Are Digital Signatures Legally Binding? Here’s What You Need to Know

Digital and other electronic signatures are legally binding. The ESIGN Act gives these forms of signatures the same weight as handwritten signatures, meaning documents signed with these signatures are legally binding.

Digital and other electronic signatures need no introduction, as they are already being widely used. These signatures have changed the way we sign documents.

Electronic and digital signatures have become a convenient and efficient alternative to handwritten signatures. But as more people embrace digital signatures, one question that continues to pop up is, “Is a digital signature legally binding?”

This article will discuss everything you need to know about the legality of electronic signatures, including digital signatures. 

What are Digital Signatures?

Many people use the term “digital signature” interchangeably with electronic signature. But they are different.

“Electronic signature” is a broad term that describes any electronic way a person can indicate intent to agree to or approve the content of a document. These can include:

• A scanned handwritten signature pasted on a document.
• Clicks of an “I agree” button.
• A digital representation of a handwritten signature drawn on a document using electronic signature solutions.
• Typed names at the end of a document.
• Using cryptography.

When an electronic signature involves cryptography (where a signer creates a signature with a private key, which any person can verify with a public key), it is a digital signature.

So, a digital signature is a form of electronic signature that uses cryptographic techniques to provide a verifiable and secure way to confirm the authenticity of a digital document. 

Unlike a handwritten signature or some other electronic signature that can be forged, a digital signature uses high-level encryption to prevent the forgery of signed documents. 

Here’s how a digital signature works:

• Key generation: The signer uses a mathematical algorithm to generate a pair of keys—a public key (which the signer keeps secret) and a private key (which the signer shares with others).
• Signing: The signer uses the private key to create a hash (code) of the document and then encrypt it. This encrypted hash of the document is the digital signature.
• Verification: First, the recipient creates a new hash. Next, they use the signer’s public key to decrypt the encrypted hash from the signer. Then, they compare the hash they created with the decrypted hash of the signed document. If the two hashes match, the digital signature is valid.

If the document has been tampered with after signing, the decrypted hash will not match the new hash created by the receiver. Thus, digital signatures use high-level security measures (cryptography) to provide assurances that a signed document has not been accessed and altered after signing.

Also Read: How to Sign a Document sent by Email: A Comprehensive Tutorial.

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Types of Documents That Can Be Signed Digitally

In reality, digital signatures can be used on any document that you need to sign electronically. However, because digital signatures use stronger security and verification methods than other types of electronic signatures, they are more often used to sign documents in high-stakes transactions, such as:

• Contracts (like employment agreements, service contracts, and lease contracts).
• Legal documents (like powers of attorney and wills).
• Financial documents (like loan agreements and investment contracts).
• Corporate documents (like board resolutions and shareholder agreements).

Are Digital Signatures Legally Binding in All U.S. States?

The answer is an emphatic yes. Digital signatures are legally binding in all states in the U.S. because federal and state laws have been implemented that give electronic signatures the same weight as handwritten signatures.

The most significant of these laws are the ESIGN Act (Electronic Signatures in Global and National Commerce Act) and UETA (Uniform Electronic Transactions Act). These laws recognize electronic signatures as equivalent to handwritten signatures, and a digital signature is a type of electronic signature. This means digital signatures are as legally binding as handwritten signatures when used in contractual agreements.

Regulations and Laws Governing Digital Signatures in the U.S.

The ESIGN Act and UETA are the main laws governing digital signatures in the U.S.

Electronic Signatures in Global and National Commerce Act (ESIGN Act)

The ESIGN Act is a federal law enacted in 2000 to create a standard for electronic signatures in the United States. The law establishes that electronic signatures cannot be denied validity or enforceability solely because they are in electronic form. 

The ESIGN Act supersedes state laws that may conflict with its provisions. This ensures that state laws regulating electronic signatures must conform with the provisions of the ESIGN Act.

Uniform Electronic Transactions Act (UETA)

UETA is a state law enacted in 1999 to provide a legal framework for electronic transactions. It applies to electronic records and signatures related to transactions and establishes that electronic signatures on digital documents are legal and enforceable by law.

Since UETA’s scope is broader than ESIGN’s (it covers electronic transactions as well as electronic signatures), most states adopt it to complement the ESIGN Act.

Is a Digital Signature Legally Binding in All Industries in the U.S.?

The ESIGN Act and the UETA make electronic signatures valid in the U.S. However, specific industries may impose additional regulations that may affect the validity and enforceability of electronic signatures (which include digital signatures).

For example:

• Healthcare: In the healthcare industry, compliance with HIPAA (Health Insurance Portability and Accountability Act) is necessary for electronic signatures on medical documents to be valid. HIPAA mandates strict security and privacy standards, such as protecting protected health information (PHI) from unauthorized access and disclosure.
• Finance: The FINRA (Financial Industry Regulatory Authority) and SEC (Securities and Exchange Commission) have specific requirements that electronic signatures on investment documents must meet. These include authentication measures to confirm the signer’s identity, user activity logging, record keeping, and more.
• Automotive industry: Electronic signatures are legal for many types of automotive-industry documents. But most jurisdictions still require traditional handwritten signatures for vehicle transfer documents.

When Are Digital Signatures Not Legally Binding in the U.S.?

Thanks to the ESIGN Act and UETA, electronic signatures (including digital signatures) are legally binding in business, commercial, and governmental transactions in the U.S. However, there are instances when they may not be legal. These include:

Non-Compliance with ESIGN

The ESIGN Act has specific provisions for electronic signatures. For example, it requires consent from all parties, proper authentication measures, clear intent to sign, proper record-keeping of signed documents, and more.

Electronic signatures not complying with these provisions are not considered legal and, therefore, not legally binding. An example is when someone signs a document with a digital signature when the party they are dealing with does not agree to the use of electronic signatures.

Wrong documents

There are certain exceptions to the documents that can be signed electronically. Certain documents must carry traditional handwritten signatures to be legally binding. Signing these documents electronically (even with the ultra-secure digital signatures) will not give them legal validity.

Documents that cannot be signed electronically include:

• Certain real estate transactions (like deeds)
• Certificates of marriage, birth, or death
• Family law documents (like divorce papers and adoption papers)
• Certain court documents
• Certain health care documents (like “Do not resuscitate” orders and health proxy documents)

Misrepresentation

If a signer does not have the authority to sign on behalf of an entity or a company, it may not matter whether the digital signature was correctly implemented or if the document can be signed electronically. The electronic signature could be rendered invalid and will not be legally binding.

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Can Digital Signatures Be Enforced Legally?

Laws like the ESIGN Act and UETA, which give electronic signatures the same legal status as handwritten signatures, mean that digital signatures (which are just a type of electronic signatures) can be enforced legally.

Once digital signatures meet specific legal requirements, they can be enforced in court. In fact, since digital signatures employ strong security measures, they may even provide stronger court-admissible evidence than traditional handwritten signatures.

What Determines the Legal Admissibility of a Digital Signature?

For digital signatures (and electronic signatures generally) to be legally binding and enforceable by a court of law, it must meet the following:

• Compliance with applicable laws: For digital signatures to be admissible in court, they must adhere to their jurisdictions’ electronic signature laws. This includes federal laws like the ESIGN Act and specific state laws like UETA or the Electronic Signatures Records Act in New York.
• Intent to sign: There should be clear evidence that the signer intended to authenticate the document.
• Consent: There should be confirmation that all parties involved agreed to use electronic signatures and understand the implications.
• Authentication: There should be a means to verify the signer’s identity.
• Integrity: There should be clear evidence that the document has not been altered since it was signed.

Are Electronic Signatures Legally Binding Outside of the U.S.?

Many countries of the world, including the European Union’s 27 member countries, Canada, Australia, and many Asian countries, recognize electronic signatures (including digital signatures) as legally binding.

European Union

In 2016, the European Union’s 27 member countries adopted the eIDAS (Electronic Identification, Authentication, and Trust Services) regulation. This regulation provides a standard for using electronic signatures and allows E.U. countries to use these signatures in cross-border transactions.

It categorizes electronic signatures into:

• Simple electronic signatures (SES): These are electronic signatures that may not meet strict authentication or security criteria but indicate a signer’s acceptance or approval of a document’s content. Examples include a typed name, scanned signature, or “I agree” checkbox confirmation.
• Advanced electronic signatures (AES): These are electronic signatures that offer measures for signer verification and ensuring the integrity of a document. Examples include digital signatures created using cryptographic techniques, as they provide a unique verification of the signer’s identity and ensure the integrity of the signed document.
• Qualified electronic signatures (QES): These are types of advanced electronic signatures created using a qualified digital certificate issued by a qualified Trust Service Provider (TSP), which has undergone stringent regulatory compliance. Qualified electronic signatures have the highest legal standing. Digital signatures can qualify as qualified electronic signatures if they are created using qualified digital certificates issued by a qualified Trust Service Provider (TSP) and comply with all the requirements outlined by the eIDAS regulation.

Canada

In Canada, the PIPEDA (Personal Information Protection and Electronic Documents Act) governs electronic signatures.

The law was enacted in 2000 to govern how organizations collect, use, and disclose personal information in the course of business activities. However, it also recognizes electronic signatures (and, by extension, digital signatures) valid for business purposes across Canada, provided they are created in a secure manner and the identity of the signer can be verified.

Australia

In Australia, the Electronics Transaction Act 1999 gives legal validity to electronic signatures (including digital signatures). The law aims to facilitate electronic transactions and, therefore, states that an e-signature is just as valid as a handwritten document.

Under the ETA, electronic signatures are legal and enforceable as long as they meet certain criteria (such as both parties giving consent, the signature indicating a clear intent to sign, having measures that ensure the integrity of the document, and there being proper record keeping).

Can a Digital Signature Be Tampered with?

Digital signatures are the most secure forms of electronic signatures. While some forms of electronic signatures can be forged, digital signatures are designed to be tamper-proof. 

No one can forge your digital signature or alter the document signed, except if they get the private key used to create the signature or there are security flaws in the software used to create the signature.

However, you can rest easy knowing that alterations to documents signed with digital signatures can largely be detected. Let’s say someone gets the private key used to create the digital signature and alters the document. When you sign a document using a digital signature, a unique hash of the document is created, and it is this hash that is decrypted and verified by the recipient using the public key. 

When the document is altered, a new hash is created, and this new hash cannot be verified with the public key the recipient has, indicating that the document has been altered.

How to Prevent Tampering with Digital Signatures

To safeguard digital signatures against tampering, some measures you can take are:

• Choose reliable e-signature tools: When signing documents with digital signatures, ensure you use only reliable electronic signature solutions that follow strict security standards. For example, you don’t want a tool that uses outdated or weak encryption algorithms like MD5 or SHA-1 that are susceptible to attacks. Rather, you want a tool that uses strong cryptographic algorithms like RSA or ECDSA to enhance signature security.
• Use tools with audit trails: Audit trails record and show all the actions taken on a document, including when it was signed and who signed it. This makes it easy to know when unauthorized users have accessed and altered a document.
• Regularly update security protocols: Cyber threats evolve rapidly, and software developers release updates to fix system vulnerabilities. Ensure that your digital signature software is up-to-date to protect against evolving threats by regularly installing the latest updates and patches.
• Implement multi-factor authentication: Don’t offer straightforward access to the e-signature tool. Instead, implement additional verification, such as entering one-time passwords or biometric data, before documents can be signed electronically.
• Proper key management: Keep your private key safe. Do not store it in plain sight or on an unsecured server, as an attacker can access it and use it to alter signed documents.

How to Ensure Legally Binding Digital Signatures

To create legally binding electronic signatures (and, by extension, digital signatures), you must ensure that the signatures comply with the provisions of the ESIGN Act. These include:

• Intent to sign: The signer must take specific action which shows that they clearly intend to sign the document. This can be as simple as clicking an “Accept” or “I Agree” button.
• Consent: All parties must agree to sign the document electronically. Consent clauses like “Click to accept” or “Click to add your signature” can achieve this.
• Attribution: The signature should be linked to the signer so there’s no confusion as to who signed it. With simple electronic signatures, attribution can be achieved with email verification. Digital signatures achieve this with the signer’s private key.
• Production of signed copies: The system used to sign the document must be able to provide all signers with a signed copy.
• Record retention: The system used for the e-signatures must be able to keep a record of the signed document and can produce it for later reference.

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Benefits of Digital Signatures

The benefits of using digital signatures are:

• Convenience: It saves you the inconvenience of scheduling and attending meetings for document signing or managing paperwork (printing a paper document, signing it, and having to scan/fax it back).
• Saves time: Another benefit of electronic signatures is that it speeds up the document signing process. No more waiting for a mutually-convenient time for document-signing meetings. 
• Cost savings: Electronic signatures eliminate paper use. This eliminates costs associated with using paper-based handwritten documents, such as printing and postage costs. The cost savings can be significant for companies that deal with a lot of document signing, leading to more profit. While a digital signature solution comes with an expense, this does not compare to the cost of paper, printing, and postage.
• Client satisfaction: When you use e-signature tools to make document signing easier for clients and deliver a faster process, they will be satisfied with your service. And this can lead to repeat business or referrals.
• Added security: Digital signatures offer more security than handwritten signatures and even other electronic signatures. They usually include authentication measures to verify a signer’s identity and strong encryption to ensure the integrity of the signature and signed document. 
• Digital audit trails: Digital signatures are not just about plastering a signature on a document but also about ensuring its integrity. So, they record and time-stamp every action to a document. With this, you can see who signed a document and when they did it, making it easy to detect when a document is altered.

Takeaway: Create Legally Binding Electronic Signatures with Mailsuite

A digital signature is a special kind of electronic signature that requires a more rigorous level of identity verification through digital certificates.

While digital signatures mean more security for electronically signed documents, you must not use this rigorous kind of e-signature to create electronic signatures that are legally binding. There are e-signature tools that offer less rigorous yet secure and ESIGN-compliant electronic signatures for creating legally binding documents. This is where Mailuite comes in!

Mailsuite allows individuals to electronically sign documents by adding a digital representation of their signature to the document. Mailsuite streamlines the process of document signing, allowing you to electronically sign documents received in Gmail in only a few steps, all without navigating away from Gmail. More importantly, Mailsuite electronic signatures are ESIGN-compliant and legally binding, so you can use them on contracts. 

What is more, Mailsuite is not just an e-signature tool. It is a powerful e-marketing platform with many features for running successful email campaigns. It is also an email tracking tool that can help you track the performance of your emails for insight into improving future emails.

Want to start obtaining electronic signatures easily and tracking email performance? Install Mailsuite today!