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Law in the Marketplace: The uses and pitfalls of e-signatures

  • John Cunningham

For the Monitor
Published: 7/24/2021 9:16:15 PM

In 1990, a national organization known as the Uniform Laws Commission published a new uniform statute entitled the “Uniform Electronic Transactions Act” (UETA), and New Hampshire enacted the UETA in 2001. In 2000, the federal government enacted a similar law entitled the “Electronic Signatures in Global and National Commerce Act” (the ESIGN Act).

With limited exceptions, both acts make new law by providing that, if they meet certain conditions, contracts that exist only in electronic form and that are signed only electronically will be just as valid and enforceable as traditional paper contracts with ink signatures. Exceptions to UETA and the ESIGN Act include estate planning documents, documents related to adoptions, divorces and other family matters, and certain types of documents under certain provisions of the Uniform Commercial Code. (In this column, “electronic contract” means a contract whose terms exist in electronic form and that are signed electronically.) Needless to say, vast number of the electronic contacts validated by the new laws are offered by one party to the other and are signed and returned by the other in the form of e-mails.

The main conditions for the validity of electronic contracts under both UETA and the ESIGN Act are these:

All parties to the contract must have consented to do business together on the basis of electronic contracts.

All parties to these contracts must intend them to be valid despite their being purely electronic.

Each electronic contract must be signed under a recorded process to which the parties have agreed and which preserves a record of each such contract.

In particular, copies of electronic contracts, showing their text and their signatures, must be electronically available to all relevant parties.

UETA is in effect in most U.S. states, and even non-UETA states have statutes that validate electronic contracts. And of course the ESIGN Act, as a federal act, is effective in all US states and territories.

Because of the convenience of electronic contracts, many American businesses began making significant use of them as soon as UETA and the ESIGN Act were enacted. However, their use became vastly more common with the advent of the COVID pandemic, which forced many sole practitioners and many owners and employees of multi-owner and multi-employee businesses to work at home. These business owners are often without access to printers, faxes and other equipment and arrangements, such as postal arrangements, necessary for the convenient use of written contracts and inked contract signatures.

Indeed, under the above acts and the relevant case law, electronic signatures can be valid even if they are merely in electronic printed form and do not remotely resemble traditional signatures.

But the use of electronic contracts is not without its pitfalls. Three of the most common are these:

An electronic contract will not be valid unless all relevant parties can prove that they have agreed to do business with one another with the use of electronic contracts.

As with traditional paper contracts, the parties must be able to prove that the electronic contract in question reflects a “meeting of the minds” between them.

The parties must be able to prove that the electronic signature of each relevant electronic contract is in fact intended as a signature.

To avoid the above pitfalls, which may involve complex evidentiary problems, many users of electronic contracts make use of software applications and procedures provided by companies whose business is to ensure that all relevant requirements for the validity of these contracts are met by all parties and that exchanges of electronic contracts are electronically secure. Many such companies are listed in Google. If you are making frequent use of electronic contracts in your business or are interested in doing so, you should consider consulting with such a company.

I want to close with a final note that is, I readily confess, entirely irrelevant to electronic contracts. As readers may remember, two weeks ago I wrote a column in this newspaper about the excellent list of business resources available to New Hampshire businesses, and particularly to New Hampshire business start-ups, in the New Hampshire business journal known as Business New Hampshire. A few days ago, I received in the mail an issue of the NH Business Review with a similar list, entitled “Book of Lists.” Each of the two lists includes contents not contained in the other, but I enthusiastically recommend both lists. If you’re wondering which of the two lists you should obtain, the answer is both.

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