Should subscription finance lenders give borrowing base credit for investors that signed their subscription agreements using electronic signatures? While there are some exceptions, the answer is generally yes. This Legal Update walks through that analysis.

In the United States

In the United States, the Electronic Signatures in Global and National Commerce Act (“Federal E-Sign Act”)¹ establishes a nationwide framework where contracts generally cannot be denied legal effect due to the use of electronic signatures. Similarly, the Uniform Electronic Transactions Act, a model law proposed by the National Conference of Commissioners on Uniform State Laws (“Model E-Sign Law”), was proposed with the goal of creating a uniform framework at the state level that would remove barriers to electronic commerce by validating and effectuating electronic records and signatures. A version of the Model E-Sign Law has been adopted by all states other than New York, which enacted the Electronic Signatures and Records Act (“NY ERSA”), a substantively similar statute. These laws generally provide that electronic signatures in the context of a business contract will generally be given effect if the following elements are satisfied:

(1) Each party intended to sign;

(2) Each party consented to do business electronically;

(3) A record is maintained that reflects the process by which the signature was created; and

(4) A record of the electronic signature is retained for reproduction upon the parties’ request.

Collectively, these elements are referred to as the “Four E-Sig Hallmarks.”

The Federal E-Sign Act does not preempt NY ERSA or any other state’s version of the Model E-Sign Law unless such law is inconsistent with the Federal E-Sign Act^.2 Accordingly, where the governing law of a contract is identified as the law of a specific state (such as Delaware), the electronic signature law of that state will generally control, even...