The Paycheck Protection Program (PPP) triggered the largest use of electronic signatures for a commercial loan program in US history. Commercial lending is a particularly conservative practice, where delivering "wet ink" originals has been a condition to funding since the days of the wax seal. However, very few (if any) of the more than two million PPP loan recipients ever put pen to paper, signed a physical promissory note, or delivered “wet ink” loan documents to their lender. Instead, borrowers uploaded e-signed “original” documents onto a server where they now exist only in a metaphysical sense. Yet based on these electronic documents, PPP lenders disbursed hundreds of billions in loan proceeds to businesses across the country in a matter of weeks.
Even though e-signed agreements have been recognized as enforceable under both state and federal statutes for decades, attorneys and their clients have generally operated from the traditional perspective that a wet ink original is required for loan documents and other commercial contracts. With the drastic shift to digital-only work environments, this often-flawed assumption may finally be put to rest, along with other vestiges of the previous era, such as the need for duplicate originals and in-person notarization. Attorneys and their clients that were once hesitant to use e-signatures and other digital streamlining tools are now looking for guidance regarding their proper use and application.
"E-signatures" include photographs, scans, software-assisted executions, or names typed at the end of email messages. When used properly, e-signatures not only ensure social distancing, they can create a time saving and logistical efficiency. When used improperly, however, e-signatures can hold up a closing, fail to create an enforceable contract, or even create an unintentionally-binding agreement.
As long as parties consent to the use of e-signatures and meet all of the other legal requirements for a contract, a transaction will usually not be denied legal validity solely because a party e-signed the agreement. As with any legal “rule”, however, there are exceptions to this general presumption. Certain estate planning and court documents require wet-ink signatures, witnesses and notarization. Lenders typically want original promissory notes to comply with UCC negotiable instrument obligations or, in the commercial lending context, to facilitate borrowing against the Federal Reserve. Additionally, many local government offices insist on wet ink signatures and notarizations to record real estate transfer instruments.
The current public health emergency has drastically altered the previous landscape. The US Department of Treasury issued a clarification that PPP lenders could accept e-signed copies of loan applications and documents, including promissory notes. Similarly, Rhode Island, New York and a number of other jurisdictions have adopted temporary measures to allow remote notarization and even e-signed real estate instruments.
Despite the surge in the use and acceptance of e-signatures, they are not always valid, and there are still risks involved with their use. At McLaughlinQuinn LLC , our corporate attorneys provide our clients guidance to complex business problems but also provide day-to-day practical legal advice for seemingly simple questions like whether a wet ink signature is required to properly execute a contract. For more information on this Client Update, please contact Jeffrey B. Cianciolo, Esq. on his direct line at 401-490-0219, or Marcus I. Howell, Esq. on his direct line at 401-655-2209.