Corporate Finance

Electronic Signatures and Online Agreements: Navigating the Legal Landscape

By: Lucosky Brookman

In today's digital age, electronic signatures and online agreements have become increasingly prevalent in various aspects of business, commerce, and government affairs. As more transactions are conducted electronically, it is crucial for legal professionals and their clients to understand the legal framework governing these electronic transactions. This article will delve into the intricacies of electronic signatures and online agreements, exploring the relevant laws, their scope and exclusions, and the practical implications for businesses and consumers.

The Relationship Between UETA and E-Sign

The Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (E-Sign) are the two primary laws that govern electronic signatures and transactions in the United States. UETA has been adopted by every state except New York, which has its own electronic transaction statute, ESRA. E-Sign, on the other hand, is a federal law that applies to states that have not adopted UETA.

The relationship between UETA and E-Sign is unique, as E-Sign employs a "reverse preemption" rule. If a state has substantially adopted UETA, the federal law does not apply in that state. However, if a state has not adopted UETA, E-Sign applies. The good news is that E-Sign is substantially similar to UETA, ensuring that electronic signatures will be effective regardless of which law applies in a particular state.

Defining Electronic Records and Signatures

To understand the applicability of UETA and E-Sign, it is essential to define the key terms: electronic record and electronic signature. An electronic record is information that is inscribed on a tangible medium or stored in an electronic or other medium and is retrievable in perceivable form. This broad definition encompasses a wide range of electronic forms, including PDFs, voice messages, video recordings, and more.

An electronic signature, as defined by UETA, is an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. E-Sign has a similar definition, making it clear that electronic signatures can take various forms as long as they demonstrate the signer's intent to be bound by the agreement.

Scope and Exclusions

While UETA and E-Sign have a broad scope, covering transactions related to business, commercial, and government affairs, there are some notable exclusions. The primary exclusion is for transactions governed by the Uniform Commercial Code (UCC), with the exception of Article 2 (sale of goods) and Article 2A (leasing of goods). The UCC has its own provisions for electronic transactions, which were updated in the 2022 amendments to better accommodate electronic records and signatures.

Other exclusions include wills, trusts, and certain real estate transactions that require public recording. However, it is important to note that even if a document requires a physical signature for recording purposes, the underlying agreement between the parties can still be formed electronically and be binding.

Proving Electronic Signatures

One of the challenges with electronic signatures is proving their validity in the event of a dispute. Unlike traditional ink signatures, electronic signatures may not have a physical document to reference. However, the general rules of evidence apply to electronic signatures, and courts have been receptive to various forms of proof.

To establish the validity of an electronic signature, parties should maintain records of their electronic transaction processes, including change logs, screenshots of the user interface, and declarations from technical personnel. The use of security procedures, such as login credentials and password protection, can also help demonstrate the signer's intent to be bound by the agreement.

Forming Agreements Online

While UETA and E-Sign primarily address electronic signatures, they do not directly address the formation of online agreements. The American Law Institute's Restatement of the Law of Consumer Contracts provides guidance on this matter, synthesizing hundreds of court decisions on the formation and modification of online contracts.

The Restatement emphasizes the importance of providing reasonable notice of the terms, ensuring that the user has a reasonable opportunity to review the agreement, and obtaining a manifestation of assent, such as clicking an "I agree" button. The specific method of presenting the agreement, whether through click-wrap, scroll-wrap, or browse-wrap, can impact the enforceability of the contract, and courts will consider the totality of the circumstances in determining whether a binding agreement was formed.

Smart Contracts and Artificial Intelligence

As technology continues to evolve, the legal landscape must adapt to new developments, such as smart contracts and artificial intelligence. Smart contracts are computer programs that automatically execute the terms of an agreement when certain conditions are met. These self-executing contracts have the potential to streamline transactions and reduce the need for human intervention.

However, the legal implications of smart contracts are still being explored. While UETA and E-Sign contemplate contracts formed by electronic agents without human intervention, the specific application of these laws to smart contracts may require further clarification. As artificial intelligence becomes more sophisticated, legal professionals will need to stay informed about the evolving regulatory framework and its impact on electronic transactions.

Conclusion

Electronic signatures and online agreements have become an integral part of modern business and commerce. As legal professionals navigate this digital landscape, it is crucial to understand the interplay between UETA, E-Sign, and other relevant laws. By staying informed about the scope and exclusions of these laws, the requirements for proving electronic signatures, and the best practices for forming online agreements, attorneys can effectively advise their clients and ensure the enforceability of electronic transactions.

As technology continues to advance, the legal community must remain vigilant and adaptable. The emergence of smart contracts and artificial intelligence presents both opportunities and challenges, requiring ongoing education and collaboration among legal professionals, technologists, and policymakers. By embracing these developments while upholding the fundamental principles of contract law, we can create a legal framework that fosters innovation, protects consumers, and facilitates the growth of the digital economy.