Using DocuSign and Other E-signature Tools

Since the ESIGN Act (the Electronic Signatures in Global and National Commerce Act) and UETA (Uniform Electronic Transactions Act) were signed into law, more and more businesses have turned to electronic and digital signatures as a convenient way to execute franchise agreements; but, should these companies be worried about the legal validity of doing so?

For example, DocuSign, an e-signature company that complies with the definition of an electronic signature under both the ESIGN Act and UETA, markets its services as a safe and reliable alternative to traditional signatures. At times, however, DocuSign has failed to live up to these claims. In July 2016, the United States bankruptcy court for the Eastern District of California held that its local rules took precedent over the E-Sign Act and said that attorneys who submit electronically signed documents must maintain a signed document in paper form bearing a “wet” signature. (

To understand whether this case is a cause for concern in the context of franchise agreements, it is helpful to look at the underlying law.

The ESIGN Act provides that “with respect to any transaction in or affecting interstate or foreign commerce – (1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” 15 U.S.C. § 7001(a)(1). The court noted, however, that this rule does not apply to “court orders or notices, or official court documents (including briefs, pleadings, and other writings) required to be executed in connection with court proceedings.” 15 U.S.C. § 7003(b)(1). Because the documents at issue in this case were filings submitted to a bankruptcy court, the court held that the ESIGN Act did not apply. Thus, this case does not say much about the enforceability of franchise agreements, which do not fall under the exception to 15 U.S.C. § 7001(a)(1).

There may be other causes for concern as well though: Although some franchise agreements will be governed under the ESIGN act, many will be governed by state law instead. Most states have adopted UETA, which provides that when a law requires either a writing or a signature, an electronic record or an electronic signature can satisfy that requirement when the parties to the transaction have agreed to proceed electronically. However, there are still some states that have not adopted UETA and those that have may differ in their applications of it.

This means that when a franchise agreement is governed by state law, the enforceability of an electronic signature might depend on which state’s law applies. In a state like Mississippi, which has not adopted online notarization, a personal guarantee that has not been notarized or was notarized online would be subject to challenge for lack of proper authentication and may be challenged for fraud and undue influence.

Most franchise agreements include choice of law provisions (clauses that designate which state’s laws will apply), and companies can minimize the risk of their electronically signed agreements being invalidated by choosing states that have suitable UETA provisions. Even this, though, presents some difficulties because states like Maryland, Illinois, California, and New York, will apply their own state law regardless of an agreement’s choice of law provisions. Of these states, only New York, Illinois, and Washington have not adopted UETA, but each has adopted similar laws making electronic signatures legally enforceable.

So, what is the bottom line? Since most states have laws making electronic signatures enforceable, and since franchise agreements can include choice of law provisions avoiding those states that don’t, using electronic signatures is a pretty safe practice. A quick look at some data confirms this; more than 775,000 documents containing more than 3.5 million pages are signed using DocuSign each day, yet only in 2-3 instances have DocuSign documents been challenged in court. ( Further, the risk of a court challenge is not unique to electronic signatures, even wet signatures can be challenged for a lack of authenticity. However, this issue rarely arises, and when it does, courts can look to the parties’ course of conduct (the regular dealings between the parties) to determine whether each party intended to be bound by the contract.

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