The New Electronic Signatures in Global and National Commerce Act: How Effective Is It?


On Sunday, October 1, 2000, while most of us were watching football and the closing ceremonies of the Sydney Olympic games on television, one of the most profound changes to the way we do business took effect: The Electronic Signatures in Global and National Commerce. With minor press coverage and little fanfare, the fundamental way in which people enter contracts took a giant leap forward into the 21st century.

The Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001, et seq. (the "E-Sign Act") now ensures that transactions in or affecting interstate or foreign commerce are legally binding in every state and territory of the United States when executed in electronic form using an electronic signature. While the E-Sign Act imposes several restrictions on the use of electronic signatures, most of these restrictions are aimed at consumer protection rather than specific technological requirements. 15 U.S.C. §7001 (c). In particular, the statute requires the disclosure of certain information to consumers and further requires that consumers give electronic consent or confirmation of consent electronically to the use of an electronic medium to store and access the information and agreement subject to the e-contract. Id.

The effect of this statute cannot be underestimated. Upon signing the bill into law, President Clinton stated, "Under this landmark legislation . . . on-line contracts will now have the same legal force as equivalent paper contracts." Statement by President William J. Clinton Upon Signing H.R. 2130, 36 Weekly Comp. Pres. Doc. 1560 (June 30, 2000). The Senate Report accompanying the bill also confirms this sentiment by stating, "This legislation also assures that a company will be able to rely on an electronic contract and that another party will not be able to escape their contractual obligations simply because the contract was entered into over the Internet or any other computer network." S. Rep. No.106-131 at 2 (1999), 1999 WL 555831.

The statute will thus allow individuals and companies in the United States to transact business across the country and around the world without leaving their homes and offices. On the downside, both consumers and business must be wary of inadvertently entering into binding agreements that may leave them subject to enforcement proceedings, potentially in any jurisdiction in the United States.

The statute does not specify what constitutes an "electronic signature," except to say it is: "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." Thus, a mere click of a button may create a contract, potentially leaving a jury to decide if the person "intended" to do so.

The statute also creates an extraordinary new world of "electronic agents" that can equally create binding e-contracts on behalf of their "human" principals. The statute defines "electronic agents" as "a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part without review or action by an individual at the time of the action or response." Thus, by empowering "e-bots" to go out over the Internet to do our bidding, we and our clients may be subjecting ourselves to enormous, unintended liability.

However, the statute also has several exceptions to which the E-Sign Act will not apply. These include, wills, codicils, testamentary trusts, adoption, divorce, other matters of family law, and UCC governed agreements other than those governed by sections 1-107, 1-206 and Articles 2 and 2A. Given that Articles 2 and 2A govern sales of goods, this exception has a significant loophole particularly applicable to Internet transactions. A complete list of specific exceptions can be found at 15 U.S.C. § 7003.

In sum, virtually every one of our clients will be affected by the E-Sign Act, and we should all become familiar with its basic terms. Given the lack of specifics regarding what constitutes an "electronic signature" we and our clients must now carefully read the disclosure statements posted on web sites to ensure when we click "I Agree," we know what we are agreeing to. Moreover, many companies now give most of their employees Internet access. Our clients must carefully monitor these employees to ensure they are not executing binding contracts over the Internet without authority and that people on the other end of the contract know which employees are and are not authorized to execute agreements on behalf of the company. Obviously, these issues are only the tip of the iceberg.

The full effects of the E-Sign Act will not be known for many years, but we should be on the cutting edge of helping our clients to benefit from its terms and protecting our clients from its pitfalls.

Should you want further information on the Electronic Signatures in Global and National Commerce Act, please contact Lawrence Lambert via email at [email protected] or by phone at (305) 423-3490.