On June 30, 2000, President Clinton signed into law the Electronic Signaturesin Global and National Commerce Act ("E-Sign"). E-Sign is a federalstatute, that, in general, affords electronic signatures the same legal statusas traditional ink signatures. The purpose behind E-Sign is to facilitate theincreased use of e-commerce by reducing fears of businesses and consumers thatthe judicial system will not enforce electronically-signed contracts. Althoughthe internet allows for more efficient systems for completing businesstransactions than traditional ink-signed contracts, and even though businesseshave been conducting e-commerce transactions for years, elements of contract lawhave fallen behind technological developments in this area. Accordingly, theneed for E-Sign was clear and the final version of the law received overwhelmingapproval from the U.S. House of Representatives.

The potential for savingsthrough the use of electronic signatures can be illustrated by examining theclosing process for securing a loan from an out of state lender. Under thetraditional system, the process normally takes at least three days to complete.On day one, the lender must send loan documents by overnight courier to theoffice of the borrower's attorney. On day two, the borrower's attorney must makemultiple copies of the loan documents and the borrower's attorney must returnthe originally-executed documents that can be presented to a court in the eventof a dispute. The lender receives this package of original signatures on daythree. In many cases, the lender must then deliver the documents to a storagefacility where the lender pays to store the documents. There courier and storageexpenses either reduce the lender's profits or are passed on to the borrower. Inaddition, it is often difficult to locate documents from the thousands of boxeslocated in an off-site storage facility.

Alternatively, the entire process ofclosing a loan transaction using electronic signatures could be completed in oneday and all of the records could be stored electronically to avoid the expenseand inconvenience of off-site storage. Of course, these hypothetical advantageswill be realized by businesses and consumers only if they have confidence in thethe enforceability of electronic signatures and all parties have the technologyto enter into contracts based upon E-Sign.

With respect to the public'sconfidence in the effectiveness of E-Sign, it is likely that the law willprovide the legal certainty that has been missing in the context of internetcontracting. The law establishes the general rule that no contract will beunenforceable on the grounds that the instrument is not signed in ink. Wills,testamentary trusts and certain probate and family law documents arespecifically excluded from this general rule. Over the next few years, federaland state agencies will issue independent sets of regulations governing thesubmission and storage of electronically signed documents. Although the statuteallows state to enact their own laws in this area, states may not enforce lawsthat are inconsistent with the basic provisions and intent of E-Sign.

Thequestion of whether consumers and businesses will actually participate moreoften in electronic contract transactions may be determined more by theaccessibility of sufficient technology than by legal issues created by E-Sign.The law includes consumer protection provisions providing that businessesconducting e-commerce transactions may not rely upon the provisions of E-Signunless a consumer affirmatively consents to complete the contractelectronically. Consumers must also confirm that they possess the technologynecessary to close the transaction electronically and to receive relevantinformation electronically.

E-Sign allows the contracting parties to decidewhich kind of electronic signature to use. The statute's vague language wasintended to provide maximum freedom to contracting parties and to stimulateinnovations in the area of electronic signatures. Of course, the vague languagecould also lead to disputes over the reasonableness of any contracting systemscreated by businesses and advertised to consumers. Ultimately, the technologiesthat are developed will attempt to maximize both efficiency and protectionagainst forgery.

E-Sign should provide a boost to the development and use ofelectronic signature systems because it will increase the comfort level ofbusinesses and consumers. As with all significant legislation, however, it willtake some time for private parties and the judicial system to work through theprovisions of E-Sign, identify potential problems and correct them throughprivate agreements and judicial opinions.

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