As originally published in the Savannah Morning News, Legal Viewpoint Column.

The widespread use of new technology has changed the way America does business. For instance, electronic signatures and electronic records are now used in the formation of many contracts. However, it is still too early to abandon pens and paper. As is often the case, commercial law has not kept pace with advances in technology, leaving the validity of certain electronic transactions unclear. For example, a name typed at the bottom of an e-mail would be considered a legally binding signature in some states, for certain transactions, but is not valid in all situations.

Simply stated, an “electronic record” is information stored in an electronic medium that is retrievable in perceivable form. Examples of current technologies used to store information include e-mail, digital voice-mail systems, audio tapes, and compact discs. An “electronic signature” is a general, technology-neutral term that refers to all of the various methods by which one can “sign” an electronic record. Examples of electronic signatures include: a name typed at the end of an e-mail message by the sender, a digitalized image of a handwritten signature that is attached to an electronic document, and a secret code or PIN (such as that used with ATM cards) to identify the sender to the recipient.

State laws regarding electronic signatures and records vary widely in both scope and content - some require the use of a particular type of technology, while others apply only to specific transactions. However, state laws are gradually becoming more uniform - twenty-four states have adopted the Uniform Electronic Transactions Act (UETA). The federal government has adopted the Electronic Signatures in Global and National Commerce Act (ESA), which is closely modeled on UETA and applies to foreign and interstate transactions. Although they differ in some respects, both UETA and ESA provide that neither a signature or a writing may be denied legal effect solely because it is in electronic form, nor may a contract be denied legal effect solely because an electronic signature or record was used in its formation. Neither act requires or favors the use of any particular technology and neither requires anyone to use or accept electronic records. This leaves the parties to a transaction free to determine what degree of security they desire. For example, a business may choose to accept routine offers via e-mail, but may require a pen-and-ink signature for larger transactions or for transactions involving new customers.

Certain transactions are excluded from ESA and UETA, including wills, codicils, and testamentary trusts. ESA also exempts documents related to adoption, family law, court orders and related proceedings, filings with various federal and state agencies, and a variety of consumer cancellation notices. UETA contains several “opt-out” provisions that allow states to specifically exclude negotiable instruments, powers of attorney, real estate transactions, documents submitted or issued to government entities, consumer transactions and documents requiring notarization. Thus, even when UETA has been adopted by all states, the law may vary from state to state with regard to these documents.

Although the adoption of ESA and UETA are important steps toward creating a uniform standard, some uncertainty and variation remains regarding the validity of electronic signatures and records. Because this legislation is so new, it is not yet clear how it will be interpreted by the courts, nor is it clear to what degree ESA will preempt non-UETA state laws. In light of this, businesses should keep the following points in mind when considering the use of electronic signatures and records:

1. Electronic communications are just another form of communication. Regardless of whether it is documented via fax, e-mail or traditional paper, the basic elements required for a contract (offer, acceptance and consideration) must still exist in order for the contract to be valid.

2. Requirements that information be delivered (e.g., via first class U.S. Mail) or displayed (e.g., in bold-face type) in a particular manner are not affected by ESA, UETA, or most other state laws regarding electronic communications.

3. Parties to a transaction should specifically identify to one another what types of electronic signatures and records are acceptable and under what circumstances they will be acceptable. Do not assume that the other party will accept electronic communications for any or all aspects of a transaction. Except in the instance of a governmental agency which is required to accept electronic signatures on certain documents, ESA and UETA do not require any person to agree to use or accept electronic records or signatures.

4. Pay special attention to forum selection clauses (normally inserted by the party that drafted the contract) which specify the law which is to apply in the event of a breach of the contract. This is extremely important given the current diversity among state laws.

5. Businesses may also wish to consult an attorney familiar with commercial law to ensure
that the types of electronic signatures and records they are, or are thinking of, using are valid where they do business.


The views expressed in this article are solely those of the author. This article is intended for general informational purposes only. It is not to be regarded as legal advice. Persons with specific questions should seek advice of counsel.

Jennifer Hartley practices commercial finance law at Hunter, Maclean. She can be reached at jhartley@huntermaclean.com