By Cassandra C. Rich
Originally published in The Daily Record of Rochester, NY.
In today’s tech-savvy world, more and more companies are migrating towards online or e-commerce. Part of this growing trend is the ability to accept electronic signatures.
In New York state, the use of e-signatures is governed by the federal Electronic Signatures in Global and National Commerce Act, or “ESIGN” (15 USCS §7001 et seq.), and the state Electronic Signatures and Records Act or “ESRA” (NY CLS State Technology Law §301 et seq.).
Electronic signatures are defined in ESRA as an “electronic sound, symbol or process, attached to or logically associated with an electronic record and executed or adopted by a person with an intent to sign the record.” Under this definition, e-signatures can take many different forms, including keystrokes, electronic signature pads, biometrics and many more.
ESIGN provides in §7001(a)(1) that “a signature, contract, or other record relating to [interstate or foreign commerce] may not be denied legal effect, validity, or enforceability solely because it is in electronic form” and ESRA similarly provides in §304(2) that “unless specifically provided otherwise by law, an electronic signature may be used by a person in lieu of a signature affixed by hand. The use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand.”
While the federal and state statutes protect the validity and effect of e-signatures, before that statutory protection applies, companies must: obtain consumer consent to use or accept e-signatures, make any applicable disclosures to consumers, and create a system to maintain and retain specific records showing compliance with the statutes’ requirements.
Both ESIGN and ESRA have provisions that require that persons and entities cannot be forced to use or accept e-signatures, unless otherwise required by law, (15 USCS §7001(b)(2); CLS St. Tech. §305(1) and §309). This means that consumers must opt in to utilizing e-signatures.
However, a willingness to use available technology is not where it ends. After both parties to the transaction consent to utilizing e-signatures, they should also demonstrate an ability to access, print and/or retain the electronic records. If a contract is litigated at a later date, it is possible that “the legal effect, validity, or enforceability of an electronic record … may be denied if such electronic record is not in a form that is capable of being retained and accurately reproduced for later reference by all parties or persons who are entitled to retain the contract or other record,” (15 USCS §7001[e]).
Therefore, when dealing with consumers, the opt-in procedure used by the company should provide a mechanism to confirm that the consumer can indeed access, read, sign, print and/or save the subject documents.
Even if not required under consumer disclosure laws, some companies explicitly list the necessary software and hardware requirements and log the consumer’s affirmative response; others utilize a procedure that won’t allow a consumer to access and give consent unless the consumer uses specific programs that demonstrate the consumer’s ability to then access, read, print and/or save the pertinent instrument.
In addition, if there are any statutorily-required consumer disclosures that are being given electronically, there are further requirements that must be met. Companies must be able to prove that after the consumer’s affirmative consent has been given, that consent has not been withdrawn.
Under §7001(c)(1)(B) of ESIGN, prior to consent, a consumer must be given a clear and conspicuous statement that informs the consumer:
(1) of the hardware and software requirements for access and retention of the electronic records;
(2) if the consumer has the right or option to have the documents provided on paper;
(3) how, after consent, the consumer may request a paper copy of an electronic record and whether any fee will be charged for the copy;
(4) of the consumer’s right to withdraw consent to electronic disclosures, and the consequences or fees caused by such withdrawal;
(5) what procedures the consumer must use to withdraw consent or update electronic contact information; and
(6) whether the consent applies to only one transaction or to identified categories of documents that may be made available during the parties’ relationship.
ESIGN requires in §7001(c)(1)(C) that the consent be given electronically “in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent.” If the hardware or software requirements needed to access or retain e-records change after consent is given and there is a material risk that the consumer will not be able to access or retain future e-records, then the company must notify the consumer of the new system requirements and that the consumer may withdraw their consent, (§7001(c)(1)(D))
In addition to the disclosure requirements discussed above, ESIGN also requires that the content and timing of the underlying disclosures must be compliant with the requirements of the pertinent statute or regulation. For instance, if the underlying disclosure requires verification or acknowledgment of receipt or notarization, then e-disclosure will only be possible if the electronic method also provides a mechanism for verification, acknowledgment or notarization, (§7001(c)(2)(A)-(B) and (g))
Both ESIGN and ESRA have specific exceptions where e-signatures will not be accepted, including, but not limited to, wills, trusts, powers of attorney, adoption, divorce or other matters of family law, (15 USCS §7003; CLS St. Tech. §307).
Despite the requirements and exceptions, enterprising business people continue to find new contexts and new mechanisms in which and by which e-commerce may flourish.
Cassandra C. Rich is an attorney in Boylan Code LLP’s Real Estate Group, concentrating her practice on lending, commercial and residential real estate sales and acquisitions, and municipal development. For more information, contact Cassie at email@example.com or (585) 232-5300