What’s in a Signature?

How many times did you sign a document this week? Surprisingly, in most cases, a signature is not required, not even for a contract. Satellite communications, by interconnecting continents, have contributed to the exponential growth of electronic commerce. By some estimates, global electronic transactions now exceed a trillion dollars annually, and accordingly, at the rate these transactions now occur, the need to address signature issues is imperative. When are signatures needed? When circumstances warrant, can a fax or electronic signature substitute for an original?

Most jurisdictions around the world recognize the validity of oral contracts in which, of course, there are no signatures involved. However, to be legally binding, certain types of documents are required to be in writing and signed (e.g., deeds).

With respect to commercial transactions, there is generally no requirement for signatures. For instance, I can orally negotiate a price for the sale of my automobile, get paid in cash and deliver it to the buyer without putting anything in writing or signing a document. On the other hand, the state will probably require signatures on a government document to record the title transfer. Commercial transactions in which there is no government component can function perfectly without signatures.

By this point you might be thinking, “I would certainly not buy a car without some type of signed document from the seller detailing the transaction and the amount paid.” This brings me to my next point. Although not legally required, signatures in commercial transactions provide evidence of identity and intent for the convenience of one or both parties.

Let’s take financial checks for example. A bank will require a signature on a check in order to cash it. The reason for this is for the convenience and protection of the bank, to limit its liability toward the customer. The bank would not want to pay the check and later reverse the transaction at a loss after discovery that the check was fraudulent.

When signatures are required (either by law or for the convenience of the parties), must they be original? This is simply a matter of the quality of evidence that the parties feel comfortable with. An original signature before a notary is probably at the top of the evidence scale. Faxed signatures are now almost universally accepted, but they are lower on the scale because a signature can be cut from one document, glued to another and faxed together. Email (digital) signatures are accepted, but are even lower on the scale. Anyone can type an email and type a name at the bottom; although the email address provides some proof of identity.

Probably even lower on the scale is clicking the “I Agree” button on an online contract where no email is required. In sum, the type of signature to accept is a business decision. Choosing a signature lower on the scale will correspond to the need to produce more evidence to enforce the contract should identity and intent to adopt the provisions of the document come into question.

Yet, with the exponential increase in electronic transactions, a faster (in fact, instantaneous) type of signature came onto the scene. This is the electronic signature or “e-signature,” in which a user’s computer contains a file (the e-signature) that confirms the user’s identity and ‘signs’ documents in transactions through that computer.

In order to get this e-signature, users must first have their identity verified through a certification authority (a trusted third party). The certification authority physically checks identity documents like a passport or other government issued ID. This certification authority will then act as an intermediary in all future transactions. Cryptography is at the center of this e-signature scheme. E-signatures can be summarized as follows: take a document and signature in electronic form, apply clever math to them and the result is evidence of identity and intent.

As the world continues to interconnect through satellite and other wireless technologies, more commercial and government transactions will be done via the internet. The traditional ways of signing documents will be supplanted by electronic methods that represent evidence of identity and agreement to the provisions of the document.

Raul Magallanes runs a Houston-based law firm focusing on telecommunications law. He may be reached at +1 (281) 317-1397 or by email at raul@ rmtelecomlaw.com.