By Benjamin Wright

By enacting the new Electronic Signatures in Global and National Commerce Act (E-SIGN), S. 761, Congress has confirmed the legitimacy of electronic signatures as a matter of national policy. The legislation promotes commerce on the Internet by declaring that electronic signatures will not be denied legal effect. Although legally speaking this action was unnecessary, it makes good sense politically and economically. And it will have a substantial impact on all the banking industry, including credit unions.

The reason the legislation was not actually necessary is that the law of signatures has always been broad enough to accommodate proper electronic signatures. This may strike you as counterintuitive because you thought of a signature as involving paper and ink. It struck enough e-businesses as counterintuitive that they wanted Congress to restate the old law in fresh legislation.

Even before computers, courts recognized that transient communications like telegrams could legally be signed. Then the 1997 Massachusetts case Doherty vs. Registry of Motor Vehicles, http://www.state.ma.us/itd/legal/case.htm, acknowledged that under the right circumstances an email message could be considered signed. Judge-based law like this was generally adequate for companies nationwide to feel confident in competent signature technologies.

Of late, many state legislatures have re-confirmed the validity of electronic signatures. Although the various legislatures have often spoken in different words, they virtually always agree with this fundamental principle: an electronic symbol adopted with the intent that it be a signature can in fact be a legal signature.

A hint of disharmony did emerge when some state legislatures granted special support for certain specific signature methods. The best example is the Digital Signature Act of 1995 from Utah, Utah Code Annotated §§ 48-3-101 to 504.

That law sets special rules for signatures based on public-private key pairs and certificates issued by certification authorities like Verisign, http://www.verisign.com. Even though those extraordinary rules do not undermine the traditional law in favor of electronic signatures, they have yielded some confusion about whether signature laws are uniform across the country.

The Three Features of a Good Signature

Any disharmony and confusion was intended by Congress to be laid firmly to rest with E-SIGN. To do that, Congress simply restated and reinforced the traditional law of signatures. Congress declared that, regardless of technology, one can be bound to any symbol of commitment he intends to be bound to, including a computer-generated symbol. Under E-SIGN, intent to be bound is judged from all of the facts and circumstances surrounding the transaction, which means that the developers of signature technologies need to create methods for recording those circumstances and replaying them if the signature is later disputed in court. Further, under E-SIGN consumers must be afforded opportunity to store reliable records of the things they sign.

A workable electronic signature therefore has to do three things. First, it must inform the signer about what he is doing as he approves a document. In other words, it must alert him he is about to sign an important document, and if he doesn't wish to do that he needs to stop. Second, a workable signature must keep a good record or transcript of the signing event so it can later be determined in court who the signer was, which document he thought he was signing, and what he intended for his signature to mean (did it mean he wanted to be legally obligated or did it just mean he wanted to show he had seen, though not necessarily approved, the document?). Third, a good signature will be applied to a document in such a way that the entire document - including all of the signature evidence and audit trail itself - can be given to and stored by both the signer and the receiving party (such as a lender).

An example of a technology doing these things is PenOp, http://www.penop.com. PenOp walks the signer through a short ceremony to ensure he understands the importance of his electronic John Hancock. Then it captures a secure record of his handwritten signature, together with an audit trail memorializing the circumstances that bespeak the signature's meaning. PenOp stores this information as an encrypted, reliable transcript of the whole signing event. The record is mathematically bound to the signed document so it cannot be clipped and pasted to another document. The final signed document, together with the signature record, can be given for safekeeping to both the signer and the receiver of the document.

Similar processes are available for other types of electronic signatures, such as those based on voiceprints, eye patterns, keys stored in smart cards or even credit card numbers. The market for electronic signature products is highly competitive, and no one can predict which methods will ultimately predominate.

Limited Preemption of State Law

E-SIGN preempts state laws, such as the Utah Digital Signature Act, to the extent they might be interpreted as favoring certain technologies. But the preemption is limited because it may not be clear that laws like the Utah Act favor any technologies. Further, Congress generally intends for the preemption to end for each state that adopts the new Uniform Electronic Transactions Act, http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta.htm. The UETA is model legislation, recommended by the National Conference of Commissioners on Uniform State Law, for adoption by all state legislatures. Like E-SIGN, the UETA (which has already become the law in California and over a dozen other states), confirms that the traditional, liberal law of signatures applies to e-commerce, and no particular technology is favored over another technology.

The combined effect of E-SIGN and the UETA is similar to the setting of national standards for road signs on interstate highways. It promotes consistency and smoothes over the appearance of any local idiosyncrasies.

Neither the federal legislation nor the UETA actually contain any new law on signatures. But symbolically they are powerful because they reassure businesses that the nation's top political and legal authorities expect electronic signatures to be honored in all courts of the land.

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Benjamin Wright http://wright.safeshopper.com is an attorney based in Dallas and founding author of The Law of Electronic Commerce (Aspen Law & Business). His email address is ben_wright@compuserve.com. This article is not legal advice for any particular situation. July 2000