The ESIGN Act

The ESIGN Act established the legitimacy of signing contracts and documents online, streamlining business operations and eliminating paper burdens for consumers. As anyone who has ever applied for a loan from the living room couch or opened a bank account at 2 a.m. can attest, doing business online has made life infinitely more convenient. What most people may not realize is what a large role the ESIGN Act, officially known as The Electronic Signatures in Global and National Commerce Act, played in allowing consumers to take advantage of these modern conveniences.

History of the E-Sign Act

From the beginning, the ESIGN Act had significant support in Congress. One of the most ardent supporters was Spencer Abraham, a Senator from Michigan who believed the bill would spur e-commerce by eliminating fears over the vulnerability of electronic contracts. In the House of Representatives, Rep. Tom Bliley and Rep. Anna Eshoo were two of the first legislators to show an interest in solidifying e-commerce contracts.

A number of bills relating to electronic commerce were introduced in 1999. Over the course of a year, these bills were revised, broadened, and ultimately combined. Senate Bill 761 and House Bill 1714 shared the goal of promoting electronic commerce while maintaining technological neutrality. Although HR 1714 was originally narrow in scope, it was later broadened to included many more provisions for protecting consumers.

By the time the ESIGN Act was signed into law by President Bill Clinton on June 30, 2000, a handful of states had already passed laws regarding electronic recordkeeping. What the ESIGN Act did for the nation, however, was to establish a federal safety net to ensure that electronic contracts would be legal for interstate and global commerce.

Electronic Signature Validity

Before the ESIGN Act was signed, businesses were struggling with how to handle online transactions. Although many companies were accepting electronic signatures, there were still questions as to how well these signatures would stand up in court.

The ESIGN Act confirmed that electronic signatures have the same legal standing as pen-and-paper signatures, and a contract or record of transactions may not be denied legal effect or ruled unenforceable simply because it is in electronic form. Eleven years have passed since the ESIGN Act was signed into law, and numerous court cases have fully supported the legal integrity of e-signatures.

The Act grandfathered in existing agreements that were delivered electronically prior to October 1, 2000, although all agreements made after that date must follow the guidelines set forth in the ESIGN Act in order to be considered legally binding.

Consent and Disclosures

The ESIGN Act encourages that consumers have given consent and received any necessary disclosures as part of the electronic contracting process. The consumer is to be provided with a “clear and conspicuous statement” regarding the option to receive the record in a non-electronic form, if any, and the right to withdraw consent at any time. In practice, however, few companies that utilize electronic signature technology in their business operations provide clients with the option to receive paper contracts. These businesses are still in compliance with federal guidelines, as the ESIGN Act consumer consent provisions clearly state that a paper option is not required, and failure to obtain such consent does not affect the validity of any executed document.

However, the consumer should always be provided with information on how to access and retain the electronic record or document, based on the hardware or software being used. By confirming the receipt of a record electronically, a consumer has demonstrated that he can access and retain the electronic information.

Retaining Original Documentation

Businesses must retain evidence of contractual agreements to fulfill legislative requirements and to clarify any future questions about the legitimacy of a contract or the details of specific terms. This is true whether a document is in paper or electronic format. One of the advantages of an e-signature software service is that it stores executed agreements in a secure online archive, easily satisfying the retention requirements. Guidelines require that these records remain accurate and accessible to all parties involved for a length of time that is determined by the state agency or governing body having jurisdiction over a specific type of document, contract, or transaction.

Federal and State Regulations

One of the reasons why Congress was so motivated to pass the ESIGN Act in 2000 was to ensure that interstate commerce would not be complicated by competing e-signature laws in various states. Thus, the ESIGN Act established that its specific guidelines may only be modified or limited by states in the case of adopting the Uniform Electronic Transactions Act (UETA), which almost all states subsequently did, or when alternative and similar procedures were provided.

Exceptions to the E-Sign Act

While the ESIGN Act has been lauded for its comprehensiveness, the Act does not apply to every type of documentation. Certain types of records and documents are not covered by the ESIGN Act. These include:

  • Wills, codicils, and trusts
  • Adoption paperwork
  • Divorce decrees
  • Certain areas of the Uniform Commercial Code
  • Court orders and notices
  • Official court documents, including briefs and pleadings
  • Notices of the termination of utility services
  • Notices of default, foreclosure, repossession, or eviction
  • The cancellation of insurance benefits
  • Product recalls or notices of material failures
  • Documentation accompanying the transportation of hazardous materials

International Commerce

Legislators were motivated to create the ESIGN Act out of concern that U.S. companies would fall behind in global business without this type of support. It should come as no surprise, then, that the ESIGN Act promotes the use of e-signatures in international business transactions, so long as all parties have the ability to use their preferred authentication technologies and still have the legal recourse to prove the validity of a transaction in court if the need arises.