You do not need to physically sign a piece of paper in order to enter into a contract. It is common practice to enter into a contract by signing a signature pad in a store, or by clicking “agree” on a website or in an app. Federal and state electronic signature laws specify that a person may “sign” a contract by means of any expression of assent other than a recorded voice. Federal electronic signature law (the so-called “E-SIGN law) invalidates state laws requiring paper signatures on contracts and other documents (with a few exceptions discussed below) and permits businesses to require their customers to provide electronic signatures as a condition of doing business. 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 (such as cancelled checks) in electronic rather than paper form.
Q: What about contracts that must be notarized?
A: Federal law permits electronic notarization, but even though the law has been in effect for more than a decade, almost all notarization is still done the old-fashioned way. Only the state of Virginia specifically allows remote notarization (meaning that the physical presence of the person whose signature is being notarized is NOT required). Of the other states, including Ohio, that have “electronic notarization” laws, such laws only permit notaries to sign documents with a digital signature; these states still prohibit remote notarization (for example, via webcam).
Q: What about electronic forgery risks?
A: Encryption and detailed technical standards have been developed in an attempt to make electronic signatures forgery-proof, but no law mandates that such standards be used. Federal law prohibits the states from imposing their own particular standards for electronic signatures, so the private sector is free to determine its own standards. Most businesses simply exchange emails for routine transactions, and consumers click “agree” on websites that are encrypted and secure. The risk of electronic forgery has proven to be lower than the risk of paper forgery.
Q: Can computers make contracts without involving people?
A: Yes. The law allows “electronic agents” to form contracts. An “electronic agent” is “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.” Electronic agents do not normally contact each other and enter into contracts. In reality, real people enter into contracts to permit automation of certain routine transactions. Nonetheless, it is perfectly legal to program a computer to search for various items on the Internet and purchase them at the lowest price it can find, using a credit or debit card, without any human being involved once the program has started running. If you have the right software, therefore, your computer can indeed sign contracts on your behalf.
Q: What types of documents cannot be signed electronically?
A: Since E-SIGN and its state counterparts are intended to be used for commercial transactions, many types of documents—mostly legal and governmental type documents—are not covered. For example, wills and trusts must be signed manually. Also, family law matters such as marriages, adoptions or divorces; court documents; or notices of termination such as evictions, utility cutoffs, and insurance cancellations generally must involve paper documents. Although E-SIGN 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.
While electronic signature laws have made it easier to conduct business and enter into agreements online, when you’re online or on the phone, you need to pay special attention to what buttons you push.
This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by attorney Robert L. Ellis, a partner at Hennis, Rothstein & Ellis, LLP, in Columbus.