Electronic Signatures: the Way of the Future

In today's business environment, electronic communication is the fastest and simplest way to conduct many business activities. As a society, we want things done fast. We do not want to have to drive to a building for a meeting if we can find a faster way. With the use of the Internet, we found a faster way. It is immediate and can be very secure.

A lot of interaction requires some affirmation of agreement in the form of signatures. When trying to move into an electronic medium, we have the desire to keep a consistent way of doing business. Therefore, if a face-to-face business meeting would require a signature on a contract, so would an electronic meeting.

"The electronic signature was supposed to be the last piece of the e-commerce puzzle. It was supposed to liberate business from reams of paper and eliminate the need for costly face-to-face meetings." (Saccomano, 24) Has it done this? Honestly, no. The major problem with e-signatures is the lack of definite and uniform way of handling these signatures.

Before we can address the electronic side, we must look at what constitutes a signature in written form. Under the UCC 1-201(39), "any symbol executed or adopted by a party with a present intention to authenticate a writing" constitutes a signature. (Miller, 495) An "X" can be considered a signature. It is whatever symbol a person chooses to represent their intentions. With regards to a merchant firm offer, "initials, a thumbprint, a trade name, or any mark used in lieu of a written signature will suffice, regardless of its location on the document." (Miller, 368) It is clear that a signature is not about what it actually looks like, but what it represents.

A signature is supposed to show that a party is confirming whatever document or agreement the signature is placed upon. The signature has to be intention. That is what differentiates a signature from an autograph. It has to confirm or acknowledge some agreement. An electronic signature is needed to perform theses same functions.

There are different types of electronic signatures. There are digital signatures. These use software to match codes to ensure that the person is who they state to be. There are smart cards. These are used like a credit card except it has a computer chip embedded in it. It can validate a person's identity and serve as a confirmed signature. There is new technology coming about that deal with thumbprints or retina images being scanned into a computer. These have to use third parties to validate the matching of the images to date codes they are to represent. (Miller, 442)

There is a federal law regulating electronic actions. The Electronic Signatures in Global and National Commerce Act (E-SIGN Act) was enacted in 2000. It states that no signature can be denied legal effect because it is in electronic form. It validates such a signature. Under this, there must be an agreement between the parties to use electronic signatures.

The E-SIGN Act does not apply to every type of document that requires a signature. "Court papers, divorce decrees, evictions, foreclosures, health-insurance terminations, prenuptial agreements, and wills" all require a written signature. (Miller, 444)

State laws governing e-signatures are not uniform. To encourage continuity, "the National Conference of Commissioners on Uniform State Laws promulgated the Uniform Electronic Transactions Act (UETA) in 1999." It defines an e-signature as "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record." It includes in the umbrella of "e-signature" the "encrypted digital signatures, names (intended as signatures) at the ends of e-mail, and a click on a Web page if the click includes the identification of a person." It also states that a "signature may not be denied legal effect or enforceability solely because it is in electronic form." (Miller, 443-444) The UETA has only been adopted by 39 states as of April 2, 2002. (People v. Kevin McFarlan)

Utah was the first state to enact electronic signature legislature. This was the Utah Digital Signature Act (UDSA) in 1995. The UDSA presumed validity to electronic signatures. At the time, it was limited in the meaning of electronic signatures. It dealt with signatures created using certain technology, not just an e-signature in general. (Askew, 6)

California passed what is known as the Assembly Bill 1577 in 1995. This legislation dealt with only transactions conducted with public entities, but it did not determine what type of technology was to be used to create these signatures. (Askew, 7)

Illinois enacted the Illinois Electronic Commerce Security Act, which took effect in 1998. This legislation distinguished the varying degrees of security and presumed validity in these different degrees for electronic signatures. (Askew, 7)

New York enacted the Electronic Signatures and Records Act (ESRA) in 1999. It was amended to conform to the E-SIGN Act on the definition of an electronic signature.

Many organizations have their own way of dealing with electronic signatures. The SEC has a set of rules and regulations regarding electronic filings. It is Regulation S-T, "General Rules and Regulations for Electronic Filings Preparation of Electronic Submissions." It states that "electronic signatures have been 'executed, adopted or authorized as a signature' by the person whose signature is transmitted electronically." It also states that signatures are not required on unofficial documents. It says that the signatory must sign a signature page that confirms that any typed form of his signature within the electronic filing is acknowledged. (Berger v. Piranha)

Today, you can e-file your tax return. In order to do this, you must complete a form with your signature on it. This is mailed to the IRS validating that the taxpayer (and spouse) have acknowledged the tax form.

When filling out a FAFSA form, it can be done online. You are given a PIN number that acts as your signature. If your parents are not present, they must sign the review copy that is sent to you and that must be returned back to the FAFSA organization.

You can do many things online in this day and age. You can take out a loan or mortgage. You can do numerous activities regarding your bank accounts. These all require you to have some way of proving that you are intending to affirm these activities and contracts.

With all these new ways of doing business, there are also many problems that arise. These tend to end up in a courtroom. This is a fairly new issue in the courts. Most courts have to deal with the issue of whether or not the signature in question was intended to be a signature and if it was made by the person in question.

In one case, a corporation filed for Chapter 11 bankruptcy. One of its creditors wanted to dismiss the bankruptcy because one of the directors resigned and his successor were viewed to not have been authorized to file the bankruptcy. The creditor argued that the director resigned when the corporation filed the Form 8-K with the SEC that 'bore his electronic signature." The director stated that his electronic signature on the 8-K was not his signature. The bankruptcy court dismissed the creditor's case. It was appealed and the original finding was affirmed. The court decided that the director had not resigned until after the 8-K had been filed because of it not being in writing. The director waited to give his formal written resignation; therefore the 8-K was not "executed, adopted, or authorized." (Berger v. Piranha)

Another case dealing with the presence of a contract through electronic mail concluded that just because the communication was through e-mail it could not be denied validity. It also said that any names meant to represent signatures with the e-mails, were still legal, valid and enforceable in forming a contract through the e-mail. (Roger Edwards, LLC v. Fiddes & Son, Ltd.)

Technology is changing and business has to change with it in order to take advantage of the benefits of such technology. Society today wants things faster and better. We also want things to be reliable. If we want to make use of the Internet and what it can do for us, we must develop ways to handle business issues.

Most business transactions require confirmation in the form of a signature. As more and more is available to do online, we must have a way to sign these contracts and these confirmations. There is new technology with ways to insure the security and to make sure the parties are who they say they are.

Electronic signatures are a fast and easy way to show that you want to acknowledge and affirm an agreement you are entering. Of course, there are problems, but as time goes on, these will be dealt with. There are inconsistencies among the various states on how to deal with issues that arise out of the issue of electronic signatures. We have one federal regulation, the E-SIGN Act, which does this. All states must go by this, but they each have variations how to deal with specific issues.

Electronic signatures are the way of the future. More and more processes and normal activities of everyday life will be done over the Internet as time goes on. This movement towards the future of technology should not be something to shy away from, but there should always be precautions taken.

Citations

1. Askew, Rebecca A. "Understanding Electronic Signatures: A Discussion of Electronic Signatures, the E-Sign Act, and the Admissibility of Electronic Signatures in the Law." http://www.reallegal.com/downloads/pdf/ESigAskewWhitePaper.pdf Pgs. 6-7.
2. Berger, Richard S. v. Piranha, Inc. 297 B.R. 78. (TX, 2003).
3. Miller, Roger LeRoy and Gaylord A. Jentz. "Business Law Today." Sixth Edition. West Legal Studies in Business, Thomson Learning. 2003, pgs. 368, 442-444, 495.
4. People of the State of New Yok v. Kevin McFarlan. 744 N.Y.S.2d 287, 2002.
5. Roger Edwards, LLC v. Fiddes & Son, Ltd. 245 F. Supp. 2d 251. (ME, 2003).
6. Saccomano, Ann. "Sign on the Fiberoptic Line: Electronic Signatures are Gaining Ground Slowly in International Business." Media Journal of Commerce. June 30, 2003, pg. 24.