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Beth A. Goldstein and Dustyn Marie Macia
In an era characterized by rapid technological advancements and the profound shift towards remote work, the traditional concept of signing documents with pen and paper has evolved. Electronic signatures, or e-signatures, have emerged
as a convenient and efficient alternative, promising to streamline processes, reduce paperwork, and enhance accessibility. Organizations are increasingly embracing e-signatures for a wide range of transactions, prompting a closer examination of their legal validity.
WHAT IS AN “E-SIGNATURE”?
An e-signature
encompasses any electronic sound, symbol, or process associated with a record
and executed with the intent to sign. These can range from scanned images of
handwritten signatures to digital representations generated by specialized
software.
GOVERNING LAW:
The governing law for
e-signatures in the United States includes both state-specific laws, like those
based on the Uniform Electronic Transactions Act (UETA), and the federal ESIGN.
ESIGN applies to interstate and foreign transactions, harmonizing electronic
transactions across state lines. Many states, including Massachusetts, have
adopted UETA, reinforcing the legal standing of e-signatures within their
jurisdictions (MUETA).
VALIDITY AND REQUIREMENTS:
Generally, e-signatures
are legally binding in the Commonwealth of Massachusetts. However,
certain documents like wills, adoption papers, and divorce decrees are excluded
from the scope of ESIGN and MUETA to safeguard consumer rights and maintain traditional
legal practices.
The following components
must be present for e-signatures to be fully protected and upheld under ESIGN
and MUETA:
- Intent:
each party intended to execute the document;
- Consent:
there must be express or implied consent from the
parties to do business electronically (under MUETA, consumer consent
disclosures may also be required). In addition, signers should also have
the option to opt-out;
- Association:
the e-signature must be “associated” with the
document it is intended to authenticate; and
- Record
Retention:
records of the transaction and e-signature must be retained
electronically.
Meeting these
requirements ensures that e-signatures have the same legal validity and
enforceability as traditional handwritten, wet-ink signatures in Massachusetts.
ENFORCEABILITY OF E-NOTES AND CONCERNS FOR
FINANCIAL INSTITUTIONS:
An eNote is an
electronically created, signed, and stored promissory note. It differs from
scanned signatures on paper or PDF copies. Governed by Article 3 of the Uniform
Commercial Code (UCC), eNotes are considered negotiable instruments and
therefore require special treatment. ESIGN provides a framework for their use,
emphasizing the concept of a “transferable record.” This electronic record,
meeting UCC standards, grants the same legal rights as a traditional paper note
to the person in “control.” The objective of “control” is for there to be a
single authoritative copy of the promissory note that is unique, identifiable,
and unalterable. Therefore, proving authenticity and lender control over
eNotes can be complex.
In Massachusetts,
specific foreclosure laws require the presentation of the original note. Thus
lenders should be cautious with eNotes, as possessing an original, physical
note greatly reduces enforceability risks.
Further, financial
institutions often face heightened scrutiny when using e-signatures due to the
sensitive nature of financial transactions and the potential risks involved to
ensure security, compliance, and consumer protection.
RECORDABLE DOCUMENTS:
E-signatures have become
widely accepted for recording purposes, including in real estate transactions,
due to their convenience and efficiency. The implementation of e-signatures for
recording has been facilitated and standardized by legislation such as the
Uniform Real Property Electronic Recording Act (URPERA). While
URPERA offers a comprehensive framework for electronic recording, its adoption
varies from state to state. In Massachusetts, URPERA has not yet been formally
adopted, leaving recording procedures subject to individual county regulations.
BEST PRACTICES:
Despite the legal
recognition of e-signatures under both ESIGN and MUETA, to ensure compliance,
organizations should adopt the following best practices:
1.
Obtain Consent:
Obtain
(and retain) affirmative consent from parties to conduct transactions
electronically.
2. Association: Establish
a clear and direct connection between an electronic signature and the
electronic record it is intended to authenticate.
o Embedding: One
common method of meeting the association requirement is embedding e-signatures
directly within electronic documents.
o Metadata
and Audit Trails: Another method is using metadata and
audit trails. Metadata contains signature details like signing date, time,
signer identity, and transaction specifics. Audit trails chronicle all document
actions, reinforcing the link between signatures and records.
3.
Ensure the Integrity of
Electronic Records
o
Authenticity and Integrity: Use
secure methods to authenticate the identity of signatories and ensure the
integrity of the electronic records. This can include digital signatures,
encryption, and secure access controls.
o
Single Authoritative Copy: For
transferable records (eNotes), ensure that there is a single authoritative copy
that is unique, identifiable, and unalterable except through authorized
actions.
4. Maintain
Accessibility and Retainability: Ensure
that electronic records are retained in a format that is accessible and
readable for the required retention period. This includes being able to
accurately reproduce the record in its original form.
5. Security
Measures: Implement robust
cybersecurity measures to protect against unauthorized access, alteration, or
destruction of electronic records. This includes using firewalls, encryption,
and secure user authentication methods.
6. Provide
Consumer Protections: Ensure
that consumers have the option to receive paper records and can withdraw their
consent to electronic records at any time.
7. Legal
and Regulatory Updates: Keep
abreast of any updates or changes in the legal and regulatory landscape
regarding electronic transactions and records. Adjust policies and practices
accordingly to remain compliant.
CONCLUSION:
While e-signatures offer
significant benefits for modern commerce, including efficiency and convenience,
their adoption requires careful consideration, especially regarding legal and
regulatory compliance. By adhering to best practices and remaining vigilant,
businesses and individuals can leverage e-signatures effectively in today’s
digital economy.
A partner in the Boston
firm of Sherin and Lodgen LLP, Beth Goldstein is a partner in the firm’s real estate
department and chair of its renewable energy practice. She represents buyers,
sellers, developers and lenders in both traditional commercial real estate
transactions and those involving the purchase, sale, financing, leasing, and
development of renewable energy projects.
Beth can be contacted at bgoldstein@sherin.com.
Dustyn Marie Mascia is of
Counsel in Sherin and Lodgen’s real estate department and a member of its commercial
finance group. She represents financial institutions and other lenders in
commercial and industrial, asset-based, commercial real estate, affordable
housing, renewable energy loan and credit transactions. Dustyn’s experience includes drafting and
negotiation of loan and credit documents, interest rate swap documentation,
participation agreements, and intercreditor and subordination agreements. Her email address is dmascia@sherin.com.
