The “e-Sign Law” and What It Means

© 2001 Green & Green All Rights Reserved

A Brief History of Signatures and Contracts

A contract consists of thee basic elements, an offer, acceptance and consideration. These must be written under the laws of “statute of frauds” to prevent fraud and later disagreement on the terms.  Consideration may consist of the “price,” “goods,” “services” and acting or agreeing not to do something as part of the bargain.  For the purpose of most agreements in centuries past the parties met face to face or “at arm’s length” and would shake hands or mark their bargain with payment and delivery.  Later with trade there developed the need to do business at a distance, ship the goods and make payment and the signature for later performance began to be the acceptable method to prove a contract was made.  The signature, a fingerprint and other marks on paper agreements became accepted as the best way to show the parties made an agreement because these were unique to the persons making them.  A signature is a person’s unique seal. 

Paper Signatures

There evolved the UCC, the uniform commercial laws that the 50 U.S. states follow and with very similar laws in most trading partner countries.  Signed agreements caused large shipments of goods worth in the millions of dollars and the paper the signatures were on became worth (symbolically) the cost of the agreement.  Services are also agreed to with signed papers.   

e-Signatures

Since about 1990, with Telnet and BBS and the Internet and the evolution of instant distance computing, and with a desire to save paper, the paper signature has become replaced by an electronic signature which has become ubiquitous.  There is now the need to recognize this e-signature to properly bind parties to the agreements they make and have them be enforceable. 

Authentication & Identity

There are really two parts to the signature issue, authentication and identity.  Authentication is the need to prove that the person who says they signed it really did click that mouse, sign that paper or checked the box.  Identity is the need to  prove that the person whose “signature” is on a form is actually who they say they are.  It is a possible scenario that a person can forge another’s hand signature because he is not properly identified.  It is also possible that the person is who his Credit Card says he is but he did not intend to or was forced to press or actually did not press “OK.”  

Evolution and Acceptance by Click and e-Agents

For years people have been clicking on “I Accept” and “Submit Order” and the like.  For decades, people have been relying on signatures sent by mail and even received on the phone for catalog and “800-number” purchases.  The recent trend towards “bots” to handle shopping for a comparative item online, to follow deals and report back along with online e-trading in securities has made the need for a law to approve and help enforce all these “I DO” clicks.  Furthermore and into the future bots and spiders are and will more that ever make deals and bind parties to agreements that they will rely upon without the click, automatically.  When a bot is “sent out” to find the deal a party wants it may be instructed to accept the deal by itself and merely report back.  The law is ready; that law in the  U.S. is termed “e-Sign.”  The law can be found at 15 U.S.C. Sec 7001 et seq.

 The New U.S. Law

The law is dubbed, “ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE” and can be found at 15 U.S.C. Sec 7000 et seq.  It is actually a law that enables what has been the practice since wide commercial use of BBS in the early 1990s.  It states quite plainly^[1] that,

“…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…”

This means that in prior transactions and all present and future ones, when there is a dispute about an agreement that was signed by a “click” or a confirming email, a “yes,”  “submit” or by an automatic Bot, the agreement that was intended by the parties making and having their bots make those e-signatures will not be stricken of effectiveness merely because they were signed the e-way rather than pen and ink on paper.

 Each of the 50 U.S. States e-Laws

There are many parts of the law that discuss what states may and may not do to vary this basic scheme and many states are working on their own “Uniform Electronic Transactions Acts.”  California has as of February, 2001 SB 97 which is essentially a clear statement of where California wants to continue to require paper signatures and paper  in the Mail notices.  These include where real property is foreclosed, wills, trusts, certain credit and banking and utility shut off notices, among many others. 

States Must be Technology Neutral:

Here it must be noted that 15 U.S.C. 7002 provides that the states may set up alternative procedures but they must be technology neutral, and may be valid if, “alternative procedures or requirements do not require, or accord greater legal status or effect to, the implementation or application of a specific technology or technical specification for performing the functions of creating, storing, generating, receiving, communicating, or authenticating electronic records or electronic signatures…” 

When Consumer Notices Required to be Paper

15 U.S.C. Sec 7001 (c) entitled “Consumer disclosures,”  contains warnings to consumers about the electronic transaction they are about to sign.  It would be a “best practice” for an Internet site that included electronic deals to post these in a conspicuous place.

Law Requiring Pen and Ink Signature is E-sign-OK IF

Section 15 U.S.C. Sec. 7001 (c ) (1) provides for consent to electronic records.  The section states, “Notwithstanding subsection (a) (that an –signed agreement must not be denied effect), if a statute, regulation, or other rule of law requires that information relating to a transaction in or affecting interstate or foreign commerce (regulated by Congress, rather than only in one state and regulated by that state’s laws) be provided or made available to a consumer in writing, the use of an electronic record to provide or make available (whichever is required) such information satisfies the requirement that such information be in writing if,” the consumer agrees to accept the e-signed method:

Consumer Consents: the consumer has affirmatively consented to such use and has not withdrawn such consent”  This is left to the imagination and is not one of the clearest parts of this law. It is just that imagination that has created such giants in the e-commerce industry as Trust-eÒ, VerisignÒ and PGPÒ.  What else does the notice need to provide to the e-consumer in the ink and paper law world to get their e-signatures into validity under the paper law?

 Clear Conspicuous Statement - INFORMATION:  

The consumer, prior to consenting to the electronic transaction where the law requires a paper and ink one, is provided with a clear and conspicuous statement that includes:

• The right to have a paper record
• The right to withdraw consenting to continuing e-transactions, and
• The conditions, consequences and fees if any in making that choice.
• Telling the consumer whether the consent to deal electronically applies to one or to a series of transactions, and
• What types or categories of identified records may be provided or made available (and to whom) during the transactional relationship.
• Descriptions of the procedures the consumer must use to withdraw consent to transact electronically and
• How to update information needed to contact the consumer electronically.
• The notice must inform the consumer how, to obtain a paper copy of the transaction and whether any fee will be charged for such copy.
• It is easy to tell the consumer to print a responsive email or html message in the message itself.

Inform Consumer How To Keep A Record and Withdraw Consent.

Before consent, the e-business must tell the consumer:

The hardware and software requirements for access to and retention of the electronic records; and provide a way for the consumer to consent electronically, or confirm his or her consent electronically, in a manner that “reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent….” 

And after the consent of a consumer: 

In accordance with the consent notices,  if a change in the hardware or software requirements needed to access or retain electronic records creates “a material risk that the consumer will not be able to access or retain a subsequent electronic record that was the subject of the consent,” the e-business providing the electronic record: Must provide the consumer with the revised hardware and software requirements for access to and retention of the electronic records, and “…Tell the Consumer of their right to withdraw consent without the imposition of any fees for withdrawal and without the imposition of any condition or consequence that was not disclosed under subparagraph (B)(i) ^[2][3]…”

Other Provisions Of The Law       

Preservation of consumer protections:  Nothing in the law, “affects the content or timing of any disclosure or other record required to be provided or made available to any consumer under any statute, regulation, or other rule of law.”

Verification or acknowledgment

If a law that was enacted prior to the e-sign law, “that expressly requires a record to be provided or made available by a specified method that requires verification or acknowledgment of receipt, the record may be provided or made available electronically only if the method used provides verification or acknowledgment of receipt (whichever is required).”

Prospective effect

“Withdrawal of consent by a consumer shall not affect the legal effectiveness, validity, or enforceability of electronic records provided or made available to that consumer in accordance with paragraph (1) prior to implementation of the consumer's withdrawal of consent. A consumer's withdrawal of consent shall be effective within a reasonable period of time after receipt of the withdrawal by the provider of the record. Failure to comply with the requirements for consent to e-sign may, at the election of the consumer, be treated as a withdrawal of consent” to sign electronically and require a paper form signature.

 There are many other detailed provisions of the e-sign law that deal with defining the terms and words used in the law, what the 50 U.S. states may do to make their own versions of e-sign (called the Uniform Electronic Transactions Acts or UETA) and other technical requirements of Federal pre-emption, not within the scope of this article.

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