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Electronic Signatures are the future, but are they watertight in business?

Posted: 16 January 2015

electronic-signatureDigital or Electronic Signatures are becoming a part of doing business in the modern world. Have you ever wondered what NZ’s legal view is or how economic heavyweights like the US, Canada and UK view digital signatures for that matter?

So, someone you’re doing business with presents you with an option to scribble a signature on the screen of your iPad or computer screen using a mouse, what do you think? Do you wonder (and hope) that this is actually legally binding, or do you trust implicitly that this signature option is actually legally binding and applaud the convenience of “putting this one to bed” sooner than later.

The alternative of course is to, wait for the PO Box to be cleared, mail to be delivered to your desk and hope you sign the right pages and in the right places and so on… because if you get it wrong it’s back to the PO Box and we start the process over again.

The information in this Blog may go some way to assisting you in the understanding of Electronic Signatures and how economic powerhouses such as the US, Canada, UK & EU have begun to lay down legislation that defines the criteria that constitute an Electronic Signature.

A Bit of History:

In 1996 the United Nations published the UNCITRAL Model Law on Electronic Commerce. Article 7 of the UNCITRAL Model Law on Electronic Commerce was highly influential in the development of electronic signature laws around the world, including in the US.
In 2001, UNCITRAL concluded work on a dedicated text, the UNCITRAL Model Law on Electronic Signatures, which has now been adopted across 30 jurisdictions globally. The latest UNCITRAL text dealing with electronic signatures establishes a mechanism for functional equivalence between electronic and handwritten signatures at the international level.

What is the definition of and Electronic Signature?

USA:

The U.S. Code defines an electronic signature for the purpose of US law 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”.
It may be an electronic transmission of the document which contains the signature, as in the case of facsimile transmissions, or it may be encoded message, such as telegraphy using Morse code.
In the United States, the definition of what qualifies as an electronic signature is wide, and is set out in the Uniform Electronic Transactions Act (“UETA”) released by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1999. Under UETA, the term means “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.” 47 US states, the District of Columbia, and the US Virgin Islands have enacted UETA. Only New York, Washington State, and Illinois have not enacted UETA. However each of those states has adopted its own electronic signatures statute.

Canada:

Canadian law (PIPEDA) attempts to clarify the situation by first defining a generic electronic signature as “a signature that consists of one or more letters, characters, numbers or other symbols in digital form incorporated in, attached to or associated with an electronic document“, then defining a secure electronic signature as an electronic signature with specific properties. PIPEDA’s secure electronic signature regulations refine the definition as being a digital signature applied and verified in a specific manner.

Europe:

In the European Union, Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures was published in the EC Official Journal on 13 December 1999 (OJ No L 13 p. 12 19/1/2000).

 

So what’s the legal test for electronic signatures?

USA:

The purpose of the UETA and the federal ESIGN Act is to answer the question “is it a signature“, but not the question “is it YOUR signature.”

Most contract disputes are not related to the authenticity of signature or the identity of the contracting parties, and so these laws have great utility for a broad range of electronic contracting transactions, and allow flexibility by permitting the type of electronic signature used to fit the nature of the transaction.
But in law, if a signature on a contract or other document is contested, the signature must meet certain tests before a court will uphold it. These requirements vary by jurisdiction, but various sorts of signatures, some entirely electronic Telex addresses (for example, ABC Company sends a Telex to XYZ Company making an offer at a particular price. The offer was held to be binding when the “signature” was challenged.). Telegrams (for example, “I ACCEPT, SMITH” even though Smith never actually touched the telegraph key), and faxes of documents, even in some cases where the original was not signed by the sender.

UK:

Accordingly, it would appear that in English law, any insertion of a name by the purported signer (or a natural person authorised by that purported signer) constitutes a signature, but an automatically inserted email address does not. Thus a manually applied signature is accepted and an automated application of a signature is not.

Establishing Intent is the key:

TabletOften, businesses rely on other means to attempt to ensure an electronic signature is correct, including talking with the signing person directly or over the phone before an electronic signing, having an ongoing business relationship, and receiving payment or other indications of intent to do business that do not rely solely on a signed document. This is good business practice even in the paper world, as forgeries have been common there since time immemorial.
Fraud is a common issue in all signature situations, and neither type of signature (paper or electronic) provides fully effective anti-fraud protections.
None of the electronic signatures in these examples are “digital signatures”, as that term is commonly used, in that there is no cryptographic assertion of the signer’s identity, and no integrity check on the text received. However, all are electronic signatures, and all have been found legally binding in many different types of consumer, commercial and business transactions. However, proving the authenticity of a digital signature in a court of law may, in some circumstances, be easier than proving the validity of other types of electronic signatures.
The relative ease of proving authenticity of a digital signature is dependent on the integrity of the process for delivering the cryptographic key to the signer, and the extent to which the signer has agreed, or is otherwise bound, to protect the key and accept responsibility for its use.

The Perfect Solution:

So from this information we can establish, that an Electronic Signature is just as vulnerable to being challenged as a written one. Therefore as a form of insurance we must rely on the evidence of supporting facts surrounding the application of the signature that illustrate intent.
But what if, through the Process of gaining an Electronic Signature, we could record both Audio and Video data to support a digital signature. One could easily argue that the material supporting the application of the signature (in this case) is more powerful that the signature itself. A recording of the signing act clearly shows beyond any doubt that there is intent (irrespective of the signature that is created), and therefore a legally binding contract. Using technology such as VideoSign Video Meetings to conduct a recorded video meeting, and gain a signature simultaneously, provides a watertight, legally binding act of intent. From what I understand, the VideoSign Video Meeting process transcends any jurisdiction, delivering peace of mind and security.

In Summary:

So there are two aspects to a signature that present at risk.

  • The signature itself
  • The act of signing

If the act of signing is proven through a present witness, or audio confession of intent or video/audio recording of the act, then the signature itself becomes less important. The signer can, in fact, produce a signature on screen or paper that lacks similarity to their “regular” signature. It is the proof of the act of signing that establishes intent, which is what really counts.

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