The first modern electronic signature (or e-signature) laws are now 20 years old and in dire need of an upgrade. Nevertheless, in this article, we provide a high-level summary of the laws in place in the US and Canada that deal with electronic signatures (or e-signatures) and electronic records. This article accompanies another article titled "How to Execute Contracts Electronically While Working From Home" which provides practical guidelines for ensuring the transactions you conclude from home are valid and enforceable.
In both the US and Canada, statutes have been enacted at the federal and state or provincial/territorial levels that (a) allow e-signatures and electronic records to have the same legal effect as physical (or wet ink) signatures and physical records, and (b) ensure that a contract is not invalid solely because it is in electronic form.
1. US law
In the United States, the legal framework for e-signatures and electronic contracts is governed by two sets of statutes: the Federal Electronic Signature in Global and National Commerce Act (the E-Sign Act)i and the Uniform Electronic Transactions Act (UETA), a uniform state law.ii
The E-Sign Act is a federal law that applies to interstate commerce, namely transactions across states of the United States and with foreign nations. As a practical matter, because of the broad interpretation given by US courts to the term interstate commerce, nearly all commercial contracts in the United States fall under the umbrella of the E-Sign Act.
UETA provides a framework for states to enact state law concerning the enforceability of e-signatures and the validity of electronic records. Forty-seven states and the District of Columbia, Puerto Rico and the US Virgin Islands have adopted some form of UETA. The only states that have not adopted UETA are New York, Illinois and Washington, but each of these states has enacted legislation similar to UETA to govern how electronic transactions are handled.iii
In general terms, both the UETA and the E-Sign Act define an "electronic signature" as "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record" and an "electronic record" as a record that is "created, generated, sent, communicated, received, or stored by electronic means". UETA and the E-Sign Act provide that: (a) a record or signature may not be denied legal effect or enforceability solely because it is in electronic form; (b) a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation; (c) if a law requires a record to be in writing, an electronic record satisfies the law; and (d) if a law requires a signature, an electronic signature satisfies the law.
Most of the Uniform Commercial Code (UCC), other than Article 2 and 2A, is excluded from coverage under both UETA and the E-Sign Act. However, the latest versions of the UCC articles governing funds transfers, letters of credit, documents of title, security interests in personal property and investment securities all permit the use of certain electronic records and signatures for many purposes, according to their own terms. The UCC has been adopted in all US states with some variation.
1.1 Consumer protection under the E-Sign Act
The use of electronic records and e-signatures have become a normal part of consumer transactionsiv around the globe. As a consequence of the COVID-19 health crisis, financial institutionsv have increased the use of technology to effect consumer transactions. The E-Sign Act sets forth additional protections for consumers engaging in transactions with financial institutions. The E-Sign Act requires financial institutions to:
- Obtain the consumer's affirmative consent to the use of electronic records
- Provide a clear and conspicuous statement indicating that (i) the consumer has a right to have a record provided in paper or non-electronic form, (ii) how the consumer can exercise that right, and (iii) whether there are any fees associated with obtaining the record in paper or non-electronic form
- Inform the consumer of any hardware or software requirements for accessing the electronic records
- Retain the electronic records in such a way that they are retrievable and accessible to all persons who are legally entitled to them.
Consumers have a right to withdraw their consent to the use of electronic records and e-signatures at their own discretion, but that may generate certain obligations for the consumer such as payment of fees associated with receiving hard copies of documents and records.
2. Canadian law
Under Canadian common law, an e-signature is binding provided it communicates the necessary intention to be legally bound to an agreement signed electronically. To promote uniformity in electronic commerce, all Canadian provinces and territories (with the exception of Quebec)vi have enacted legislation based on the Uniform Electronic Commerce Act (UECA).vii
Under the UECA "electronic" means "created, recorded, transmitted or stored in digital form or in other intangible form by electronic, magnetic or optical means or by any other means that has capabilities for creation, recording, transmission or storage similar to those means", and "electronic signature" means "information in electronic form that a person has created or adopted in order to sign a document and that is in, attached to or associated with the document."
Provincial legislation adopting the UECA may modify its provisions. For example, the law in Ontario provides that an e-signature can satisfy any legal requirement that a document be signed so long as the e-signature is reliable for the purposes of identifying the person and the association between the e-signature and the relevant electronic document is reliable.viii The law in New Brunswick contains the strictest definition of an e-signatures, limiting them to "electronic representation[s] of the manual signature of the person signing the document".ix Meanwhile, Prince Edward Island's statute applies a strict reliability test including specific criteria to link an e-signature to the identity of the signatory.x
Similar to the US framework, under UECA-based legislation, a contract, record or signature will generally not be denied legal effect or enforceability solely because it is in electronic form, and if a law stipulates that a record is required to be in writing or a signature is required, an electronic record or e-signature will typically comply with law.
2.1 Consumer protection in Canada
In Canada, consumer protection rules relating to electronic transactions between consumers and suppliers of goods are in place at the provincial and territorial level. For example, the consumer protection laws in Ontarioxi require suppliers to:
- Give the consumer an express opportunity to accept or decline an electronic consumer agreement and to correct errors in the agreement
- Provide any information required to be disclosed in a manner that ensures the consumer has accessed the information and is able to print and retain the information
- Provide a copy of the electronic agreement to the consumer
Failure to comply with these requirements could result in the cancellation of an electronic agreement. These rules do not apply to financial products and services, credit agreements or leases, among other excluded types of contracts.
3. Exceptions to the Rules
Some documents require wet ink signatures or are subject to more stringent form requirements, these include:xii
- Negotiable instruments and some types of instruments of title
- Certificated investment securities (such as stock certificates)
- Wills, codicils, and testamentary trusts
- Health care proxies and some types of powers of attorney
- Documents relating to adoption, divorce and other family law matters
- Some types of real estate transfer documents and other real estate agreements
- Court orders, notices, and other court documents like pleadings and motions
- Product recall notices affecting health or safety
- Documents required by law to accompany the transportation of hazardous materials
To confirm whether an electronic contract or record can be created for a particular legal objective, the laws applicable to such legal objective should also be analyzed to determine whether there are any legal form requirements.xiii
i Enacted by Congress in 2000.
ii Approved by the National Conference of Commissioners on Uniform State Laws in 1999.
iii These statutes are the Electronic Signatures and Records Act (ESRA) in New York; the Electronic Commerce Security Act (ECSA) in Illinois, and; the Electronic Authorization Act (EAA) in Washington.
iv Under US law, consumer transaction generally means a transaction between a financial institution and a consumer effected primarily for personal, family or household purposes.
v The term financial institution used in this section 1(c) includes (i) banks, (ii) financial technology companies such as PayPal and Apple Pay, and (iii) non-banking financial institutions such as commercial lenders and microloan organizations.
vi Quebec has adopted its own legislation, An Act to Establish a Legal Framework for Information Technology, which is not based on UECA.
vii Approved by the Uniform Law Conference of Canada in 1999.
viii Electronic Commerce Act, 2000, S.O. 2000, c. 17
ix Electronic Transactions Act, RSNB 2011, c 145
x Electronic Commerce Act, RSPEI 1988, c E-4.1
xi Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A.
xii This is not an exhaustive list of exclusions.
xiii For more detail and an overview of the complex international legal landscape of electronic signature laws and form requirements, see Lothar Determann, eSignature Laws Need Upgrades (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3436327), in 72 Hastings Law Journal 2020; and Lothar Determann, Learning the E-Signature Essentials (https://www.law.com/therecorder/2020/03/26/learning-the-e-signature-essentials/) published by The Recorder.