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On June 30, 2000, Congress enacted the Electronic Signatures in Global and National Commerce Act ("ESIGN" or "the Act"), to facilitate the use of electronic records and signatures in interstate and foreign commerce by ensuring the validity and legal effect of contracts entered into electronically. The Act went into effect in October 2000. A copy of the Act is available here - Electronic Signatures in Global and National Commerce Act ("ESIGN") 2000

The general intent of the ESIGN Act is spelled out in the very first section (101.a)

(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.

This simple statement provides that electronic signatures and records are just as good as their paper equivalent, and therefore subject to the same legal scrutiny of authenticity that applies to paper documents.

Additional Features of the E-SIGN Act

  1. An electronic signature is only valid under the Act if the signatory intends to sign the contract.
  2. The Act permits notaries public and other authorized officers to perform their functions electronically, provided that all other requirements of applicable statute, regulation or rule of law are satisfied. The Act "removes any requirement of a stamp, seal or similar embossing device as it may apply to the performance of these functions by electronic means."
  3. The Act does not require a party to use or accept electronic signatures, electronic contracts, or electronic records, but rather seeks to facilitate the use of these instruments by upholding their legal effect regardless of the type or method selected.
  4. The Act forbids any state or federal statute from requiring a specific technology for electronic transactions. This technology-neutral approach instead allows the market to decide which technologies will best facilitate electronic commerce.

Scope of the E-SIGN Act

  1. Applies to any transaction “relating to the conduct of business, consumer or commercial affairs between two or more persons.”

  2. Does not apply to a contract or other record that it is governed by
    1. A statute, regulation, or other rule of law governing the creation and execution of wills, codicils, or testamentary trusts;
    2. A State statute, regulation, or other rule of law governing adoption, divorce, or other matters of family law; or
    3. The Uniform Commercial Code, as in effect in any State, other than sections 1-107 and 1-206 and Articles 2 and 2A.
  3. Other Exceptions
    1. Court orders or notices, or official court documents (including briefs, pleadings, and other writings) required to be executed in connection with court proceedings;
    2. Any notice of—
      1. The cancellation or termination of utility service (including water, heat, and power);
      2. Default, acceleration, repossession, foreclosure, or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual; (details of (ii) exceptions)
      3. The cancellation or termination of health insurance or benefits or life insurance benefits (excluding annuities); or
      4. Recall of a product, or material failure of a product, that risks endangering health or safety; or
    3. Any document required to accompany any transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials.

The definitions given by ESIGN Act Sec 106:

(2) ELECTRONIC- The term `electronic' means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

(4) ELECTRONIC RECORD- The term `electronic record' means a contract or other record created, generated, sent, communicated, received, or stored by electronic means.

(5) ELECTRONIC SIGNATURE- The term `electronic signature' means 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.

Section 101 of the ESIGN Act, sub-section (b), preserves the rights of individuals to NOT USE electronic signatures. Here the law provides that individuals reserve the right to use a paper signature. Sub-section (c) is in direct support of (b) by requiring a “Consumer Disclosure” that the signatory has consented to use an electronic format.

Section 101(c)(1)(C) states that the consumer also "consent electronically, in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent"

It can be important to provide a multi-step approach to “Consumer Disclosure”. First, by providing a text area in the message to the recipient the sender can disclose all relevant information regarding the specific transaction. Then by providing a second disclosure notification when the recipient clicks the "Sign It" button. Once again Full disclosure can be given as pertains to this specific transaction. Acknowledgement of this disclosure is captured as proof that the consumer was informed, and did accept to use an electronic process.

As we can clearly see the law outlines a two step process to signing files electronically. First disclosure of the consumer’s right to use paper, which is followed by their consent to the electronic process. The second phase is the actual capture of the electronic signature.

Once the signature is captured the law directs its attention to the electronic record that has now been created. This aspect of the law, while often overlooked, provides the true power and cost savings of electronic signatures – the ability to STORE electronic files. Printing and storing a paper copy of the electronic record defeats the achievements of this law. It is the accessibility and cheap storage costs of electronic files that really amount to long term cost savings. Sub-section (d) details the retention of contracts and records. If a “statute, regulation, or other rule of law requires” the file to be retained then “that requirement is met by retaining an electronic record”.

Accuracy and availability are discussed in both (d.1.B) and (e). The record must be available to all parties involved; this is easily accomplished by allowing each signatory to save an electronic copy of the record on their own computer. The electronic record and signature created must be in a format that is both accurate and accessible. Meaning that the technology to read, display and transfer the record is of a generally acceptable form. This aspect of the law requires businesses to choose electronic signature services that provide them with flexibility.

If the eSign solution allows any file type to be electronically signed it can therefore increase the availability of the electronic record as described in (d.1B) and (e). This gives each business the ability to select the best electronic format for their clients.