What makes a signed document legal?

The rapid rise in the popularity of electronic signatures has made a lot of people worried. While doing away with the laborious process of printing, hand-signing, and scanning documents has led to sizeable savings of time and money for both signees and senders, many are wondering whether digital alternatives to pen-and-ink signatures are just as legally valid.

This concern is understandable. Every day, companies from real estate to finance fields have to deal with important business documents, including contracts, proposals, quotes, and more. The cost of getting it wrong with these documents – particularly of acquiring an unverifiable or non-binding signature – can be significant and damaging.

The short answer is that electronic signatures are entirely legally binding. But there are different types of signatures and different methods of conducting the signing process, some of which are more secure than others. If you want to know what makes an electronic signature legally binding, which pieces of legislation support their use, and how to ensure the signatures you send and request are as secure as possible, then continue reading.

What makes a document legally binding?

There are a number of features that make a document legally binding.

Here’s a quick rundown:

A legally-binding document is simply one that establishes an agreement between two parties, entailing that certain actions are either required or restricted. An example of a basic contract is one between a real estate agency and a seller. The seller grants the agency exclusive rights to sell the property.

A document that is legally binding is one that can be enforced by a court. There are several stipulations that must be met for a document to be enforceable: both parties must agree to the same terms, the agreement must be consensual, and the mark of approval – almost always in the form of a signature – must have been made by intended signees (i.e. not forged).

Notarization is the process of proving that signatures were not forged. A notary will act as an intermediary. They will ensure that both parties understand the terms and verify the identities of the signees. Notarization is not essential for a document to be legally binding, but it does make it easier to verify valid contracts if later issues should arise.

A number of important pieces of legislation, in particular, ESIGN (The Electronic Signature in Global and National Commerce Act), UETA (The Uniform Electronic Transactions Act), and eIDAS (electronic Identification, Authentication and trust Services) provide electronic signatures with the same legal standing as pen-and-in-signatures.

What are the different types of electronic signatures?

Outside of the obvious differences between the verification processes, electronic signatures fulfill exactly the same role as handwritten signatures.

Generally speaking, there are three types of electronic signatures:

Basic electronic signatures

A basic electronic signature is a simple digital mark that is included on a document to show agreement. A scanned image of a handwritten signature which is uploaded to a Microsoft Word or PDF document is an example of this kind of signature.

Secure electronic signatures

Secure electronic signatures are similar to basic electronic signatures but come with extra security features that make it easier to verify the validity of documents. Smart signature apps like PandaDoc can be used to create signatures of this type.

Whenever a signee uses PandaDoc tools to create an electronic signature, for example, a certificate that includes the time, date, IP address and email of the signee will automatically be created and added to the document. Furthermore, signatures are stored on secure servers and full compliance with current legislation is ensured.

Digital signatures

Digital signatures are the most secure of all electronic signatures. They involve numerous levels of encryption and are based on a standardized framework called the Public Key Infrastructure (PKI). Signees must acquire a digital certificate from a Certificate Authority (CA), which is securely stored and can be attached to a document to signify approval. When the digital signature is added to a document, a special condensed version, called a hash, is made.

This hash can then be verified against a public version of the signer’s certificate. If it matches, then the document is valid. If, on the other hand, there is a mismatch, then the document has been tampered with. While digital signatures are the most secure of all electronic signatures, they are costly and require special software. They are only usually necessary for certain types of documents.

Why eSigning tools are the best choice

The beauty of electronic signature software like PandaDoc is that they allow both senders and recipients to ensure the validity of documents without the need to acquire costly digital certificates. They are also much more secure than basic electronic signatures that are uploaded to PDFs or text documents.

In particular, PandaDoc leverages the following security features:

  1. Time-stamped signatures that include the details of the signee.
  2. Compliance with all major electronic signature legislation in the US, Europe and elsewhere.
  3. Secure storage of recipients details and signatures associated with their legal documents.
  4. A full set of tracking tools for paperless documents.
  5. Integrations for directly adding signatures to a variety of document-types including PDFs, Google Docs, and Microsoft Word documents.

If you would like to see these features first-hand, consider trying PandaDoc for free for 14 days.