Tuesday, March 8, 2016

Electronic Signatures: OK to Use?

This blog post focuses on the use and validity of electronic signatures. We will first investigate what constitutes an "electronic signature", we will then discuss the validity and enforceability of electronic signatures, and finally, we will talk about the risk involved with unauthorized use of electronic signatures and how to minimize it.

What are "electronic signatures"?

The federal law titled the Electronic Signatures in Global and National Commerce Act (also called ESIGN Act) defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with intent to sign the record.” This broad definition allows flexibility in what may be considered an electronic signature and permits individuals and businesses to use different types of technologies and methods to create valid and legal electronic signatures. Examples of electronic signatures include:
  • Keyboard characters entered in a specific order, such as a PIN number or a password;
  • Clicking a button or checking a box to agree to the terms shown on a screen, called a “click wrap” system;
  • Signing an electronic keypad; 
  • A graphical representation, image or a scan of a handwritten signature; or
  • Agreeing to terms described in an email that would suggest acceptance of terms in the email.
Another type of electronic signature is a digital signature, which uses technology called a Public Key Infrastructure (PKI) to make a unique pattern that is coded into an electronic document. This acts as an identifier that is unique to the signer to guarantee identity, intent, and integrity of the document for verification purposes. Because of this technology, the digital signature is more secure than the traditional types of electronic signatures.

In the current environment where many communicate through email, the laws of electronic signatures also apply to email. A person can make enforceable agreements through email if the email contains the important and material terms of the agreement and clearly shows that both parties intended to agree to the terms set forth in the email. In this case, the electronic signature can come in the form of the signer’s name at the end of the email, though courts have found that automatic signature blocks at the end of an email are not sufficient for an electronic signature. In order to have a valid electronic signature in an email, the signature should show that the person manually entered the name with the intent to agree and sign. Suggested signatures in an email include:
  • Preceding or including a unique character in addition to the signer’s name, such as “/s/”;
  • Using a unique method of entering the signer’s name, such a cursive font or script; or
  • Using a graphical representation or image of the signer’s name.
Are “electronic signatures” valid?

The ESIGN Act protects the validity and enforceability of signatures made electronically. According to the ESIGN Act:
  1. a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and 
  2. a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation. 
The ESIGN Act does not apply to certain transactions, which include:
  • Wills, trusts, and codicils;
  • Family matters, such as adoption and divorce; 
  • Most of the transactions covered by the Uniform Commercial Code; however, other statutes that relate to transactions under the Uniform Commercial Code allow electronic signatures for transactions that are exempt from the ESIGN Act; 
  • Notices of default, foreclosure or eviction; 
  • Termination of utility services; 
  • Termination of health or life insurance; 
  • Product recalls; and 
  • Documents related to the transportation of hazardous materials. 
The ESIGN Act does not require a person to use or accept electronic signatures if the parties prefer traditional methods of signatures. This means that there must be consent from the parties to enter into the transaction through electronic means. Consent can be explicit (such as a clear indication in writing that the parties intend to enter into the transaction through electronic methods) or implicit (such as a signer frequently accessing a website or repeatedly communicating through email and the terms of the agreement are set forth in the email – a one-time email may not be sufficient).

Unauthorized use of electronic signatures

Now, let’s discuss the legal consequences of somebody else using a person's electronic signature without authorization.  There is a risk that such person will be held liable even if hedid not authorize the use of the image containing his electronic signature.  However, there are ways to minimize this risk.  Remember that the ESIGN Act requires the signer to have “intent to sign the record.”  So, whoever signs electronically, should be able to confirm his identity and the “intent to sign.”  If a person's electronic signature was used without authorization, then such person should be able to prove the opposite: that it was not him who signed and that he did not have any intent to sign that particular document.  How to prove that?  Below are several suggestions:
  • Set up procedures to protect and limit access to your e-signature (PINs, passwords, restricted access);
  • Consider using a digital signature with PKI technology;
  • If an email is used, then always keep email trail that shows who had access to your e-signature; and
  • Keep records of computer systems that link computers and IP addresses to show who may have accessed the image or sent the agreement with the image.
Since the ESIGN Act requires “intent to sign the record,” any evidence that shows lack of intent helps the signer avoid liability in the event of unauthorized use of the image.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of corporate, securities, and intellectual property law.

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