Crossing the "t's" and dotting the "i's" in legally binding contracts just became a dotcom reality. Now you can finalize a mortgage without leaving the house or lifting a pen, under a proposed law that passed Congress two weeks ago.
The E-SIGN bill (Electronic Signatures in Global and National Commerce), which grants electronic signatures and carries the same legal weight as printed ones, has been praised by industry leaders for clearing one of the final hurdles to e-commerce.
But for legal experts, the bill has another distinction. It marks a rare occasion when the federal government intervened in a legal realm normally reserved for states.
It doesn't take much to form a binding contract: there must be an agreement between consenting parties and there must be some form of exchange. Beyond that, contract law is a hybrid of precedent, state statutes, and state regulations. According to Jane Winn, a law professor at Southern Methodist University in Dallas, "by and large, contract law is not a subject the federal government has anything to do with."
This bolsters claims that the Internet is unmapped territory. Yes, there were skeptics who initially backed up a fax transaction with a copy in the mail. However, cases of fraud were isolated, and the fax was eventually absorbed into regular business practice. Like fax, previous innovations, including telex and telegram, all held onto some semblance of a signed letter. But in a truly electronic world, paper disappears.
That raises new questions of proof. One goal of the bill is to allay growing uneasiness over whether electronic documents can be used to enforce a transaction. Can banks run online checking accounts without mailing statements to customers? Can you sell your car without signing your name in ink? The law previously gave no clear answer.
Although it's embedded in people's understanding of legal contracts, only special circumstances require that a transaction be in writing and signed. Under the statute of frauds, generally speaking, a written record and a signature is needed for the sale of goods $500, for certain real estate transactions, and for contracts that take more than a year to complete.
"People think if it's not in writing, it's not legally enforceable," says Amelia Boss, a professor at Temple University School of Law in Philadelphia. "That's not totally true, but it's not totally wrong. Handwritten records make things easier, but they're not always required."
Moreover, in legal terms, a signature is any mark made with the intention of being bound. So who's to say a computer-generated smiley face is less valid than a handwritten symbol, like the squiggle adopted by the artist formerly known as Prince?
Professor Boss had her first e-commerce case five years ago. Her client was her 14-year-old son who, unbeknown to Boss, used an AOL account to seal a deal with a Florida businessman. But while the computer-savvy teen met his end of the bargain, mailing his collection of Magic game cards, the businessman reneged on his promise to send a couple of thousand dollars in checks.
When Boss confronted the businessman, he tried to wriggle out of the situation, pointing out that the agreement was established through e-mail. E-SIGN preempts exactly those types of claims. The case was never litigated, but Boss guesses that if it had come to trial, the court would have focused on other proof of a contract and skirted the issue of electronic records.
But even with assurance from Congress that electronic transactions are enforceable, there are still serious obstacles to a paperless world. Forgery and fraud is always a threat - more so in cyberspace, some say, because electronic documents are easily altered.
Some experts say the most frequent claims in court will involve click agreements, which usually follow long preprinted and nonnegotiable forms. Consumer advocates have noted that an egregious provision may be lurking in any form contract. The law is still developing, but clicking "I agree" when buying a book on amazon.com is currently considered a binding signature.
Although the final version of E-SIGN includes features to protect consumers - like a clause requiring businesses to obtain client consent before conducting business online - some consumer-advocacy groups say it's still too easy for businesses to abuse consumers. Margot Saunders, managing attorney for the National Consumer Law Center, says she anticipates an entirely new bill in the future to address those concerns.
Others, like Michael Hogan, general counsel and senior vice president of the online brokerage firm DLJdirect, are much more optimistic, prophesying full implementation of E-SIGN in less than a year. According to Mr. Hogan, a growing number of third parties who can verify online identities means there's a high degree of reliability in e-transactions.
But some things are certain: The technologically neutral bill opens doors to different types of electronic signatures, including retinal scanning, digital fingerprints, and encryption.
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