6 Va. J.L. & Tech. 12 (2001), at http://www.vjolt.net
Ó 2001 Virginia Journal of Law and Technology Association

 

VIRGINIA JOURNAL of LAW and TECHNOLOGY

UNIVERSITY OF VIRGINIA

SUMMER 2001

6 VA. J.L. & TECH. 12

  

From Jamestown[1] to the Silicon Valley,[2] Pioneering A Lawless Frontier: The Electronic Signatures in Global and National Commerce Act[3]

 

Marianne Menna[4]

 

 

 

I.                    Introduction

II.                 Historical Background

A.     The Traditional Law of Signatures

B.     Electronic Signatures Are Given Legal Standing

III.               Analysis

A.     Online Contract Formation

B.     The Impact Of The Uniform Commercial Code

C.     The Impact Of The Statute of Frauds

D.     Online Security Issues

IV.              Conclusion

 

 

 

 

[This Federal Act] is founded on a simple premise.  Any requirement in law that a contract be signed or that a document be in writing can be met by an electronically signed contract or an electronic document.  We are simply giving the electronic medium the same legal effect and enforceability as the medium of paper.[5]

 

[This Federal Act] will eliminate the single most significant vulnerability of electronic commerce, which is the fear that everything it revolves around — electronic signatures, contracts, and other records — could be rendered invalid solely by virtue of their being in “electronic” form, rather than in a tangible, ink and paper format.  This [Act] will literally supply the pavement for the e-commerce lane of the information superhighway.[6]

 

I.                   Introduction

 

1.      The first permanent British colony was settled in North America in 1607 when approximately 100 men and boys landed at Jamestown, Virginia.[7]    They were under contract to colonize and earn a profit for wealthy stockholders in London’s Virginia Company.[8]  As a result, tobacco quickly became the colony’s main cash crop.[9] 

 

2.      In 1619, the male colonists waited anxiously on the shores of Jamestown.[10]  It had been a very long wait.[11]  Many months earlier, the contracts were signed, the ink left to dry, and then placed under seal.[12]  These formal requirements were necessary to prove that the parties were entering into a binding transaction.[13]  Finally, the contracts were ready to be carried by ship back to London.[14]  The contracts dictated that each colonist was allowed to purchase a wife from the Virginia Company, to be sent to Jamestown in exchange for 150 pounds of tobacco.[15]

 

3.      Although tobacco currently remains Virginia’s greatest economic resource, much has changed.[16]  In today’s society, women are no longer sold into marriage, and commercial contracts can be executed over the Internet in a matter of seconds.[17] Globally-based computer networks and communications systems now pierce our legal system’s traditional notions of commercial transactions.[18]  Until recently, the courts had resigned commercial areas of the Internet[19] and its abounding legal issues to that of a lawless frontier.[20]  As a result, the infusion of contractual dealings over the Internet and its commercial websites[21] have undermined the court’s established regulations.[22] Today, courts and legislators are working toward providing clear Internet guidelines to ensure consumer satisfaction and security.  Thus, the rise of law in cyberspace[23] has led to the definition of a distinct new authority and purpose for such regulation.[24]

 

4.      The June 2000 passage of the E-Sign Bill[25] establishes that electronic signatures and records cannot be denied their legal effect solely because they are in electronic form.[26]  Regardless of the nature of the contractual relationship, legal and business communities are now beginning to understand that electronic technology clearly satisfies the traditional requirements that are associated with commercial transactions.[27]  The primary goal of this legislation was to promote the use of electronic signatures and records in e-commerce.[28] Therefore, the enactment of the E-Sign Bill allows consumers and businesses to validly execute electronic records[29] including checks, loan applications, and online contracts.[30]

 

5.      This Comment will examine the implementation of recent electronic signatures legislation, with emphasis on the E-Sign Bill.[31]  Beginning with a discussion of the traditional law of signatures,[32] this Comment will take an in-depth look at the law of electronic signatures and the differences between electronic and digital signatures.[33] Specifically, this comment will examine both the positive and negative impact that the E-Sign Bill will have on offer and acceptance in contract formation,[34] the Uniform Commercial Code,[35] the Statute of Frauds,[36] and online security issues including authentication over the Internet.[37]

 

6.      Finally, this Comment will conclude that regardless of security concerns, including those of reliability and authentication,[38] the new legislation pertaining to the Internet and e-commerce will inevitably expand the foundation of the law of signatures.[39]  One can thus be bound to any symbol of commitment to which he intends to be bound, including a computer-generated symbol.[40]  For example, this legislation will allow consumers to execute legally enforceable contracts from the comfort of their own PC’s with a simple click of their mouse that indicates “I accept.”[41]

 

II.                Historical Background

A.        The Traditional Law of Signatures

 

7.      Traditional requirements demand that business transactions and contractual relations must be “signed” in order to be valid.[42]  These requirements serve a variety of purposes such as providing forensic evidence,[43] authentication,[44] and evidence of intention.[45]   Although the term “signature” is generally associated with ink on paper, the real key to signing any document has always been the presence of a “symbol” coupled with a party’s intention.[46]  Therefore, courts have generally allowed flexibility in interpreting writing and signing requirements in an effort to encourage commercial transactions.[47]

 

8.      In the famous case Howley v. Whipple,[48] the New Hampshire Supreme Court determined that the traditional method of signing is the only way to make a document binding in the absence of additional proof:[49]

 

9.                                          It makes no difference whether [the telegraph] operator writes the offer or the acceptance in the presence of his principal and by the principal’s express direction, with a steel pen an inch long attached to an ordinary penholder, or whether his pen be a copper wire a thousand miles long.  In either case the thought is communicated to the paper by the use of the finger resting upon the pen.  Nor does it make any difference that in one case common record ink is used, while in the other case a more subtle fluid, known as electricity, performs the same office.[50]

 

10.  More recently, courts have willingly extended the traditional definition of “written instrument” to include documents that have been stored on computer disk.[51]  Finally, in 1997 a Massachusetts court acknowledged that, under the right circumstances, an e-mail message can be considered signed.[52] 

 

11.  Irrespective of the many historical court decisions relying on broad interpretations of signature requirements, a general concern about the “legality” of electronic records and signatures has persisted, especially among consumer groups.[53]  As a result, today’s courts and legislatures are rushing to remove the perceived barriers to e-commerce that have developed through the use of traditional writing and signature requirements.[54]  For example, while many states have already enacted e-commerce legislation, the E-Sign Bill creates new federal standards for electronic records and allows an acceptable substitute for paper writings.[55]

 

B.                 Electronic Signatures Are Given Legal Standing

 

12.  The most recent rendition in signature law is the electronic signature.[56]  The E-Sign Bill broadly defines electronic signature as “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.”[57] Just about anything that two parties can call an “electronic” signature will be treated as valid.[58]  This generic definition embodies a variety of signature types from simple electronically stored handwritten signatures to complex digital images.[59]  As a result, the bill does not specify the mandatory use of secure cryptographic[60] digital signatures,[61] which are specifically designed for consumer protection by various information technology companies.[62]

 

13.  The diagram below shows the process of creating a digital signature.[63]

 

Text Box: MESSAGE	g	g	g	g	g	g	MESSAGE
       i								        i

    HASH							    HASH
FUNCTION							FUNCTION

        i								        i

MESSAGE							MESSAGE
  DIGEST							  DIGEST
							(COMPARE RESULTS)
        i								        h

PRIVATE KEY						PUBLIC KEY
								         ↑
        i
   DIGITAL							   DIGITAL
SIGNATURE	&						SIGNATURE &
  MESSAGE	g	g	g	g	g	g	  MESSAGE

 


14.  The process described above results in a secure cryptographic digital signature.[64]

Text Box: <Signed SigID=1>
Promissory Note
I, John Smith, promise to pay to the order
of First National Bank ten thousand dollars
and no cents ($10,000) on or before May 30,
2001 with interest at the rate of nine percent
per annum.
John Smith, Maker
</Signed>
<Signature SigID=1 PsnID=smith099>
987600GHJK87432NMO8879IN98755T
BMRFIKEK4457782457987676879809
DG5MG645NT123BERY</Signature>

 


15.  Many consumer groups argue that the use of low-security electronic signatures, defined in the E-Sign Bill, raises serious questions of security, proof, and authenticity.[65]  However, there are times when low levels of security are warranted.[66]  For example, many people often use informal e-mail messages as a means of entering into low-risk or nominal transactions.[67] 

 

16.  Furthermore, many business and professional online services have already established systems of user identity that include unique user names and passwords.[68]  The prospect of fully implementing secure cryptographic digital signatures in e-commerce legislation presents both benefits and costs.[69]  Thus, the broadly drafted definitions included in the E-Sign Bill allows these businesses to continue their operations without worrying about upgrading to new cryptographic digital software in order to establish enforceable online transactions.[70]  As a result, online businesses and the computer industry strongly support the E-Sign Bill.[71] These businesses argue that the implementation of new laws and standards requiring that a valid online contract must be executed using high tech digital technology would undermine the ease and efficiency of everyday Internet transactions.[72]

 

III.             Analysis

A.        Online Contract Formation

 

17.  Whether online or on paper, the core concept of contract law is to effectuate the parties’ intent to contract.[73]  A showing of mutual assent is necessary to create an enforceable contract.[74]  There must be proof that both parties entered into the contractual relationship with the intent to enter and be bound by the contract.[75]  In determining whether there has been mutual assent, courts typically look at whether there has been an offer to contract and an acceptance of that offer.[76] 

 

18.  Under the E-Sign Bill, the validity and enforceability of an electronic contract is evaluated under existing substantive contract law.[77]  The E-Sign Bill covers the mutual assent obligation by requiring the consumer to confirm his/her intent in a way that “reasonably demonstrates” the consumer’s consent.[78]  For example, an online business may require that the consumer provide a confirmation via e-mail response.[79] Prior to giving consent, the consumer must be provided with a clear and conspicuous statement informing the consumer of his or her rights regarding procedural aspects of the electronic transaction.[80]  Additionally, if there is some overriding rule of law requiring a particular transaction to take place in writing, then the corresponding electronic record must be retained and accurately reproduced in paper form in order to execute that contract.[81] 

 

19.  Finally, an electronic signature is only valid under the E-Sign Bill if the party to be bound has a present intent to sign the contract.[82]  Thus, the burden is on the person or entity accepting the electronic signature to determine whether the contract is authentic and whether the contract is signed with the requisite intent.[83]

 

B.        The Impact Of The Uniform Commercial Code

 

20.  The E-Sign Bill does not contain any specific statement preempting state law.[84] However, the E-Sign Bill applies to interstate and foreign commerce transactions including those governed by Sections 1-107, 1-206, and Articles 2 and 2A of the Uniform Commercial Code [hereinafter U.C.C.].[85]  The definition of “signed” in the U.C.C. includes “any symbol” so long as it is executed or adopted with intent.[86]  Additionally, under U.C.C. § 2-201 all that is required for a valid signature is that the writing afford a basis for believing that a contract existed.[87]

 

21.  In other words, a contract for the sale of “goods”[88] is governed by the E-Sign Bill.[89]  Additionally, a separate provision of the E-Sign Bill governs “transferable records” involving notes under U.C.C. Article 3.[90]  As a result, the E-Sign Bill attempts to clarify unanswered questions concerning the validity of electronic signatures and records in many contracts that are formed on the Internet.[91] These clarifications result from the establishment of a broad federal standard.[92]  For example, the E-Sign Bill may help clarify a recent number of inconsistent court decisions concerning the enforceability of electronic transactions.[93]

 

22.  Whether just surfing the Internet, or searching with a purpose, many online consumers will inevitably encounter consumer web sites that offer to sell goods or services with the click of a button.[94]  No matter how simple or inexpensive the product being offered, online vendors often attempt to bind customers in order to ensure business opportunities.[95]  Thus, the E-Sign Bill, much like the more traditional U.C.C., offers protection for consumers who give their consent to online transactions.[96]

 

C.        The Impact Of The Statute of Frauds

 

23.  The Statute of Frauds[97] presents one of the highest standards that must be met in executing electronic business transactions.[98]  The statute generally denies enforcement of contracts that are not in the form of a signed writing.[99]  Over time, however, courts and legislatures have worked to interpret the statute narrowly, thus limiting its effect in an effort to promote commercial activity.[100]  For example, in the famous case of Crabtree v. Elizabeth Arden Sales Corp.,[101] the New York Court of Appeals concluded that an unsigned memorandum made by the company president outlining a two-year employment contract constituted a signed writing in accordance with the Statute of Frauds when taken together with properly signed payroll cards.[102]

 

24.  Although there is not yet any case law establishing whether an electronic signature or record satisfies the Statute of Frauds, courts have recognized parallels between computer records and traditional written documents.[103]  For example, copyright law now recognizes computer disk recordings as “writings.”[104]  Under the Constitution, Congress has the power to extend copyright protection to “writings” and the courts have consistently interpreted that word to include computer disk recordings.[105]  As a result, Congress now extends copyright protection to all works in that medium.[106]  Similarly, the Securities and Exchange Commission interprets the word “written” in the Securities Act of 1933 to include “magnetic impulses or other forms of computer data compilation.”[107]

 

25.  Accordingly, the E-Sign Bill provides standards that work in conjunction with the Statute of Frauds by allowing signatures and documents to be notarized, acknowledged, verified, or made under oath electronically.[108]  Thus, where a law requires notarization or acknowledgement, the E-Sign Bill eliminates the need for a stamp, seal, or other certification.[109]  If a notary is required, that signature and seal must be included electronically together with all other information necessary for the transaction in order to ensure authentication.[110]

 

D.         Online Security Issues

 

26.  Despite having to jump through traditional hoops in order to validate any electronic signature,[111] many consumers groups are worried that because the E-Sign Bill has been drafted so broadly it offers very little consumer protection.[112]  The E-Sign Bill does not go so far as to address security problems associated with the use of electronic signatures or records.[113]  Thus, a business or consumer considering the use of electronic signatures and transactions should critically examine measures that may be necessary to ensure security.[114] 

 

27.  “All the frauds and scams we know about [under traditional laws] are possible under the e-sig[nature] regime, except there no longer is even the modest protection of a physical signature.”[115]  For example, last August a former dot-com employee issued a fake press release stating that a particular company’s CEO had resigned, and, as a result, the company’s stock plummeted.[116]  Such actions should serve as a wake-up call for the possible hoaxes and misinformation associated with online Internet transactions.[117]

 

28.  On the Internet, no one knows if you are a fraud.  An e-commerce consumer who wishes to withdraw money from an online bank account may be required to call the company and provide security clearance information.[118]  Problems arise when a third party surreptitiously gets this information and poses as the consumer.[119]  Still, the advantages of electronic transactions greatly outweigh the risks.[120] 

 

29.  As today’s legislators keep a watchful eye on the Internet and its regulation, it is important for consumers entering Internet transactions and online contracts to seek their own “self-help” remedies.[121]  “Self-help” remedies are popular since they are quick, cheap, and readily available to any consumer regardless of whether the consumer has access to a lawyer.[122]  Acceptable “self-help” strategies are often mild in nature, but still very effective.  For example, the outstanding number of consumers practicing nonjudicial arbitration in online disputes[123] and “netiquette”[124] have greatly reduced the need for costly litigation involving e-commerce activities.[125]

 

IV.       Conclusion

 

30.  As we begin a new millennium, over 2000 electronics and information technology companies now lead the global computer industry from Silicon Valley, California.[126] With the reputation of overnight riches and unprecedented success, young investors and entrepreneurs have flocked to Silicon Valley.[127]  It does not take much to realize the elaborate changes since colonial Jamestown.[128]  Here, digital ventures are commonplace and high school kids are substituting dot-com startups for after-school activities.[129]

 

31.  In October 2000, a corporate executive buys mutual funds on her lunch hour from a company based thousands of miles away by “signing” a contract with a simple point and click.[130]  Under the E-Sign Bill, this validly executed transaction only takes a couple of seconds.[131]  In order to ensure that this transaction goes smoothly, our society must adapt to new technologies including electronic messages, electronic signatures, and the Internet.[132] 

 

32.  Similarly, our laws and the legal community must quickly evolve and adapt to facilitate regulation of these areas in their commercial settings.[133]  As a result of these rapid technological changes, a number of consumers and practitioners have sounded the alarm to beware of the “wild west” of cyberspace.[134]  Some advocate an array of protective statutes that are narrowly tailored to attack each of a host of issues that may be presented by increasing technology.[135]  However, it is doubtful that any combination of these proposed laws would be sufficient.[136]  This is because the legal system’s “electronic revolution” is not yet fully upon us.[137]  It is more accurate to say that today’s law, namely through the E-Sign Bill, is merely undergoing a transition period.[138] 

 

33.  Therefore, the E-Sign Bill currently provides a sufficiently valid federal standard for the execution of electronic documents and records.[139]  Although the E-Sign Bill’s broadly worded provisions leave some questions unanswered, these questions, like much of the rapidly growing law of cyberspace, may only be accurately addressed upon the clear development of precise legal issues.[140]

 

34.  According to Representative Bliley:

Every day, the line between what has to be done on paper and what can be done electronically is being moved.  The Internet is stretching the creativity and ingenuity of some of the brightest people in our society today.  It is altering the practices and lives of all of our Nation’s citizens, and much more is to come.[141]

 



[1] Ervin L. Jordan, Jr., Jamestown, Virginia: An Overview, (last modified Aug. 20, 2000) at http://curry.edschool.virginia.edu/curry/dept/cise/soc/resources/jvc/overview.html. Named in Honor of King James I, and located on the Virginia coastline, Jamestown has the distinction of being the first permanent settlement in British North America.  Id.  In 1619, the first women were sent to Jamestown under contract as wives for the colonists.  Id.

 

[2] Carolyn E. Tajnai, The Father Of Silicon Valley, (May 1985) at http://www-forum.stanford.edu/About/History/terman.html.  Silicon Valley is located on the San Francisco, California, Peninsula.  Id.  Today, Silicon Valley contains the densest concentration of innovative industry and technology that exists anywhere in the world.  Id.

 

[3] 15 U.S.C. § 7001 (2000).  This act is a reconciliation of H.B. 1714, 106th Cong. (1999) and S. 761, 106th Cong. (1999) [hereinafter “The E-Sign Bill”] and is intended to clarify the legal status of electronic records and electronic signatures in the context of writing and signing requirements imposed by law.  Id.  According to this Act, electronic record is broadly defined as a contract or record created, generated, sent, communicated, received, or stored by electronic means.  15 U.S.C. § 7006(4).  Electronic signature means an electronic sound, symbol, or process attached to or logically associated with a contract or record and executed or adopted by a person with the intent to sign the record.  15 U.S.C. § 7006(5), at http://thomas.loc.gov/cgi-bin/query/z?c106:S.761.ENR.

 

[4] B.A., Communications, Journalism and Political Science, Oakland University; J.D. candidate and certificate in Business Transactions candidate, The Thomas M. Cooley Law School.  The author is currently employed with Rose Law Office, P.C.

 

[5] 146 CONG. REC. H4352 (daily ed. June 14, 2000) (statement of Rep. Bliley), at http://thomas.loc.gov/cgi-bin/query/D?r106:1:/temp/~r106sghPOw:e38897.

 

[6] 146 CONG. R