Electronic Signatures: Can Your Computer Sign a Contract without Your Knowledge?
You no longer need to physically sign a piece of paper in order to enter into a contract. You likely have already signed agreements electronically by clicking the “I agree” buttons on various websites. Today, 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.
Q: Does the law govern electronic signatures?
A: Yes. The federal Electronic Signatures In Global and National Commerce Act (E-SIGN) provides that electronic signatures are valid for commercial transactions throughout the United States and for all international commercial transactions based on United States law. E-SIGN does not mandate the use of electronic signatures, but it does mandate their validity. It also invalidates state laws requiring paper signatures (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 in electronic rather than paper form.
Q: What is an “electronic signature”?
A: E-SIGN 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.” The concept of a signature as being limited to a physical mark on a piece of paper has been replaced by the concept of “electronic indication of assent.” You can now enter into a contract by pressing “1” on a phone, by entering a pin number, by clicking a box on a web page, by sending an email response to an offer, or—if the privacy aspects are adequately addressed—even by means of a biometric identifier (a biometric identifier might read, “Please sign the rental agreement by placing your thumb on the signature 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 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 (physical presence of the person whose signature is being notarized is NOT required). Many other states, including Ohio, have "electronic notarization" laws, but such laws only permit notarization of a pdf or other computer-based document; they specifically prohibit remote notarization (for example, via webcam). The rest of the states don't have any electronic notarization laws at all.
Q: What about electronic forgery risks?
A: Encryption and detailed technical standards were developed in the past to make electronic signatures forgery-proof, but practical considerations discouraged their use. Instead, businesses simply exchanged emails. While the risk of electronic forgery has not been eliminated, it has thus far proven to be no greater than paper forgery. Where document authentication or confidentiality is desired, encryption is the best method in an online context. Encryption is the basis for "secure" web-based financial transactions. There are many proprietary encryption techniques that even novices can use.
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: 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 such as evictions, utility cutoffs, product recalls and insurance cancellations. 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.
The law prohibits the states from imposing their own particular standards for electronic signatures. Congress decided to let the private sector develop workable standards that could evolve over time.
While E-SIGN has made it easier to conduct business and enter into agreements online, when you’re on the phone or online, you now 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, White & Ellis, LLP, in Columbus.