QUESTION
We recognize the requirements of E-Sign. One subject of discussion has
been its role in contractually binding our financial institution in mortgage
loan originations, especially in the area of consumer disclosures. How valid are
electronic signatures? Can electronic signatures be used to enforce contracts?
ANSWER
The Electronic Signatures in Global and National Commerce Act (E-Sign) was
designed to allow greater flexibility to implement electronically signed
transactions. Its requirements have been used more and more since E-Sign’s
inception in 2000. E-Sign specifies that an electronic record or transaction
may not be rendered invalid solely on the basis of its electronic or digital
nature, but it makes no guarantees about the overall enforceability of such
electronic contracts.
An electronic record is only enforceable if it meets the criteria
specified in relevant contract laws as well as the language of E-Sign. It is
worth noting that E-Sign applies to interstate or government interactions. With
respect to in-state transactions, these are bound either by the Uniform Electronic
Transactions Act (UETA) or the governing state laws relevant e-Signature laws –
which, in some states, are actually more strict than E-Sign or UETA.
For an electronically signed document to be enforceable in court, it
must meet certain requirements for legal contracts in addition to the
electronic signature guidelines specified in the appropriate laws (such as
E-Sign and UETA). According to E-Sign, an electronic signature is "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."
In contract law, signatures serve the following general purposes:
- Evidence: Authenticates agreement by identifying the signer with a mark attributable to the signer that it is capable of authentication.
- Ceremony: Act of signing calls attention to the legal significance of the act, preventing inconsiderate engagements.
- Approval: Express approval or authorization per terms of agreement.
To elucidate on factors involving authentication, broadly, authentication
is defined as evidence that a given record, contract, or form is a genuine,
unaltered written representation of an agreement approved by two or more parties,
whether in paper or electronic form.
An authentic document contains no evidence of fraud or tampering, such
that it may be reasonably concluded that the parties in agreement did indeed
assent to the enclosed terms. Assent is evidenced by an attributable,
authenticated signature. To be authenticable, the transaction must contain
enough information uniquely attributable to the user that fraud, forgery, or
validity can be reasonably proven.
For an electronic transaction to withstand scrutiny in court, it must
meet the definitions and criteria stated above; that is, it must be capable of
authentication and non-repudiation, call attention to the document's legal
significance (viz., creation of the electronic signature), and demonstrate approval
of the terms of the agreement.
Some electronic signature technologies sufficiently meet these criteria
and some do not. Therefore, it is very important for businesses and government
agencies to choose their electronic signature technology carefully or risk
making agreements that cannot be enforced.
If interested in a review of your electronic signature technology,
please contact us. We have subject matter experts who can review the
technological and regulatory compliance requirements of E-Sign.
Jonathan Foxx
Managing Director
Lenders Compliance Group
