Electronic signatures have been used for some time to agree to terms of contracts or commercial transactions. These may have been signatures applied to paper contracts and then transmitted via fax to the recipient or signatures applied to credit card receipts using an electronic stylus. They have generally been considered acceptable as a method of transacting business and upheld by court actions.
In the last decade federal and state government have acted to codify the use of these electronic signatures.
An Electronic Signature is a Legal Concept
The Uniform Electronic Transactions Act (UETA) of 1999 states, and the United States federal ESIGN Act of 2000 further extends, the principle that no contract, record or signature related to a transaction will be invalidated or denied enforceability solely because it is in electronic form. They furthermore define an Electronic Signature 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.”
These rules formally ratified the idea that “Electronic Signatures” can be legally binding, but remained technologically neutral, and created a cottage industry of legal interpreters and technologists to tell you how to best implement electronic signatures in your business.
An Electronic Signature is a Process
Technically implementing Electronic Signatures requires careful attention to the signing process or ceremony. This is an important part of the overall workflow for creating legally binding transactions. The signing process must accomplish the following things:
- Insure that the sound or symbol is attributed to the signer
- Confirm the intent of the signer
- Associate the signature to the contract or record
- Insure the authenticity of the signed contract or record
Signer authentication is not necessarily part of the signing process but is generally considered critical for most commercial transactions. There are a number of issues surrounding this and several technologies that are applicable to this task.
Likewise, there are many technical methods for associating the signature to the record and for insuring the integrity of the signed records.
Please note that Electronic Signature is not synonymous with Digital Signature. A Digital Signature is a cryptographic construct that may be used as an electronic signature if associated with a transaction using an appropriate process, more on this here.
Go to the Electronic Signature Technology or Implementing Electronic Signature pages for more discussion.
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I agree with the previous posts, however you need to be sensitive to how the market perceives and uses the signed document after it is perfected (all signatures attached). In the example provided about a customer applying for insurance, making his first payment and getting his insurance certificate all without any human interaction; the key is the business entering into the agreement is not really at risk until the customer destroys his car and try’s to make a claim. In this example the contract has perceived value, but no tangible value with minimal risk to the business; the insurance policy does not get transferred to another servicing party so the overall risk is perceived as small.
In the case of higher risk items such as a million dollar life insurance policy you won’t complete that transaction without many other checks. During the check process the verification of who is applying for that policy is done. If the agent doing the checks is “on the take”, the agreements between the company and the agent who attested to the veracity of the applicant will protect the company, but in the end the higher value transaction will not be completed electronically until some kind of verification occurs.
In the finance and leasing world the contracts represent tangible value and are often sold as securities after they are completed, these transactions are protected by agreements between the agents and the finance company. The agent is responsible for the veracity of persons completing the electronic transaction (i.e. an eContract system for an automotive finance company that is facilitated by the dealer F&I manager). As per UETA and eSign, The “process” by which a person is verified and the signatures are captured and bound into a document is fully scrutinized by the rating agencies prior to any contracts being accepted to be sold as asset backed securities on the open market.
I classify eSignatures as follows: (Note: All ultimately should be bound into a document using a digitial signature approach.)
• Click-Through: The process of reading and positively acknowledging the terms or statements made in body of the text.
• Often used for opting in or out of a process (Common example is the EULA
agreements during software installation)
• Text Signature: The process of affixing your name and other identifying information to a document as your acceptance and signature to that agreement.
• Used for agreements that don’t have immediate tangible value but may have future
value such as an insurance policy and/or some associated cost to the consumer such as
premium.
• Holographic or other unique symbol (voice tag, electronic fingerprint, retinal scan): The process of affixing one of these unique marks to a contract document using various technologies for capture and binding.
• Used for agreements with tangible value, and full contractual obligations.