Electronic Signatures

21 July 2000
(co-authored by Allison K. Hift, an associate)

For too long, people doing business online have been making it up as they go along. Often, even as a computer lawyer, I'm not sure what the online rules are. Now that we have e-commerce, it's time to make up the rules governing it.

Fortunately, the Florida legislature just threw us a softball. We don't need to guess as much anymore. Florida recently joined about fourteen other states that have enacted the Uniform Electronic Transaction Act ("UETA").

We now have a definitive set of rules governing electronic signatures in Florida. The legislation will reduce the amount of guesswork that we've all had to do to make online contracting work effectively for us.

An Electronic Signature Standard

I don't know an e-commerce attorney out there who hasn't drafted a provision or two about online commerce from scratch. The nature of an e-commerce practice is that sometimes you have to invent the wheel. Sometimes you have to say things like, "The effective date of this contract is when both parties digitally sign it."

Of course, as you do it you wonder if the state laws in which the parties are located recognize digital signatures. For that matter, "Which state's law applies?" And, is notice under a contract received when it hits your e-mail box or when you click on it to open and read the digital message?

All of this uncertainty has stifled online business. Business hates legal uncertainty.

I know that I'm often forced to recommend that we overnight two hard copies of a contract to the "other side" for execution. It's unbelievably inefficient.

A uniform legal standard for electronic signatures has been long overdue. The absence of this standard has created an undue burden on e-commerce.

Congress recognized this and passed the federal Electronic Signatures in Global and National Commerce Act (the "ESGNCA").

The ESGNCA provides that state law may modify, limit, or supercede the ESGNCA only for limited purposes. One such purpose is if the State enacts the UETA.

The UETA is uniform legislation that the National Conference of Commissioners on Uniform State Laws (the "NCCUSL") ratified in July 1999. This means that each state now has the opportunity to review the legislation and adopt it if it so chooses.

The UETA relates to the use of electronic communications and records in contractual transactions. It's great for businesses that want to do business digitally because it preserves the freedom of contract and it avoids over-regulation.

This column will focus on four of the most important provisions of the UETA.

A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.

Sounds simple? You're right. It is. This provision doesn't require the parties to contract electronically and it doesn't prohibit the parties from doing so either. It simply acknowledges that they can if they want. So how do the parties determine whether they should do business electronically or not? They simply have a "meeting of the minds" and decide. Whether the parties have both agreed can be determined by the parties' conduct and from the surrounding circumstances.

Just because parties agree to conduct one transaction electronically doesn't necessarily mean that every transaction will be the same way. They can still go back to the old fashioned FedEx and fax methods if they prefer.

A contract may not be denied legal effect or enforceability solely because an electronic record was used in the formation of the contract.

This provision allows the parties to rely on the digital deal. This is another smart provision. We no longer operate in the world of word processors where "printing" the document should give it legal effect. Now, if the parties choose, the parties can execute the digital contract with a digital signature.

If a law requires a record to be in writing, an electronic record satisfies the law.

If the parties have agreed to conduct a transaction by electronic means and a law requires a person to deliver information in writing to another person, you can satisfy the requirement if you deliver the information in an electronic record capable of retention by the recipient.

However, if the sender makes it impossible for the recipient to print or store the electronic record, the UETA does not consider the record "capable of retention" and the sender hasn't satisfied the law.

If a law requires a signature, an electronic signature satisfies the law.

The UETA provides that an electronic signature is attributable to a person if the electronic signature was the "act of the person." While the meaning isn't quite clear from that provision alone, the UETA provides that you can identify the "act of the person" in any manner. This would include a showing of the efficacy of any security procedure used to determine the validity of the electronic signature.

Basically, it would seem that if you're using any popular and currently available digital signature program, you've met the burden under the UETA.

Things Aren't Always What They Seem

The UETA recognizes that transmitting records electronically isn't always perfect. You can corrupt a file or lose half of it in transmission. Since we can only blame our secretaries so often, the UETA has a provision that deals with what happens if a change or error occurs in an electronic record during transmission.

Take a deep breath and try to follow this. If two parties have agreed to use a security procedure to detect changes or errors and one party conformed to the procedure and the other party didn't, and the party that didn't would have been able to pick up the error if she had "followed the rules," then the party who followed the rules doesn't get burned.

In other words, if you play according to the rules that you and the other party agreed to, if something goes awry in transmission, you're safe. Sounds reasonable to me.

Well, what happens if you're contracting with an electronic agent? Let's say you order something online on a digital form. You order that golf club you've been eyeing that costs $179.99 and your digital receipt says "Thank you. We've just charged your account $1,799.99." And now, you can't correct that receipt.

Under the UETA, you only have to promptly notify the person of the error and take reasonable steps to cooperate. Do you have to return the golf club? Yes. Can you use the golf club on the greens for a couple of weeks first? Nope. The standard here is reasonable. You need to do what's reasonable to cooperate to fix the error.

The UETA also excludes certain documents from its scope like wills, codicils, and testamentary trusts.

These exclusions make sense for now. For example, generally state laws provide very specific witnessing requirements concerning the execution of a will, including how many witnesses you need and who can and can't witness a signature.

The UETA is definitely a step in the right direction for electronic commerce in Florida. With more laws like this, we'll find that legal certainty and increased online business opportunities will replace the online legal questions that we've faced for too long.

Mark Grossman's "TechLaw" column appears in numerous publications. Mark Grossman has extensive experience as a speaker as well. If you would like him to speak before your group or corporate meeting, please call (305) 443-8180 for information.

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