It is no longer necessary for you to physically place your signature on a piece of paper in order to enter into a contract. Instead, simply replying to an email can mean entering into a valid and binding contract to buy insurance, sign a lease, arrange for utility service, or take out a loan. Chances are you have already signed agreements electronically by clicking the "I agree" buttons on various Web sites. The electronic signature era has arrived.

As email and other forms of electronic information exchange became routine, there were many attempts to define an electronic equivalent for a person's physical signature on paper. In the 1990s, the concept of "electronic signature" was introduced to try to legitimize contracts that were not physically signed. The focus back then was on encryption, which would make electronic signatures "forgery-proof." International organizations proposed, and some countries passed, laws specifying detailed standards for electronic signatures, most of which were ignored as businesses simply exchanged emails.

Since then, practical considerations have prevailed. In an electronic context, the risk of forgery is no greater than in a paper context, and neither encryption nor detailed standards for electronic signatures has been useful. The current electronic signature laws in effect at both the state and federal level are much broader and more practical. The federal version is the Electronic Signatures In Global and National Commerce Act (E-SIGN). E-SIGN is significant because it means that electronic signatures will be valid for commercial transactions throughout the United States and for all international commercial transactions based on U.S. law. Although E-SIGN does not mandate the use of electronic signatures, it does mandate their validity. It specifically invalidates state laws requiring paper signatures, as well as state-level electronic signature laws and court decisions that have conflicting provisions. It also permits businesses to require electronic signatures of their customers as a condition of doing business. Also, many laws that used to require retention of paper originals have been pre-empted, and it is now permissible to retain copies of many types of documents in electronic rather than paper form.

Q: What is an "electronic signature"?
A: E-SIGN deliberately avoids imposing any specific standards, and instead defines it broadly: "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." This definition means that a faxed signature on a contract is as good as an original, but the law goes far beyond that. The concept of a signature as being limited to a physical mark on a piece of paper has been abandoned. In its place is the concept of "electronic indication of assent." Contracts can now be entered into by pressing "1" on a phone, by entering a pin number, by clicking a box on a Web page, or--if the privacy aspects can be ironed out--even by means of a biometric identifier (a biometric identifier might read, "Please sign the rental agreement by placing your thumb on the ID pad"). An oral statement or a recording of an oral statement is specifically excluded, so when you are signing a contract via your phone, you won't hear the phrase, "Press or say 1." You'll just hear, "Press 1."

Q: What about contracts that must be notarized?
A: E-SIGN also permits electronic notarization. This raises some intriguing questions: Since people now will be doing major transactions at home after hours (not only at real estate offices and banks during working hours), and since notaries still have to personally witness the person signing the contract--even if both the person signing and the notary use electronic signatures--will every pizza delivery person and cab driver become a notary public?

Q: Is it possible for computers to make contracts without involving people?
A: Yes. Even more intriguing is the provision in the new law that allows contracts to be formed by "electronic agents." "Electronic agent" is defined as "a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part without review or action by an individual at the time of the action or response." Thus, binding contracts can be formed by machines, without the direct participation of any human being. Although this sounds revolutionary, the law is merely enabling on a broad scale a practice known as Electronic Data Interchange (EDI). EDI has been used for many years to accomplish such things as automatic inventory replenishment. Before E-SIGN went into effect, EDI had to be the subject of prior agreements between individual companies. Now any company can, in effect, offer EDI without any prior agreement.

Q.: Is there any type of contract that cannot be signed electronically?
A.: Yes. E-SIGN does have some limits. It applies only to commercial transactions. It does not apply to wills and trusts; family law matters such as marriages, adoptions or divorces; court documents; or notices of termination of various sorts such as evictions, utility cutoffs, product recalls, and insurance cancellations. Although it applies to the Uniform Commercial Code provisions for contracts and sales, and for written waivers, it does not apply to commercial paper, bank deposits and collections, letters of credit, warehouse receipts, investment securities, or transactions involving a security interest.

The law prohibits the states from imposing any particular standards of their own for electronic signatures. Congress wanted to allow the private sector to come up with workable standards that could evolve over time.

E-SIGN makes it much easier to conduct business and enter into agreements online. Nonetheless, these days, when you're on the phone or on-line, you need to pay special attention now to what buttons you push.

1/7/2009

Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was prepared by Robert L. Ellis, the managing partner of Peterson, Ellis, Fergus & MacDowell, LLP, in Columbus.