It all used to be so simple. Whenever two parties wanted to do business, they’d come to some agreement, meet face-to-face, and seal the deal by scribbling their respective John Hancocks on paper, thereby immortalizing their agreement for all time. In the really old days, the single hardest issue you had to deal with was the occasional signer who couldn’t read or write — and even that was dealt with by the courts over the years, which determined that it didn’t matter what you wrote (say, an “X,” for instance). So long as you meant it to be your “signature,” and a symbol of your agreement, you could be contractually bound by your mark.
So much for the good old days: Electronic commerce threw a monkey wrench in the works. See, traditional definitions of “signature” — an “X” or otherwise–presumed that the signature would be made in person. Over the past few years, that presumption led to a lot of questions regarding the effectiveness of electronic signatures, especially in relation to the validity and enforcement of contracts. In short, would it still count as a “signature” (and therefore be legally binding) if, instead of signing a contract or a bank document with pen and ink, you typed it onto your computer and e-mailed it?
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Well, the verdict is in: As of October 1, a new Federal law gave signatures on electronic documents the legal weight of traditional paper signatures. The “Electronic Signatures in Global and National Commerce Act,” or E-SIGN, states that, subject to certain disclosure requirements with respect to consumers and certain specifically excluded types of contracts, a signature or contract may not be denied legal effect or enforceability solely because it is in electronic form, nor may a contract relating to such transaction be denied enforceability because it was electronically signed. Throw away your pens, people–it looks like the computer age is here to stay.
Specific exceptions:
The new law does not cover certain types of contracts, somewhat limiting the scope of electronic signature acceptance. Among the exceptions are contracts governed by the law of wills and estates, family law (including divorce, adoption, and other family law matters), and certain specific types of contracts governed by the Uniform Commercial Code.
In addition, E-SIGN doesn’t apply to: a) court orders, notices, or official court documents, b) any notice of cancellation of utility services, c) notice of default, eviction, etc. of an individual’s primary residence, d) the cancellation/termination of health insurance or life insurance benefits, e) any recall or material failure of a product that risks endangering health or safety, or f) any document required for the transportation or handling or hazardous materials, pesticides, or other toxic materials.
The ‘Digital Signature’ vs. ‘Electronic Signature’ debate
Before E-SIGN was passed, one of the hottest issues was the debate as to whether the law should apply expressly to “digital signatures,” (created and verified by cryptography, and specially coded so as to be difficult to forge) or to “electronic signatures” as a whole (encompassing “digital signatures,” but also including “signatures” such as “/s/ John Smith,” or just typing your name into your computer.)
In December 1999, the European Union approved a law giving the digital signature the same legal status as its handwritten equivalent, but tailored the law to admit encrypted signatures only, establishing minimum safety and security protocols which must be met before a digital signature may be legally recognized. However, the new U.S. law makes no distinctions between digital and electronic signatures, indicating that Congress intends for the law to address simple electronic signatures as well as their more sophisticated digital/encrypted counterparts.
Effect on litigation
There’s no question that the comfort level with e-signatures that E-SIGN gives the business community will be a boon to electronic commerce, but there is a problem: You see, it is impossible to prove that an electronic signature is truly the alleged signer’s mark. While a traditional, pen-and-ink signature is subject to forgery, it at least has the benefit of unique characteristics identifiable to a specific signer. But what happens if a clever prankster applies for a credit card, or an automobile lease using your name?
Accordingly, attempts to authenticate electronic signatures will depend on the ability to prove that the individual purported to have signed a document did in fact do so, rather than the physical nature of the signature itself — a land mine in the field of litigation. And although password and encryption technology is developing rapidly, it is still subject to forgery, unauthorized computer use and piracy, lending an uncertainty to electronic signatures which may foment more, rather than less litigation in suits to prove document and contract validity, and counteract E-SIGN’s effect on the business world.
Kas R. DeCarvalho is an Associate in the law firm of Hinckley, Allen &
Snyder LLP and his practice is concentrated in the areas of general corporate
and securities law.
