The term “wet signature” describes the traditional pen-and-paper approach to executing contracts. While still required in some cases, e-signatures and automated contract workflows offer a much faster, more efficient, and more secure alternative.
Electronic signature technology is speeding up the flow of commerce. As part of a contract lifecycle management (CLM) solution, e-signatures offer a broadly accepted and highly secure means of executing contracts, with significantly stronger authentication and verification capabilities than traditional paper-based contracts. Some circumstances still call for the use of a so-called “wet signature”; however, parties to a contract may sometimes insist on conventional paper-based processes.
In this article, we’ll talk about what a wet signature is and how it differs from electronic and digital signatures. Next, we’ll address the question of when a wet signature may be required and how the best CLM software can help you manage contracts, even when a pen and paper are still involved. Finally, we’ll discuss how businesses can optimize their contract management processes for all of their contracts to lower costs and improve results, whether they’re executed digitally or via a traditional wet signature.
What is a Wet Signature?
Simply put, “wet signature” refers to a traditional paper contract signed by the parties to the agreement using pen and ink. Historically, wet signatures have included variants such as wax seals or even a simple “X” in place of a signature. Today, they simply refer to traditional paper contracts that include a physical signature.
Strictly speaking, contractual agreements don’t necessarily require a signature per se, provided that an offer has been made and accepted. The Uniform Commercial Code, for example, stipulates that agreements for the sale of goods up to $500 may be enforceable even in cases where no written contract exists.
Nevertheless, it’s good practice to lay out the terms of an agreement with as much clarity and specificity as possible and to obtain signatures from both parties to indicate assent. This ensures that the principle of “mirror image” offer and acceptance is in effect. In other words, both parties agree to precisely the same set of terms and conditions.
Some jurisdictions still require wet signatures for certain types of contracts. Under US law, for example, promissory notes, mortgages, notarized documents, deeds of trust, and most collateral documents require a wet signature. In Germany, this requirement applies to the transfer or pledge of stock or real estate, among other things. Each country may have specific requirements, so it’s essential to check the laws in the jurisdiction governing a contract before you execute it.
What are Electronic Signatures?
In today’s digitized business world, electronic signatures (“e-signatures” for short) enjoy widespread adoption globally. That’s no surprise; they’re fast, easy, secure, and readily verifiable. At one point or another, most of us have received a contract or agreement that calls for an e-signature.
In 2000, Congress passed the Electronic Signatures in Global and National Commerce Act (ESIGN). Together with the Uniform Electronic Transactions Act (UETA), it affirms that electronic signatures are valid evidence of a legally binding agreement in cases where all parties have chosen to sign electronically. As a result, electronic signatures are valid throughout the United States and the rest of the industrialized world, with the same legal standing as wet signatures.
So how exactly does an e-signature look? In some cases, they take on the appearance of a physical signature, using stylized fonts to print a person’s name on a digital copy of the contract. Occasionally, e-signatures may even involve creating a digital image of a person’s actual signature. If you have ever “signed” for a credit card purchase using your finger on an iPad or similar device, then you’re already familiar with this particular type of e-signature.
Strictly speaking, an electronic signature doesn’t necessarily have to even look like a signature; it simply needs to offer a verifiable means of determining that the recipient took a specific action to indicate their affirmative assent to the terms being presented. For example, clicking “I Agree” on a website or typing your PIN into an online form is typically sufficient. E-signatures may even incorporate sound, symbols, or other processes that are digitally “attached” to a contract, making it binding by demonstrating that the user’s consent has been given.
What are Digital Signatures?
Digital signatures are a kind of electronic signature, but they offer an extra layer of protection to both parties. Using an authentication method based on public and private key technologies, digital signatures assure that a contract cannot be modified – intentionally or accidentally – once executed.
The process involves generating a unique “hash” of the message or document, which is then encrypted using a private key available only to the sender. If the document is altered in any way, that renders the hash invalid, thereby proving that a change has been made. Digital signatures use an industry-standard protocol known as Public Key Infrastructure (PKI), offering extremely high security and broad acceptance worldwide.
Wet Signatures vs Electronic Signatures vs Digital Signatures
What are the advantages and disadvantages of wet signatures relative to electronic signatures and digital signatures?
Briefly stated, wet signatures are sometimes required by law, and any party to an agreement may require them, – but they also have their drawbacks. Physical documents can be lost, damaged, stolen, or destroyed. Validating the authenticity of a wet signature may be difficult as well, potentially requiring handwriting experts to testify to their validity.
The biggest drawback by far, however, is that wet signatures involve slow, error-prone, and labor-intensive manual processes. If your organization routinely processes a large number of contracts, wet signatures may be impractical in today’s world. Checking for accuracy, scanning, filing, and other activities associated with wet signature contracts can take considerable time. As a result, details may slip through the cracks, exposing your organization to risk.
Electronic signatures offer a far simpler and more accurate process through which all parties to an agreement can execute contracts quickly and easily. They also lend themselves to automated workflows, making them ideal for companies that use contract management software for increased efficiency and business value.
Digital signatures are a specific type of electronic signature, offering increased security where the situation may demand it or when the signatories to a contract wish to prevent any alteration of the agreement after the fact.
When do you need a Wet Signature?
Depending on the jurisdiction, wet signatures may be required by law. For example, documents filed with the UK tax authorities or Land Registry require an actual physical signature. In the US, any notarized document, mortgage, or collateral documents must be executed in writing using a wet signature. Therefore, the first step for any contract is to check local and national laws.
Under US law, either party to an agreement may decline to use electronic signatures to execute a contract. In those cases, wet signatures remain the default method.
Are Wet Signatures more Secure than Digital Signatures?
As noted, wet signatures come with some risks. Paper documents are vulnerable to loss, theft, or destruction. In addition, they may be questioned or challenged after the fact. In the case of a legal dispute, interested parties may need to engage handwriting experts to authenticate wet signatures, which is expensive and time-consuming. It also introduces a subjective human element into the process, which creates risk.
As a general rule, electronic signatures are a better option. In today’s highly digitized world, they are widely accepted as an indication of legally binding agreements around the globe. That broad acceptance is due mainly to the fact that e-signatures are now considered highly secure.
How to Replace Wet Signatures
The ideal approach to replacing wet signatures begins with a holistic view of the contract management process. Companies using CLM alongside an integrated e-signature process benefit from a seamless flow of information throughout the contract lifecycle.
Together with the Icertis Contract Intelligence platform, Adobe Sign helps your company improve the turnaround time required to execute important contracts and agreements. The net result is a faster, more agile business. For sales processes, in particular, this is especially beneficial because it leads to closing deals faster and with complete confidence. There’s no waiting for paper contracts to be signed, exchanged, and verified. With e-signatures, your business can move faster.
The Icertis Contract Management (ICM) platform is the leading provider of enterprise contract management in the cloud. With ICM, users can model complex business processes, configure intelligent contract templates, and gain unprecedented insight into their contracts.
Together with Adobe Sign, companies can benefit from best-in-class digital transformation, bringing e-signature technology into their contract management processes – whether it’s for outsourcing, procurement, sales, NDA, or intellectual property agreements.