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
A.
The
Traditional Law of Signatures
B. Electronic Signatures Are Given Legal Standing
III.
Analysis
B. The
Impact Of The Uniform Commercial Code
C. The Impact Of The Statute of
Frauds
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]
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]
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]
14.
The process described above results in a secure cryptographic digital
signature.[64]
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]