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Electronic Signature Laws

posted in Contract Law, Corporate Governance, E-Signatures, Litigation, Small Businesses by

Although we think of electronic signatures in a very modern context, they began before the American Civil War with the invention of the telegraph. Often messages were sent in Morse code electronically through telegraphs to accept the terms of an agreement. In 1869, the New Hampshire Supreme Court was the first to verify the enforceability of this type of electronic signature. This was later extended with the invention of a fax machine, where the image of a signature on a document was sent electronically. Today, many business transactions are conducted on the Internet—from online retailers to contracts sent back and forth via email. Federal law and California state law lay out regulations for electronic and digital signatures.

Federal Law

The Electronic Signature in Global and National Commerce Act, also known as the ESIGN Act, is a federal law stating that electronic signatures used in interstate and foreign commerce will not be denied validity just because they are in electronic form. The law also says that online purchases do not need to be accompanied by the more traditional handwritten signature on a paper document. Acceptable forms of electronic signatures can be a password, PIN number, clicking OK on a screen, a digital signature, or a fingerprint scan. A digital signature, discussed in more detail below, can be used to sign legal contracts. Additionally, shoppers can verify online purchases on websites using an electronic signature, usually in the form of checking a box accepting the terms of the order.

California Law

California law defines a digital signature as “an electronic identifier, created by computer, intended by the party using it to have the same force and effect as the use of a manual signature.” A digital signature must be unique, verifiable, and invalidated if the contents of the document are changed. Use of electronic signatures is optional—there is no situation in which it is legally mandated for a public government agency or corporation to accept or use a digital signature. Both parties must agree to recognize it as they would a manual signature for the digital signature to be legal and binding.

Using Digital Signatures for Your Business

The regulations for digital signatures include criteria of acceptable technology as well as a provision for adding new technologies in the future. There are two types of electronic signature systems that are approved for use in California: signature dynamics technology and public key cryptography (PKC). The signature dynamics system utilizes an electronic drawing screen and a stylus. It maps the direction, speed, and coordinates of the signature, encrypts that data, and appends it to the document. In compliance with California code, many systems erase the signature if the document is tampered with.

PKC systems are recommended on the Secretary of State’s website because it allows for third party verification of the signature, while handwriting analysis and additional steps are required for signature dynamics technology. PKC systems only require a software enhancement to a program or browser while signature dynamics requires additional hardware. PKC systems are recommended for immediate absolute verification of the signature while signature dynamics may be the best solution if you do not need immediate verification.

Using electronic signatures can save a significant amount of time for you and your business. For projects that require a signature to move forward, mailing the documents back and forth can take several days. By using electronic signatures, not only do you save time, you also save money on paper, envelopes, and postage. Using electronic copies of documents also allows for easy distribution and archiving. Most importantly, with the development of digital encryption, this technology makes it harder for others to fake your identity.

Digital signatures can expedite many processes, save money, and enhance security for you and your business. For assistance in setting up digital signature technology in compliance with federal and state laws, please contact Larry Horwitz at lhorwitz@horwitzarmstrong.com.

15 Feb, 12

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