The COVID-19 pandemic has forced many businesses to adapt to a remote work environment, creating challenges for the use of traditional transaction formats, such as paper contracts.

Although pen-and-paper contracts are hardly extinct, the pandemic has accelerated the evolution toward electronic-only business transactions. Businesses and business lawyers must therefore develop practices and procedures to navigate this new virtual world.

This article discusses the laws that apply to electronic records and signatures, the challenges they create, and best practices to follow.

Applicable Laws

There are two primary laws that govern the legal landscape for electronic records and signatures: the Federal Electronic Signatures in Global and National Commerce Act (E-Sign) and the Uniform Electronic Transactions Act (UETA). Both were created to foster and enforce the validity of electronic commerce transactions.

E-Sign and UETA remove barriers to electronic commerce by ensuring that electronic records and signatures have the same legal effect as paper records and manually signed signatures.¹

E-Sign

E-Sign validates electronic contracts and signatures for transactions in or affecting interstate or foreign commerce.² If the parties consent to use electronic means, this Act allows electronic records to satisfy any statute or law that requires a written record.

However, E-Sign does not apply to certain transactions or records that are governed by:

• a statute, regulation, or rule governing wills, codicils, or testamentary trusts;

• a statute, regulation, or rule governing family law matters, adoption, or divorce; and

• the Uniform Commercial Code (UCC), with the exception of Section 1-107 governing waiver of claims after breach, Section 1-206 governing statute of frauds for personal property, and Articles 2 and 2A governing sales and leases of goods.³

Additionally, E-Sign does not apply to:

• court orders, notices, and official court documents required in connection with court proceedings; and

• any notice of:

  • the cancellation or termination of utility services;

  • default, acceleration, repossession, foreclosure, eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence;

  • the cancellation or termination of health services or benefits or life insurance benefits;

  • recall of a product, or material failure of a product, that risks endangering health or safety; or

  • any document required to accompany any transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials.⁴

A preemption provision exists, which allows state law to modify and supersede the basic provisions of E-Sign through the enactment of UETA.

UETA

UETA was adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL), endorsed by Congress, and recommended to the states for enactment. UETA was designed to promote uniformity among the states as it relates to electronic transaction laws. Most states have adopted it, including Wisconsin.

This Act focuses on transactions relating to business, commercial, and governmental matters and authorizes the use of electronic records and signatures between parties that have agreed to conduct transactions by electronic means.⁵ Like E-Sign, most of the prohibited records mentioned above do not apply to UETA as well.

Wisconsin Law

Wisconsin adopted UETA in 2003 with only minor, nonsubstantive changes.⁶ “An electronic contract, record, or signature cannot be denied legal effect or enforceability solely because it is in electronic form.”⁷ An electronic record can satisfy the requirement that the record be in writing.⁸ An electronic contract is binding unless it is considered invalid for other reasons.

Certain requirements must be met in order for the law to apply:

• The parties must agree to conduct the transaction by electronic means, either in writing or during negotiations.⁹ The best way to ensure the parties’ intent is to express agreement in writing within the contract.

• The electronic record must be capable of retention by the recipient at the time of receipt.¹⁰

The law is written broadly, and applies to a significant number of electronic records and transactions. However, there are certain records and transactions that prohibit the use of an electronic format. Wisconsin law excludes the same transactions and notices prohibited by E-Sign and UETA.¹¹

Remote Notarization

Many transactions require notarization, which has historically required that documents be signed in person before a notary.

The pandemic obviously challenged the ability to comply with in-person notarization requirements, urgently necessitating the need for a “virtual” notarization option. Now, Wisconsin allows documents to be notarized digitally where the signer uses an electronic signature and appears before a notary using audio-video technology.

In March 2020, Wisconsin enacted 2019 Wisconsin Act 125 to authorize remote online notarization. The new law does not require the notary be physically present with the signatory to execute the document. Under Act 125,

a remotely located individual may comply with s. 140.06 (the law that requires the individual executing a signature to personally appear before a notarial officer) by using communication technology to appear before a notary public.¹²

The change in law has made it practical and more convenient to execute a variety of transactions, although certain transactions still require traditional in-person notarization. They are the creation and execution of:

• wills, codicils, or testamentary trusts;

• living trusts or trust amendments for personal use;

• powers of attorney;

• marital property agreements; and

• powers of attorney for health care, declarations to physicians (or living wills), and authorizations for use and disclosure of protected health care information.¹³

A notarial act using communication technology for a remotely located individual is allowed if all of the following apply:

• the notary public can identify the remotely located individual as required under Wis. Stat. sections 140.07(1) and 140.07(2);

• the notary public is able to confirm the continuity of the record in which the remotely located individual executed a signature; and

• the notary public creates an audio-visual recording of the notarial act performance.¹⁴

The Wisconsin Department of Financial Institutions is responsible for promulgating the rules governing the performance of notarial acts.¹⁵

Challenges

Electronic contracts and signatures are legal and enforceable, but they can still be challenged. While the use of technology to effect transactions has increased, it brings concerns of validity, authenticity, and fraud.

How do you ensure the electronic signature is tied to the electronic record?

The law provides little guidance on what format or platform to use to obtain electronic signatures. The biggest concern is confirming that the signatory is the actual person who signed the document. If the counterparty denies that it signed a document, then the other party will need to demonstrate that the signature is valid, and attribute it to the signatory. It is critical to have admissible evidence of the electronic transaction in the event the electronic signature is challenged.

Many electronic signature service providers, like DocuSign or HelloSign, collect and affix signatures to documents and provide a digital audit trail and time stamp behind every signature that demonstrates chain of custody of the electronic record. These services capture information such as IP addresses, the history of the document’s activity (such as viewing, printing, sending, and signing), and a tamper-evident seal to verify the document has not been altered. This data makes it easier to establish signature authenticity.

Businesses should establish a practice to ensure the electronic signature can be traced back to the actual signer. The signatory should be aware of the pending signature request, the format to expect it in, and the association between the electronic record and signature.

For added security and to prevent tampering with the electronic record, provide an authentication code, text or email verification, personalized question, or another form of identification for verification purposes.

The more security measures in place, the fewer disputes that should arise over signatures and document tampering.

Best Practices

Electronic contracting is cost effective and efficient, but it remains a practice that has not been thoroughly tested in the courts.

Although electronic communications in many forms may create enforceable contracts, practitioners should remain wary, and utilize accepted methods for electronic contracting, particularly for important transactions.

It is important to confirm that the law permits the specific transaction or legal instrument to be conducted by electronic record and signature, and does not otherwise restrict electronic use or require a wet signature.

The parties must obtain proper consent to use and accept electronic signature and maintain an electronic record for retention purposes. It is best to document in writing the parties’ intention to be bound by the electronic contract.

Lastly, confirm the preferred method for exchanging electronic signatures, the signatures are affixed to and associated with the relevant record or document, and implement a procedure to avoid any concerns with validity, authenticity, and fraud.

This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section webpages to learn more about the benefits of section membership.

Endnotes

¹ UETA § 7; 15 U.S.C. § 7001(a).

² 15 U.S.C. § 7001.

³ 15 U.S.C. § 7001(103)(a).

⁴ 15 U.S.C. § 7001(103)(b).

⁵ UETA §§ 3, 5.

⁶ 2003 Wisconsin Act 294.

⁷ Wis. Stat. §§ 137.15(1), 137.15(2).

⁸ Wis. Stat. §§ 137.15(3).

⁹ Wis. Stat. § 137.13.

¹⁰ Wis. Stat. § 137.16.

¹¹ Wis. Stat. §§ 137.12(2), (2m), (2r).

¹² Wis. Stat. § 140.145(2).

¹³ Wis. Stat. § 140.145(10).

¹⁴ Wis. Stat. § 140.145(3).

¹⁵ Wis. Stat. § 140.145(8).