WHY ARE COMPANIES STILL STRUGGLING WITH ELECTRONIC TRANSACTIONS 20 YEARS AFTER THE LAWS SAID THEY ARE VALID?
ANSWER: PEOPLE HAVE DIFFICULTY UNLEARNING THOUSANDS OF YEARS OF RELIANCE ON HAND-WRITTEN SIGNATURES.
The laws of electronic signatures and e-transactions.
The Electronic Signatures in Global and National Commerce Act ("E-SIGN Act") became the law of the United States on June 30, 2000. The Uniform Electronic Transactions Act ("UETA") was released by the Uniform Law Commission in 1999 and enacted in Arizona in 2000.
The E-SIGN Act allows the use of electronic records to satisfy any statute, regulation, or rule of law requiring that such information be provided in writing, if the consumer has affirmatively consented to such use and has not withdrawn such consent. The term "electronic signature" means 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.
Similarly, the UETA applies to transactions between parties which have agreed to conduct their transactions by electronic means. Whether or not the parties agreed to do business electronically is determined from the context and surrounding circumstances, including the parties conduct.
So why are there so many cases about electronic transactions short-circuiting?
Over thousands of years, a detailed system of laws developed for hand-written signatures on contracts. "Hand-written" signatures date back to at least 3100 B.C. in Sumerian clay tablets.
Reciprocal covenants are referenced throughout the Bible. After all, God gave Moses two tablets of stone "written with the finger of God." Exodus 31:18. Signed transactions were common in second century Jewish communities and sixth century Muslim and European communities.
Hand-written signatures on contracts were engraved into the law by the Statute of Frauds enacted in England in 1677. Under the Statute of Frauds, contracts had to be:
1. In writing; and
What does a hand-written signature on a contract accomplish?
The hand-written signature demonstrates the intent of the party to be bound to the contract. The hand-written signature serves as an "authentication" of who actually made the contract.
Hand-written signatures on contracts are evidence of the intended and agreed upon terms of the deal. The hand-written signatures also are evidence of the approval of the transaction by all parties. By signing the contract, both parties provide assurances that they know the terms of the undertaking.
How do we make electronic signatures and e-transactions have the same effects that we have used hand-written signatures for over the centuries?
When your company decides to create an effective e-signature system, first make sure you are well aware of E-Sign and UETA and other applicable laws. Remember, the Statute of Frauds still exists!
But beyond knowing and following the laws, you need to think carefully about how to make your company's actual electronic transactions systems work for your business.
Although it may sound strange when dealing with e-transactions, your policies about electronic signatures and contracts need to be in writing. They need to be in writing because you need to have your people consistently follow the electronic system that you put in place. Also, you will need to prove the validity of the e-signatures and e-transactions in court someday and will need an "audit trail."
In order to make adoption of the e-system and policies work you need to have a team effort involving all stakeholders and users. The system must assure that the e-signature is actually from the individual against whom you wish to enforce the contract. The system must be able to demonstrate that the document was not altered either before or after it was e-signed.
You need to have a system that will keep people from denying that they e-signed the documents. The system must also be able to prevent people from later saying that they signed or transmitted the electronic document by mistake.
If you have questions about implementing a legal and effective e-transaction and e-signature system, please call me.
Michael R. King, Gammage & Burnham, Attorneys at Law
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