Electronic Form Over Substance - eSignature Laws Need Upgrades

43 Pages Posted: 17 Aug 2019 Last revised: 23 Dec 2019

See all articles by Lothar Determann

Lothar Determann

Baker & McKenzie LLP; Freie Universität Berlin; Berkeley School of Law; University of California Hastings College of the Law

Date Written: August 12, 2019

Abstract

Most professionals and others generally favor substance over form. Yet, with respect to form itself, more and more favor electronic form over substantive media and signatures: Companies, consumers and governments increasingly use electronic communications, documents and signatures instead of ink and paper. At the same time, many remain unsure about the legality or effectiveness of different forms of electronic signatures and find laws on the subject confusing.

Part of the confusion stems from the fact that lawmakers have not differentiated clearly enough between transactions, documents and signatures in current legislation. These are separate concepts. Only documents and signatures, not transactions, can be in electronic form. Transactions and other legally relevant actions, decisions and declarations can be recorded in documents and effectuated with signatures. Documents and signatures can be created or copied electronically or in other formats. Transactions on the other hand exist in the abstract and independent of the electronic or other form in which they may be documented or signed.

In practice, people commonly ask whether electronic signatures are legal. But, the more relevant questions to ask are whether electronic signatures are effective and binding, whether they meet statutory form requirements, whether they protect interests as well as handwritten signatures on paper documents, and whether one is required to create, obtain or retain paper documents with handwritten signatures in addition to electronic records and signatures. To better answer these and other questions, one has to consult not only newer laws specifically regulating electronic signatures and documents, but also older laws prescribing form requirements. Many older laws do not contemplate modern technologies and therefore do not give clear answers as to whether one can satisfy form requirements electronically.

Numerous different form requirements apply in myriad use cases and jurisdictions with respect to particular transactions, documents and signatures. Legal and political uncertainties hinder adoption of electronic signatures and global harmonization of applicable laws. Existing laws are complex, confusing and diverse due to historic factors: When electronic signatures and documents were first adopted more widely, lawmakers were uncertain regarding the purposes of existing form requirements, how well electronic signatures can address purposes of form requirements, which technologies will be adopted by businesses and consumers, and what legal problems could arise from forgeries. Additionally, lawmakers had reason to be concerned that businesses and consumers would need some time to adapt to new technologies and realize and handle the binding effect of electronically issued declarations. These considerations may have provided a valid excuse in the mid-1990s for somewhat timid, complex and consciously incomplete and experimental legislation, but twenty years later, they no longer do. It is time for change.

Lawmakers can and should improve electronic signature laws and harmonize them internationally with:
 clearer default rules favoring electronic form; at a minimum, Congress should adopt UETA's default rule in ESIGN so it applies in all U.S. states
 whitelists enumerating transactions that can be effected with electronic documents and signatures  blacklists enumerating transactions that require different forms based on compelling needs; Congress should reconsider, reduce, and render more detailed, the existing exceptions in ESIGN and UETA, as Singapore is considering according to a request for public comments in June 2019
 uniform terminology and simple definitions
 clear conflicts of law rules, ideally permissive ones, possibly paired with bilateral or multilateral recognition or adequacy arrangements to drive international harmonization.

At the same time, lawmakers should abandon overly prescriptive regulations that require qualified electronic signatures certified by nationally licensed providers, because such constructs hinder international harmonization, have not been widely adopted in the past and show little chance or need of being adopted going forward.

This Article analyzes the current landscape, applicable legislation and options for change. Following an introduction, this Article clarifies terms and definitions in Part I, reviews the history and rationale of form requirements outside the electronic sphere in Part II, compares the advantages and disadvantages of electronic signatures and documents in Part III, examines basic approaches for legislation and their potential impact on public and individual interests in Part IV, describes and compares current electronic signature legislation based on research of more than 60 jurisdictions in Part V, examines effects of international divergence in Part VI, proposes policy arguments for changes in Part VII, and concludes with a summary.

Keywords: electronic signatures, electronic contracts, electronic transactions, form requirements, ESIGN, UETA, eIDAS, Electronic Signature Directive, EU law

JEL Classification: K10

Suggested Citation

Determann, Lothar, Electronic Form Over Substance - eSignature Laws Need Upgrades (August 12, 2019). UC Hastings Research Paper No. 350. Available at SSRN: https://ssrn.com/abstract=3436327 or http://dx.doi.org/10.2139/ssrn.3436327

Lothar Determann (Contact Author)

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Freie Universität Berlin ( email )

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Berkeley School of Law ( email )

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