LEGAL UPDATE October 14, 2008 Ashley Strauss-Martin, RANM Legal Hotline and Forms Attorney

Transcription

1 LEGAL UPDATE October 14, 2008 Ashley Strauss-Martin, RANM Legal Hotline and Forms Attorney Electronic Signatures The Uniform Electronic Transactions Act ( Act ) governs electronic signatures in New Mexico. The Act incorporates the provisions of the Electronic Signatures in Global and National Commerce Act ( E-Sign ) and the Uniform Electronic Transactions Act ( UETA ). It was not the intent of UETA or E-Sign, and thus not the intent of the Act, to create a whole new system of legal rules for the electronic marketplace. The objective of the Act is to make sure that transactions in the electronic marketplace are as enforceable as transactions memorialized on paper and with manual signatures, but without changing any of the substantive rules of law that apply to signatures. The basic rules of the Act, that an electronic signature will be given the same legal effect, whatever that might be, as a manual signature, serve this objective. The most fundamental rule of the Act provides that a "record or signature may not be denied legal effect or enforceability solely because it is in electronic form." The second most fundamental rule says that "a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation." The third most fundamental rule states that any law that requires a writing will be satisfied by an electronic record. Finally, the fourth basic rule provides that any signature requirement in the law will be met if there is an electronic signature. Almost all of the other rules of the Act serve these fundamental principles and address basic legal questions about the use of electronic records and signatures. For example, the Act provides that if parties have agreed to conduct a transaction by electronic means and

2 a law requires a person to provide, send or deliver information in writing to another person, the requirement is satisfied if the information is provided, sent or delivered, as the case may be, in an electronic record capable of retention by the recipient at the time of receipt. To further clarify this issue, the Act states that an electronic record is not capable of retention by the recipient if the sender or its information processing system inhibits the ability of the recipient to print or store the electronic record. Other sub-topics of the Act that support it s fundamental principles include the following: notarization and acknowledgement by electronic signature, retention of electronic records, and admissibility of electronic signatures in evidence, automated transactions, time and place of sending and receipt, transferable records and the use of electronic signatures in issues regarding governmental agencies. The Act only applies to transactions between parties each of which has agreed to conduct transactions by electronic means. The agreement need not be explicit, it maybe determined from the context and surrounding circumstances, including the parties conduct. A party who agrees to conduct a transaction by electronic means may refuse to conduct other transactions by electronic means. This provision of the Act cannot be waived by agreement of the parties. Along with the Act, a Court may rely on other applicable law to determine the legal consequences of an electronic signature or record. In other words, if a law, other than the Act, requires a record to be posted or displayed in a certain manner, to be sent, communicated or transmitted by a specified method, or to contain information that is formatted in a certain manner, additional rules apply. The Act addresses the general validity of electronic records and signatures in transactions in the section on attribution which states that an electronic record or electronic signature is attributable to a person if it was the act of the person. Evidence that it was the act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable. Electronic transactions are mostly faceless transactions between strangers. If a security procedure is used, its efficacy in establishing the attribution may be shown. In the faceless environment of electronic transactions, the

3 obvious difficulties of identification and attribution must be overcome. The Act gives guidance in that endeavor. On the issue of security procedures, it is important to note that the Act pertains to electronic signatures. From an information security viewpoint, simple "electronic signatures" are distinct from the "digital signatures. Using a PIN or password to access an ATM, enter a Web site or purchase merchandise on-line is a common form of an electronic signature. Alternatively, a name typed at the end of an or even a digitized image of one's handwritten signature could likewise qualify as an electronic signature under the Act. If these methods, however, do not provide the level of security required by the agreement between the parties, then digital signature technology is often used. In the faceless environment of the electronic marketplace and particularly the Internet, digital signature technologies are highly useful. While, the Act allows for any electronic signature, it does facilitate the use of digital signatures and other security procedures in rules such as the one above on attribution and in the rule that addresses what happens when changes or errors in an electronic record occur in a transmission. The Act favors the party who conforms to the security procedure used in the specific transaction against the party who does not, in the event there is a dispute over the content of the message. This being said, there is nothing in the Act that requires the use of a digital signatures or any security procedure. It is technologically neutral. Persons can use the most up-to-date digital signature technology, or less sophisticated security procedures such as passwords or pin numbers. Any evidence the parties to a transaction use for attribution or assuring message integrity may be offered in evidence if there is a dispute. In discussing evidence that may be offered in a signature dispute in an e-commerce transaction, it is important to understand the legal significance of signatures. The legal import of a signature is to authenticate the signer and the document. A signature is not part of the substance of a transaction, but rather of its representation or form. Signing writings serve the following general purposes. A signature authenticates writing by identifying the signer with the signed document. When the signer makes a mark in a

4 distinctive manner, the writing becomes attributable to the signer. Additionally, the act of signing a document calls to the signer's attention the legal significance of the signer's act, and thereby helps prevent "inconsiderate engagements. In certain contexts defined by law or custom, a signature expresses the signer's approval or authorization of the writing, or the signer's intention that it has legal effect. A signature on a written document often imparts a sense of clarity and finality to the transaction and may lessen the subsequent need to inquire beyond the face of a document. Negotiable instruments, for example, rely upon formal requirements, including a signature, for their ability to change hands with ease, rapidity, and minimal interruption. To achieve these basic purposes as stated above, a signature should have the following attributes: 1) authenticity; 2) integrity; 3) non-repudiation; 3) writing and signature; and 4) confidentiality. These characteristics apply whether the signature is handwritten or electronic. However, in the digital world, it is sometimes more difficult to ensure these elements are met. As to authenticity, a signature should indicate who signed a document, message or record and should be difficult for another person to produce without authorization. As noted above, the Act states that an electronic record or electronic signature is attributable to a person if it was the act of the person and that evidence that it was the act of the person may be shown in any manner. The goal is to ensure that a party to a transaction or communication is who he/she purports to be. In the real world, one is normally sure of the identity of the parties with whom one is dealing. The identity can be verified through means such as face-to-face meetings, telephone conversations, visits to the offices of the other party, the exchange of business cards etc. While the verification of identity can be achieved with relative ease in the real world, this cannot be easily done in the electronic realm. Integrity refers to the accuracy and completeness of the communication. A signature should identify what is signed, making it impracticable to falsify or alter either the signed matter or the signature without detection. All efforts should be made to minimize the risk of undetected message tampering and forgery, and of false claims that a message was altered after it was sent. Non-repudiation refers to the ability to ensure that a party to a contract or a communication cannot deny the authenticity of their signature on a

5 document or the sending of a message that they originated. The third concept noted above, writing and signature, requires a review of the type of document at issue and whether it must be in writing under contract law to be enforceable in court (i.e. the sale of real property). Lastly, confidentiality refers to the ability to keep documents and communications confidential, private and secure. In the real world, it is quite straightforward to maintain the confidentiality of dealings and document, but again, the ease of achieving confidentiality is not as simple in the electronic realm as in the real world. Businesses offering the option of digital signatures create their systems to specifically address each of theses areas of concern. However, again, the Act does not require the use of a digital signatures or any security procedure. The Act does not apply to all transactions. To the extent it is governed by a law, the Act does not apply to the creation and execution of wills, codicils or testamentary trusts, the Uniform Commercial Code (with some exceptions) and court orders, notices or official court documents required to be executed in connection with court proceedings. Other transactions excluded under the Act are as follows: notices governing the cancellation or termination of utility services including water, heat or power services; defaults, accelerations, repossessions, foreclosures, evictions or rights to cure under a credit agreement secured by or a rental agreement for a primary residence of an individual; and cancellations or terminations of health insurance or benefits of life insurance or benefits, but not including annuities. Lastly, the Act does not apply to any document required to accompany any transportation or handling of hazardous materials, pesticides or other toxic or dangerous materials. In short, electronic signatures are valid in New Mexico if they meet the requirements set forth in the Act and other applicable law. A court will analyze an electronic signature issue by applying the Act, general legal principles governing signatures and other any other applicable law. Legal Update provides a limited and general discussion of some, but not all, aspects of issues that is intended but not guaranteed to be accurate as of the date published. This information may become outdated and it is the responsibility of the user to determine if it is current. No

6 summary of the law is a substitute for legal advice with respect to a particular matter. No attorney-client relationship is intended or implied. If legal advice is required, the services of a competent attorney should be obtained. RANM members are cautioned against engaging in the unauthorized practice of law by advising a consumer of legal rights and obligations or by applying the law to particular facts and circumstances REALTORS Association of New Mexico.