When are signatures legally relevant?
By Adobe Document Cloud Team
Posted on 07-29-2021
Learn why signatures matter, what electronic signatures are, what makes signatures legally binding, and what your obligations are once you sign.
We sign countless documents in our lives. We do this in person, such as with credit card receipts at restaurants, and we do this digitally, such as signing online banking forms. We need our signatures to access many of the products and services we use each day.
Some view this as an outdated formality, especially in low-stakes environments like a restaurant or retail store, but legally binding signatures are indispensable when it comes to contracts and professional agreements. Every person or business that signs these documents commits themselves to its terms and taking responsibility if anything goes awry.
Whether you sign documents in-person or digitally, it’s important to understand the different kinds of agreements that require a legal signature and what makes a signature legally binding. Especially as businesses continue to digitally transform, provide more services online and increasingly rely on electronic documents.
What kind of documents require legal signatures?
Below we list out common types of documents that require signatures.
Not all documents require a legal signature. While some businesses, like restaurants and retailers, ask their customers to sign for a purchase, this is generally to validate their identity rather than to hold them to specific obligations. By contrast, there are also agreements that must include legal signatures from every party involved to be legally binding.
Receipts & invoices
Receipts are used to itemize goods or services and their associated cost before a purchase. By signing and paying a receipt, you agree to the list and charges it sets out. Receipts are ubiquitous, whether making a purchase in a retail store or paying for gas at the pump.
Similarly, invoices list products and services a company will provide a customer or client, and it solidifies an obligation that the customer/client will pay for them. For small businesses, invoices are often the contract that ensures a company is paid for their services.
In theory, receipts help to prevent fraud by proving a purchaser’s identity, but in practice they are unreliable, especially with more people shopping online and few in-store associates taking the time to compare receipt signatures with those on the back of shoppers’ cards. Outside the United States, chip and pin verification has replaced receipt signatures as a more secure and reliable proof of identity.
At its simplest, a contract is a legal agreement between two or more parties that binds them together to fulfill clearly laid out obligations. The moment you sign a contract, you agree to act in accordance with the rights and obligations it specifies. Oral contracts are technically binding as well, but most people choose to put contracts in writing to ensure their interests are explicitly represented and so they can define specific steps to follow if a party breaks the agreement.
A contract can relate to virtually any legal relationship, from a sales agreement to the terms of employment for a new hire. In all cases, every party must read, sign, and obtain a copy of the contract for their records. You can choose a representative, like your lawyer, to sign a contract on your behalf, but you must expressly authorize them to represent you legally for the agreement to apply.
Non-Disclosure Agreements (NDAs)
Non-disclosure agreements, or NDAs, protect businesses by helping them to keep confidential information from spreading publicly. When you sign an NDA, you agree not to disclose any sensitive or protected information you have learned during the contract’s term.
Doctor-patient confidentiality and attorney-client privileges are well-known forms of NDA, but non-disclosure agreements are common across the professional world. Companies generally ask every new employee to sign an NDA to protect their competitive advantage and trade secrets. If you run a start-up or small business, NDAs allow you to lay out your business model to seek funding from investors without worrying that they will share your proprietary information with external parties.
NDAs can either be mutual, whereby all parties are legally bound to keep privileged information confidential, or non-mutual, whereby only one party is obligated to keep the information secret. They can also be terminating (expire on a specific date set out in the agreement) or non-terminating, which means the NDA is legally binding until the parties no longer work together.
As their name implies, loan agreements specify the details and conditions of a personal or business loan. These include the amount of money or specific assets being lent, the terms of repayment, and steps to take if the borrower cannot pay according to the terms of agreement.
Unlike an informal arrangement between friends, for instance that you will take turns buying rounds of drinks at the bar, loan agreements are legally binding and leave little room for interpretation. They are prescriptive precisely because clarity removes emotion from the equation, which ultimately protects
every party who respects the contract’s terms and avoids disputes down the line. Lenders get leverage should they need to pursue a borrower for non-payment, while borrowers are guaranteed they won’t have to pay back more than the agreed amount.
Lease agreements are legal documents that bind renters to property owners. They can serve as the framework for a residential lease, which allows a tenant to live in a landlord’s private property, or of a commercial lease, which allows a business to set up and operate in a commercial space.
In both cases, lease agreements are only valid for a fixed time period, usually 6 or 12 months. When a lease expires, the parties can choose to renew without any changes, renew after mutually agreeing to update certain terms, or go their separate ways. The parties who sign a lease agreement are held legally responsible for upholding the document’s terms, even if they live with other people (in the case of a residential lease) or have employees who work in their offices (in the case of a commercial lease).
When are E-signatures legal?
Today, the world is moving away from ink-based and towards using electronic signatures (e-signatures). Not only can e-signatures facilitate online purchases, they also speed up document workflows for businesses. On average, companies save 1.3 hours for every transaction they perform with digital signatures instead of traditional methods.
This brings us to the question of whether e-signatures are legally binding. The short answer is yes. Legislation around the world now recognizes them as a legal form of authentication. For a digital signature to be legally binding, it must meet these five requirements:
- Intent to sign: Signatories (the party signing) must clearly show its committed to signing the document
- Consent to do business electronically: Signatories must be presented with a consent clause and accept to do business electronically before signing the agreement
- Opt-out clause: Signatories must be allowed to opt-out of signing digitally and provided the option to sign by hand instead
- Signed copies: All signatories must receive a fully executed copy of the agreement
- Record retention: Documents signed by e-signature are only valid if the parties can produce a fully executed copy of the agreement, as dictated by regulation
What is the ESIGN Act?
In the United States, e-signatures are governed by the ESIGN Act (Electronic Signatures in Global and National Commerce). Passed in the year 2000, the Act made electronic signatures legal in every state, giving them the same legal status as handwritten signatures.
In parallel to ESIGN, the government enacted the Uniform Electronic Transactions Act (UETA), which governs electronic signatures at the state level. The UETA also gives legal validity to e-signatures, but unlike ESIGN, which is federal legislation, it must be adopted by individual states. Forty-eight states have adopted UETA, as well as the District of Columbia and the US Virgin Islands. The remaining two states have enacted equivalent frameworks.
Wet signature vs e-sign: What’s the difference?
While e-signatures are widely accepted and legally binding, some organizations still require you to include a physical imprint with signed documents. Similarly, some individuals simply feel more comfortable signing documents physically, otherwise known as a wet signature.
A wet signature is any signature affixed to the hard copy of a document that is made in pen or by another physical writing device. This often requires more time, effort, and cost than e-signatures, especially in the professional space, which is why most governments and private companies now opt for digital signing.
That said, Adobe Sign supports both wet and electronic signatures as part of a digital workflow, speeding up the process considerably.
The future of signing digitally
If you manage a business, large or small, e-signatures are not just the future, they should be part of your process now. Earlier this year, the Adobe Digital Insights team surveyed over 4,000 people worldwide and learned how they used e-signatures. The COVID-19 pandemic “turbo-charged” the use of digital documents and e-signatures as more people worked from home and aimed to be contact-free in all aspects of their digital lives.
Because an e-signature is an efficient, legally binding way to get approval on electronic documents, and it is secure and verifiable, it can replace a handwritten signature in virtually any process. Visit our electronic signatures pages to learn more about how different industries use e-signatures, as well as how they can be used to cut down on costs and long process times.
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