With the advancement of technology, more individuals are abandoning the pen and paper in exchange for electronic documents. When entering into any type of electronic agreement, it is important to know whether an electronic signature is valid and whether it can be enforced.
Electronic signatures are generally governed by Federal law. The United States’ Electronic Signatures in Global and National Commerce Act (also referred to as the ESIGN ACT) defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with intent to sign the record.” With such a broad definition, it is important to know the legal ramifications behind using an electronic signature.
First, under the definition, there are many ways that an electronic signature can take effect. An electronic signature may be formed by, among other things:
- Signing an electronic keypad;
- Checking boxes that state you agree to certain terms and conditions;
- Entering a PIN number or password;
- A graphic representation of a handwritten signature.
But before you complete an agreement using any of the above, you must first realize the situations in which the signature is valid. First, the ESIGN act is designed to protect the validity and enforceability of electronic signatures by stating: “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.” However, there are exceptions to this general rule. The ESIGN Act does not apply to:
- Wills, trusts, and codicils; termination of health or life insurance;
- Many family law matters such as divorce and adoption; notices of default, foreclosure or eviction; UCC transactions;
- Even things as simple as the termination of utility services.
This list only includes some of the more common examples of agreements not protected by the ESIGN Act.
In going back to the general definition provided by the ESIGN Act, the key to any agreement being completed with an electronic signature is the intent of the parties. Intent typically requires the individual to confirm their identity and their “intent to sign” through means such as checking a box or reading a disclaimer. In many situations, a showing of even the slightest lack of intent may allow a party to escape liability under the contract.
Although electronic signatures may make entering agreements easier for businesses, New York businesses should be careful in monitoring the use of electronic signatures. One of the biggest issues with electronic signatures is the difficulty in ascertaining whether the person on the other end has the authority to enter into such an agreement. Before entering an agreement, a business owner should confirm that the individual entering into the agreement has the authority to do so. Because these agreements are often not entered into face to face, it is crucial to search the other party’s business records to confirm who has authority. Additionally, a company should produce a document which clarifies which employees have the authority to enter into an electronic agreement.
If you have questions regarding electronic signatures or other business agreements you should contact an attorney with experience in business transactions. The business law attorneys at Blodnick, Fazio & Clark are skilled and knowledgeable in the area of business law and commercial transactions. If you require legal assistance concerning business startups, formation, corporate acquisitions and mergers, corporate restructuring, or another business matter, call our Nassau County business lawyers at (516) 280-7105, or, for our Suffolk County business lawyers, call (631) 669-6300.
