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Electronic Signatures - The Law of the Land

By Peter Kelman, Esq.

This article appeared in substantially the same form in the Mass HighTech, February 5, 2001.

As of October 1st of 2000, typing your name at the bottom of an e-mail may be enough to create an enforceable contract. Such is the result of the legislation passed by Congress this summer that recently took effect. The Electronic Signatures in Global and National Commerce Act, or E-SIGN (certainly one of the better acronyms for federal legislation) was enacted to facilitate electronic commerce. E-SIGN is a federal statute (Public Law 106-229) that affects transactions involving interstate commerce conducted electronically.

The Law
The heart of the law is deceptively simple. Written in a syntax despised by English teachers (but loved by legislators) that features definition in the negative, the law's operative provision reads:

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; and
(2) a contract relating to such transaction may not be denied legal effect, validity or enforceability solely because an electronic signature or electronic record was used in its formation.

Translated into everyday English:
· Electronic documents can create contracts; and
· Electronic signatures can bind parties to a contract.


The Issues
The issue behind electronic signatures has its foundation in one of our most fundamental principals of law. Namely, that before a party can be held accountable for certain obligations, that party must have agreed to undertake such obligations. How do we know if someone has agreed to do something? In informal circumstances, perhaps by a handshake or a nod of the head. In more formal circumstances, by taking pen to paper and signing a document. But these traditional forms of validating assent do not transpose well to the Internet. E-SIGN puts a stake in the ground that parties can presume the validity of electronic documents and electronic signatures.

Presumption is a long way from certainty. E-SIGN provides a base case for an answer, but like life, that answer may change as more facts are discovered.

Practical Considerations
Many commercial contracts contain a clause such as, "This document may not be modified except by a writing signed by each party." When drafted, perhaps the Internet did not exist. Now vice presidents from each company exchange e-mails in which an adjustment to price is discussed. Has the contract been amended? It all depends, which is probably not the answer management wants to hear. It is better not to leave such details to chance. E-SIGN contains a provision that states that the law "does not require any person to agree to use or accept electronic records or electronic signatures …". If you are a large organization, it is a good idea in a contract to identify by name or by title those individuals who can bind the organization. If you do not want an e-mail to be considered a binding document, specify in the contract the kind of document that can bind the parties. It may be a good idea to review large or significant contracts to determine if they need amendment before a problem situation arises.

If you do business over the Internet and rely on a "click-wrap" or "click-through" form of agreement with your customers, you may want to alter the agreement in light of E-SIGN. The validity of such agreements has always been uncertain. In some circumstances courts have found these agreements to be binding, in other circumstances, not binding. An issue that troubles courts is whether a user's clicking on a pop-up window really constitutes assent. With E-SGIN, a more prudent approach to obtain consent may be to ask a user to sign a statement that they have read and agree to such terms and conditions, and have that statement delivered to the company as an e-mail.

In an effort to promote electronic commerce, Congress included an intriguing section on "electronic agents," more commonly called "bots." Section 101(h) states that a contract entered into by an electronic agent is binding on the principal. So if you shop by bot, make sure your bot is well-behaved and knows its limits.


The Future
On April 1, 2001 certain provisions of the law shall take effect that address the retention of electronic records. Essentially E-SIGN permits companies to satisfy record retention requirements by use of electronic records. It is expected that the Secretary of Commerce will publish guidelines about electronic record retention before the April deadline.

Regulation and validation of electronic documents and signatures does not end with E-SIGN. To date, twenty-two states have adopted similar laws based on a model statute called the Uniform Electronic Transactions Act, or UETA (definitely not as catchy as E-SIGN) for short. UETA plugs some holes intentionally placed in E-SIGN. According to Senator Andrea F. Nuciforo, Jr. (D-Pittsfield), who serves as chairman of the joint Committee on Banks and Banking, an electronic signature bill will be introduced in the Massachusetts legislature this year. Senator Nuciforo supports the measure and comments, "I expect that the Massachusetts bill will look very much like the uniform act that has been considered by other states throughout the country. A Massachusetts UETA will provide our state courts with jurisdiction, and will validate E-signatures for Massachusetts transactions that do not affect interstate commerce."

It is often said that one of the virtues of the Internet is that no one knows if you are a dog. Now, however, if you bark, your woof is your word.

Copyright Peter Kelman, 2001. All rights reserved.




Copyright © Peter Kelman, Esq. 2001. All rights reserved. Please read the site terms of use.