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Electronic Signature: Valid Execution of Contracts

Health and wellness considerations following the outbreak of coronavirus disease have led to a significant shift in the day-to-day operation of small and large businesses and the manner they used to conduct their affairs; and due to this outbreak, most businesses around the globe have resorted to remote working. Have you ever thought about electronic signatures? In this article, the importance of electronic signatures will be explained.

However, changing the work environment from offices to homes has brought along challenges related to conducting some business processes which have been done easily before in an office. One of these processes, which is now facing a challenge, is performing the necessary formalities in order to validate a negotiated contract, i.e. to execute the contract through signing it by the parties thereto.

Normally, parties to a contract express their consent to its terms by signing it manually in the presence of the other party, and each party retains a signed copy of the contract. This is known as the wet ink approach. However, the wet link approach requires that the parties come together in one place to sign the contract or exchange a printed and signed copy of the contract by mail, which at the moment might not be possible and, more importantly, is against the recommendations on health and avoidance of gathering.

Electronic Signature

Electronic Signature

In this situation, this issue is a reasonable and practical option that can be used to execute contracts. With the advancement of information technologies, laws and regulations should conform to new developments, and currently, many jurisdictions have accepted electronic signature as a valid form to express consent to a contract. The Iranian legal system has recognized e-signature in the Electronic Commerce Act (ECA) of 2004; so that wherever the law requires a signature, an e-signature may suffice and will have the same validity as a manual signature.

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Different Kinds of electronic signature

There are three main categories of e-signatures. The specific differences are described by the 2016 electronic Identification, Authentication, and Trust Services regulation (eIDAS regulation) passed by the European Union (EU). They are also applicable in the US.

This piece of regulation creates a legal framework concerning the electronic identification, signing process, seals, and documents throughout the EU. These signatures are often built into business processes and workflows as default options, becoming ubiquitous in the internet user experience.

Simple Electronic Signatures (SES)

These are the broadest and simplest types of electronic signatures. eIDAS defines them as “data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign.” They do not need any type of identity verification from the signer, and trust in these signatures is the responsibility of the individual accepting the document.

In some cases, simple electronic signatures can be considered legally binding. However, for many documents, higher qualifications must be met.

Advanced Electronic Signatures (AES)

Unlike simple electronic signatures, these signatures do require a level of identity verification. They are based on certificates that uniquely identify the signer of the electronic document. They are often transmitted via a specific delivery service that can provide audit trails and other types of evidence about the transmitted data. These signatures are typically certified by a Certificate Authority (CA).

Qualified Electronic Signatures (QES)

These are like advanced electronic signatures, but they go further to meet additional requirements outlined in the eIDAS regulations. Qualified electronic signatures (QES) must have a certificate based on public keys that were issued with proper technological means. There also must have prior identification of the signatory by an audited entity, such as a certificate authority. This identification can be completed face-to-face, which can be conducted remotely via video chat or in person.

Types of Documents Can Be Signed Electronically

You can use electronic signatures to sign documents of all types and sizes, including:

  • Offer letters
  • Sales contracts 
  • Permission slips 
  • Rental/lease agreements 
  • Liability waivers 
  • Financial documents
Electronic Signature

E-Signature Admissibility in Court

The Electronic Signatures in Global and National Commerce Act, otherwise known as the E-Sign Act, states that electronic signatures shouldn’t be considered invalid simply because they’re electronic. In other words, e-signatures are completely legal and binding. Sixty countries have passed laws to make electronic signatures fully legal and admissible by law. These legislations provide e-signatures a solid foundation to stand on.

Some of the countries that accept the e-signature are: the United States of America, the United Kingdom, Canada (under special circumstances, of course!), Australia, New Zealand, China, Russian Federation, Brazil, India, South Korea, Turkey, South Africa, Brazil, Hong Kong, Indonesia, Japan, etc.

Are Electronic Signatures Legally Enforceable?

As with any other legal issue, the above-mentioned issue depends on the legalization of that jurisdiction; for instance in the US, In 2000, the U.S. federal government passed the Electronic Signatures in Global and National Commerce Act (ESIGN), which in tandem with the Uniform Electronic Transactions Act (UETA) confirms that electronic signatures constitute legally binding documents if all parties choose to sign digitally.

Electronic Signature in the ECA Act

Furthermore, the ECA has divided the e-signature into two types: simple electronic signatures and secure electronic signatures. A simple e-signature means any sign or inscription appended to or attached to an electronic document indicating that the document has been signed by a specific person.

For example, even appending the name at the end of a contract, which is sent to the other party via e-mail in PDF format, is considered an e-signature confirming the consent of that person to the contract’s terms; or sending an e-mail with the contract in its attachment, in which, it is stated that “… I am satisfied with the terms of the attached contract…” with the name and detail information of the sender, as it is customary in the business emails.

In addition to the simple electronic signature, there is a secure e-signature with the following features:

a) Is unique to the signatory;

b) Identifies the signatory;

c) Is signed by the signatory or under the signatory’s exclusive will;

d) Is affixed to “data message” so that any change in data message can be detected and identified.

The advantage of a secure electronic signature over a simple electronic signature is that when a contract contains a secure electronic signature, the parties to the contract can have full confidence that the contract has been signed by the intended person and the provisions of the contract are binding upon the signatory and its legal successors in such a way that any denial or doubt about the signing of the contract will not be acceptable.

Mindful of the above, in the current situation where it is not possible to hold a meeting with the presence of the parties to execute contracts like it used to be, electronic signature, especially secure electronic signatures, is the best option that businesses can use to conduct transactions without any concerns about the validity or enforceability of the executed contract.

Conclusion

In the end, the validity and acceptance of expressing consent to the terms of a contract by electronic signature are subject to the law governing that contract. Therefore, in case the laws of the Islamic Republic of Iran govern a contract, expressing consent and accepting the terms of such a contract may be done via e-signature, as described above. However, if the law of another country governs the contract, one must consider the validity of these types of signatures as a means for expressing the parties’ consent to the contract terms under the law.

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