Tuesday, August 14, 2012

Contract Signatures

Over time requirements for signatures for contracts have evolved as technology has evolved. Each new technology has required that the laws or courts approve the validity of the use of that technology as a signature. The process started with the invention of telegraphs and the use of the Morse code. The next new technology was the invention of fax machines where if a document that was faxed contained a signature the laws or courts needed to accept those as being equivalent to an original signed copy. With the invention of the Internet and establishment of Electronic Data Interchange definitions for sending data between companies the parties needed to agree that transactions that were made using that also were considered be original signed copies of documents. It took the position that the person who claims to have written the message is in fact the one who sent it and the individual that received the message is the one the message was intended to be sent to, making theses electronic messages electronic signatures. To add additional protection, companies have moved to digitally encrypted signatures that are unique to each individual. In all these cases the goal of these different forms of signatures is to show that individual agrees to the contents of the document. For example when you download software via the Internet one of the step in the process is the requirement that you click on accepting the terms of the license agreement. That click is just another form of electronic signature.

One of the problems that you have in contracting is the law on electronic signatures varies by location so there is no consistent law worldwide. Even in the U.S. different states there own laws. If you are contracting with a party in another country, you should always find out what that country requires for enforceable electronic signatures. Even when I use an electronic version of a signature such as sending or receiving a fax or scanned version of a signed copy to expedite the signing, I still want individually signed copy for my files.

My preference is also to use electronic signatures primarily to conduct transactions under the agreement or to perform actions under the agreement. For example, in one company we established a system where authorized personnel of suppliers could log into the system to do certain make certain changes like adding a new part number or change a price where if we accepted that by electronic signatures it would constitute an amendment to the agreement. When I want to use any form of electronic transaction, it’s important to both describe the process that the companies will follow and include a clear statement of intent that the parties agree that electronic signatures and electronic copies provided by any reliable method shall be deemed to be an original.

The last thing I check is whether the individual signing the agreement has the authority to sign it. For example for the process we used to make changes to the agreement electronically. I made sure that access to the system was limited to only those people that had the authority to make those changes for their company and the acceptance of those changes by our company needed approved by individuals that had the authority to make those changes. (See also the blog post on Authority).