed.

When is a transaction a “new” transaction, and when is it part of an ongoing transaction?
The law defines a transaction as “an action or set of actions occurring between two or more persons relating to the conduct of business, commercial, or governmental affairs.” The courts haven’t provided much guidance on how to interpret this definition, so the best practice is to obtain consent each time an electronic signature is sought.

Minnesota courts haven’t delved deep into this definition, but at least one distinction exists: negotiating contract terms by email doesn’t necessarily mean that the parties are consenting to electronic signature of a final written contract. In other words, negotiating a contract and signing that same contract may not be part of the same “set of actions.”

Entering into a new contract with a client is almost certainly a “new” transaction that requires separate consent. Agreeing to modify an existing contract that exists in electronic format probably isn’t a new transaction.

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