Electronic Contracts Basics for Chicago Business

George Bellas has been invited to speak at the ABA Legal Tech in Chicago on March 18 on "E-Signatures, Authentication and Contracts." For a copy of the article submitted CLICK HERE.

How do you sign contracts over the internet?
Are e-signatures valid?
Is a contract signed on the internet valid?

If you are a Chicago business owner who is over the age of thirty, you remember the days of paper contracts that were typed and then snail mailed before they were revised, retyped and then mailed again. Once the final terms were agreed upon, the parties signed the original paper document, sometimes by coming together to sign and have signatures authenticated by a notary. Or maybe you are still using faxed signatures.

While written contracts were not necessary or even preferred in every business situation, the days of paper contracts for most types of transactions are gone in Illinois and elsewhere nationwide. In the digital era, electronic contracts with electronic signatures are the norm except in those areas that the statute of frauds^[1] requires in writing such as a transfer of land, a Will or a contract where performance cannot be completed in one year. If your small business is not using electronic contracts and signatures on a daily or weekly basis, you may want to consider consulting with a Chicago business lawyer who is familiar with the laws and regulations affecting electronic records and signatures and can confirm that your company is in full compliance.

In 1999, the Uniform Electronic Transaction Act^[2] (UETA) was introduced formally recognizing electronic records and signatures. The Act, which was adopted in 47 states and the District of Columbia, was not adopted in the states of Illinois, New York, and Washington. In both New York and Illinois, an electronic signature is valid, but not with negotiable instruments such as checks, motor vehicle titles, or stock certificates. If you are a business owner, it is important to speak with a Chicago business lawyer to confirm that you are not using electronic signatures for negotiable instruments where the incorporation or individual’s residence is in one of these states.

In June of 2000, a federal law known as the Electronic Signatures in Global and National Commerce Act^[3] (ESIGN) took effect. The Act provides validity for electronic records and signatures that are involved in interstate or foreign commerce although it precludes certain areas of the law including:

• Wills
• Adoptions
• Family law
• Product recalls that concern health or safety
• Eviction notices

Under both the federal and state law, all of the parties involved in the contract must agree to use of electronic signatures which is defined as:

“an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”

Because Illinois did not adopt the Uniform Electronic Transaction Act, it is necessary to look to the terms of the Electronic Commerce Security Act^[4] for local area guidance. The Act seeks to “facilitate electronic communications by means of reliable electronic records.” An electronic contract, as with a written one, requires the same elements of offer, acceptance, and consent. Where a written contract with signatures can be offered into evidence at the time of trial, so can an electronic contract be tendered in court. Under Illinois law, the Judge cannot deny admission of an electronic signature^[5] merely because it is in a digital or electronic form. Instead, the Judge may consider:

• The manner in which the signature was generated and communicated;
• The manner in which the electronic signature was maintained;
• The manner in which it was signed;
• Any other relevant factor.

While this may sound straightforward, cryptography or the systems that scramble and then unscramble information can be complicated. A skilled Chicago business lawyer can review the electronic signatures that are used with your company and recommend any necessary adjustments.

As early as 2000, the Rutgers Computer and Technology Law Journal^[6] warned of the potential difficulties in applying the law to electronic contracts. For obvious reasons, the required offer and acceptance needed to create mutual assent can be more difficult with electronic measures. For example, if you are a Chicago business owner, your web page may offer online ordering in the form of an electronic agreement. Your customers maneuver through the site by clicking on various buttons or typing words into preassigned areas. In most cases, the customer clicks on the final “I agree” or “I accept” button thereby creating mutual assent and a binding electronic contract.

But in some cases, the website or other aspect of the transaction gives way to a legal dispute. If you have not done so recently, the New Year is a great time to meet with a Chicago business lawyer to review the terms of your web page and online form agreements and to develop strategies for avoiding disputes based on the validity of assent. The business lawyers at Bellas & Wachowski Attorneys at Law understand the intricacies of electronic contracts and can review potential pitfalls including:

• Font size
• Color of font
• Opportunities for the user/customer to review the contract terms
• The ability of the user/customer to navigate forwards and backward
• The use of clear language

For more information, check out our website and link to a paper submitted by George Bellas as part of his presentation on the subject at the American Bar Association Legal Tech Show. Call our team of Chicago business lawyers today for a consultation at 847.823.9032 or use our online contact form.

^[1] Statute of Frauds

^[2] Electronic Signatures in Global and National Commerce Act

^[3] Electronic Signatures in Global and National Commerce Act

^[4] Illinois Electronic Commerce Security Act

^[5] 5 ILCS 175/5-130

^[6] Rutgers Computer and Technology Law Journal