Understanding And Adopting Best Practices for Electronic Signatures Is Critical To Enforcing Contracts When Disputes Arise

Zach S. Whitney
zwhitney@kmksc.com
(414) 962-5110

The use of electronic means to conduct business is ubiquitous. The Uniform Law Commission, which drafts uniform laws for the states to enact in the interest of promoting interstate commerce, promulgated the Uniform Electronic Transactions Act (“UETA”) in 1999. Since then, every state except for New York (which passed its own electronic transactions statute) has adopted UETA, as did Wisconsin in 2003 when it codified Subchapter II, Chapter 137 of the Wisconsin Statutes. Generally speaking, UETA permits parties to conduct business and commercial transactions, including governmental affairs, by electronic means such as email, text message, shared files, web pages, social media platforms, and any other digital, wireless or similar technology capable of being used to facilitate commerce.

While UETA only empowers parties to engage in business by electronic means where each of the parties involved agrees to conduct the transaction electronically, UETA also provides that such agreement can be determined from the context of the surrounding circumstances, including the parties’ behavior. In effect, absent an express objection by at least one of the parties to using electronic means to conduct a transaction, the law will presume that parties to a transaction have agreed to conduct the transaction electronically.

Just as the technology used to engage in commercial transactions is constantly evolving, the defenses unscrupulous parties may deploy to avoid their contractual obligations are continuously adapting to fit new circumstances. Among the most basic of contract defenses is a denial of signature. Though there are many exceptions, the statute of frauds requires—both before and after the enactment of UETA—that contracts be signed to be enforceable. Under UETA, however, electronic signatures may take many forms. An electronic signature may be any electronic symbol, sound or process attached to or associated with a record that is executed or adopted by a person with the intent to sign the record. If you have ever wondered whether that illegible scribble you make on the credit card screen at the grocery store is a legally enforceable signature, according to UETA, the answer is “yes.”

In a traditional (non-electronic) transaction, if one party denies that they signed the contract, it would be incumbent on the opposing party to prove otherwise. The aggrieved party could, for example, present evidence in the form of an eyewitness who observed the denying party signing the contract, communications from the denying party wherein they admit to signing the contract, or a handwriting expert capable of verifying the signature.

The use of electronic signatures authorized by UETA does not alter the burden of proof; if one party denies signing a contract, the other party must still prove that the electronic signature is attributed to—meaning created by the act of—the party denying the signature. The methods of proving an electronic signature, however, may involve evidence considerably different from what would be presented to prove a signature in a traditional transaction.

As an initial observation, electronic signatures are often subscribed outside the presence of witnesses. It is not uncommon for agreements to be negotiated and circulated by email, where the ultimate contract is signed in counterparts without any of the signing parties being together at the same location. Electronic signatures also frequently bear no resemblance to traditional signatures. Remember that illegible scribble on the credit-card screen at the grocery store? Even an effort by a trained handwriting expert to compare such an electronic signature with a verified traditional signature of the counterparty would not be useful. Moreover, many electronic signatures amount to nothing more than checking a box or entering a code. In the event the signing party denies creating the signature in these common circumstances, how does the aggrieved party prove otherwise?

As is often the answer, an ounce of prevention equals a pound of cure. In other words, the best way to prove an electronic signature is to assume when the contract is executed that the identity of the signatories may become an issue. With this in mind, a party can take measures at the time of contracting to prevent future efforts by the other party to avoid the obligation. Depending on what the circumstances call for, those measures can be simple or complex.

On the simple end, a contemporaneous telephone call to the signing party to confirm the identity of the signer at the time of execution is an effective way to defeat a later denial of a signature. Similarly, a contemporaneous exchange of emails, sent to an email address known to be used by the signer and confirming the identity of the signer could also establish the authenticity of the electronic signature. Both of these straightforward means of authenticating an electronic signature require, of course, companies to have policies in place concerning the storage of email and/or telephone communications to allow retrieval of a communication verifying an electronic signature if proof becomes necessary.

On the complex end, security procedures can be adopted to verify the identity of the signer. The security procedures may involve multi-factor authentication, such as user-generated Q&A (e.g., the name of your first pet), one-time text-message passcodes, knowledge-based authentication (e.g., did you own a Chevy Tahoe in 2015?), etc. The security procedures could also involve software or websites requiring the signatory to have unique credentials, such as a login ID and password. There is no shortage of third-party providers, such as DocuSign, specializing in security procedures used for the execution of electronic contracts. If authentication of an electronic signature were to be challenged, a third-party provider could produce certification as to the ownership of password-protected accounts, the IP address of the device on which the signature was created, the location of the device, and the date and time the signature was created.

When it comes to electronic signatures under UETA, one size does not fit all. There is no strict procedure to be followed for creating an electronic signature, nor is there a specific method that must be observed to authenticate such a signature. There are many valid ways to do both. Best practices, however, dictate that contracting parties adopt procedures to verify electronic signatures that fit the complexity of the transaction. Having such a procedure in place will be instrumental in enforcing an electronically executed contract in the event the other party to the agreement attempts to renege on its obligations.

If you would like to discuss whether an electronic signature is enforceable, or have other questions concerning electronic transactions, please contact KMK Attorney Zach S. Whitney at zwhitney@kmksc.com or (414) 962-5110.