Legal Practice Tips

Doing Business Online

Update on new electronic signature laws

By Barbara Novak

This year, legislation concerning electronic signatures was passed by the U.S. Congress and by almost every state.

The federal law, known as E-SIGN (Electronic Signatures in Global Commerce Law), took effect in March 2001. Most of the state laws are based on the Uniform Electronic Transactions Act (UETA) promulgated by the National Conference of Commissioners on Uniform State Laws. As of Aug. 1, 2001, UETA had been adopted in 38 states - including Oregon - and some form of electronic transaction legislation is pending in all of the remaining states.

Although these new laws define and address the use of electronic signatures, they are really electronic transactions acts, since they are intended to protect and expand the use of electronic mediums for business at every level. These laws will assure that contracts made by e-mail messages or by mere mouse clicks on 'I Agree' will be legally valid and binding. Section 7 of the uniform act provides:

(a) A record or signature may not be denied legal effect solely because it is in electronic form.

(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

(c) If a law requires a record to be in writing, an electronic record satisfies the law.

(d) If a law requires a signature, an electronic signature satisfies the law.

Although the acts generally sanction the legality of electronic contracts, an electronic transaction may still be unenforceable for any of the reasons that any other contract is found unenforceable. The comments contain the following example: If 'A' sends an e-mail offering to buy widgets, delivery next Tuesday, and the recipient sends an e-mail of acceptance, the fact that the parties entered into a binding contract could not be denied solely because it was the product of an electronic transaction. However, in this example, the parties failed to state a quantity or price in either e-mail, and thus the contract would be unenforceable under existing UCC 2-201(1).

Because of ESIGN and UETA, you can expect to see more clients conducting business electronically, and if you are a consultant you may need to start conducting your business with clients electronically. It is important to understand these new technologies in order to be equipped to take advantage of new business opportunities and avoid the pitfalls that sloppy use of the electronic medium can create.

What is an electronic signature?
Similar to the use of an 'X' to denote one's signature on a writing, an electronic signature might not spell the signer's name; it might not even be a visual representation. UETA Section 2(8), and the federal E-Sign Section 106(5), define an electronic signature as 'an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.' Imagine using your favorite birdsong as your signature.

The official comments to UETA are slightly more mundane, and suggest that one's voice on an answering machine, one's name as part of an e-mail or the firm name on a facsimile might all be signatures if used with the intent to use or adopt the sound, symbol or process for the purpose of signing the related record. A mouse 'click' could also be an electronic signature, as in a purchase online, when the customer might see a box to click on to confirm and/or send the order.

UETA notes that whether a particular document is 'signed' is a question of fact based on the intent of the person who supposedly signed the document. In fact, a 'signature' as we have traditionally thought of it, is not necessary to sign a contract. Any electronic act that a person intends to use in order to close a transaction or execute a contract can be a signature.

Under the electronic transactions acts, contracts could even be made without any human involvement at all. For example, if company A authorizes its computer to automatically accept offers to purchase shares of company B stock whenever B's computer transmits an offer to sell at $X, the A computer and the B computer could make contracts between A and B that were legally enforceable even though no human at A or B was online at the time the contract was made. A computer that can execute contracts on behalf of its owner is referred to in UETA as an electronic agent.

What about forgery?
UETA provides that an electronic record or signature is attributable to a person if 'it was the act of the person,' and that such act 'may be shown in any manner,' including a demonstration of the effectiveness of any security procedure that was used in the electronic transaction. Relevant to the validity of the signature are the circumstances and context at the time of its 'creation, execution, or adoption, including the parties' agreement, if any, and otherwise as provided by law.'

With or without a signature, information in an electronic record may suffice to attribute an electronic record to a particular person. Such information or evidence of attribution could include numerical codes, personal identification numbers or security procedures.

The need for some kind of digital encryption technology to ensure that a signature is really that of a particular person is unclear under E-SIGN. With the development of various technologies (such as smart cards, biometrics, public key infrastructure (PKI) or even an iris scan), the definition of electronic signature may need some refining to ensure that the signature is unique and unalterable by another person. For now, neither UETA nor E-SIGN requires that any specific technology be used to constitute a valid electronic signature.

Can signatures be notarized electronically?
UETA and E-SIGN authorize electronic notarization of a signature or record or verification under oath of a signature or record as long as the notary's electronic signature and any other required information is attached to or logically associated with the signature or record.

Can any contract be made electronically?
Not necessarily. UETA does not apply to the extent that a transaction is governed by the law of wills, codicils or testamentary trusts as well as sections of the UCC and the Uniform Computer Information Transactions Act ('UCITA,' which the Oregon legislature considered but did not adopt this year). E-SIGN contains the same exemptions and likewise does not apply to family law matters, court notices, cancellation of utility notices or product recalls. However, some of those exemptions may be removed because E-SIGN directs certain officials to review these exceptions over the next three years to determine whether they should be removed.

In the case of consumer contracts, state and federal laws often require that the purchaser be given certain written disclosures (for example, the true cost of an installment purchase) before a contract can be binding on the consumer. Both the Oregon act and E-SIGN contain 'consumer protection' provisions that describe the conditions under which the seller can provide the written disclosure forms electronically.

The electronic transactions acts do not force anyone to use electronic signatures or conduct transactions electronically; they merely sanction a form of signing documents that is already in use in order to enable more efficient and unfettered e-commerce.


ABOUT THE AUTHOR

The author is an associate at Harrang Long Gary Rudnick in Eugene. She thanks Natalie Scott for her assistance in writing this article.


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