In a bid to keep the state on the cusp of the technological front, the Senate chairman of the Joint Committee on Banks and Banking has filed an e-signature bill that will ensure they are accepted as legally binding in most cases.

Sen. Andrea F. Nuciforo Jr., D-Pittsfield, said while his bill is largely based on the Uniform Electronic Signatures Act and “complements” the federal Electronic Signature Act signed by President Clinton in June, it goes further in applying principles directly to Massachusetts businesses.

The federal law has a provision that specifically provides for states to pass their own versions of UETA.

“The federal law was limited in scope,” explained the senator. It provides for resolving in federal court disputes between businesses in separate states but contains no provisions for resolution of parties within a state. That’s where Nuciforo’s bill comes in.

“It will give state courts jurisdiction over e-signatures. It will allow e-signatures to have the same force and effect as a wet ink and paper signature,” he said.

In addition to businesses being given the nod for use of e-signatures, it differs from the federal bill in that it allows government entities to use e-signatures while the federal law does not, said Nuciforo.

Transactions permitted by the bill include purchase and sale agreements, mortgages, loan commitment letters and even the signing of signature cards when an account is opened, said Nuciforo.

While the bill states such signatures will be valid, “the magic language” in the bill is that no signature shall be made invalid simply because it comes in an electronic form, he said.

“All the legal principles apply. It’s just a different method of signing one’s name,” he said. But how, he was asked, would our forefathers react to such a bill?

“In Massachusetts, that ought to be an acceptable and legal way for people to do business. They would also say that it’s possible to apply our time-tested legal principles to new technology,” he said.

No doubt conflicts will arise over a document signed electronically, said Nuciforo, but those will not be ruled on the basis of any new point of law, he predicts. “You will see the court apply the same rules they apply to any contract dispute. You will see the same disputes on electronic transactions adjudicated in the same way,” he said. A couple of examples, he said, would be if the signature was signed under duress or if the contract was fraudulent.

The use of the e-signature will not be mandated by the bill; it will be a legal option for conducting business. But there are certain instances when an e-signature cannot be used. Certain “sensitive transactions” must still contain pen and ink signatures. For instance, wills, child support orders, and notifications – such as notification that the utility company is about to turn off your power, and notices to appear in court – cannot be given electronically, he said.

“I think that electronic signatures are still new and there’s a mystique attached to them, things like child support … a will, those are the things that people really want to look at, read and sign,” he said, and not view over the computer.

The bill is similar to the federal law in another way: it is technology-neutral. That ensures the bill will not have to be re-written whenever a new technological breakthrough is made, said Nuciforo.

In order for electronic signatures to work, entities must be able to certify that the signature was executed by the person represented by it. According to other industries that have been pursuing the use of electronic signatures, particularly the health information sector, a central certification authority would be beneficial. It would act much like the Division of Motor Vehicles: when a person possesses a license, you are reasonably sure certain things are true about how that license was obtained, according to experts.

Specific Guidance
Recently, the Government Accounting Office released a study evaluating electronic signature systems as connected to Identrus, a New York rulemaking and coordinating body that could act as the certification authority for financial institutions for electronic signatures. The GAO found that Identrus’ systems were closely matched to those of financial institutions but should not be used as a guide for those institutions to set up their own public key infrastructure system (part of the technology that makes e-signatures possible).

Instead, it recommended that the Office of the Comptroller of Currency and the Federal Reserve act. “Developing more specific regulatory guidance that includes criteria for evaluating electronic signature systems could assist the examiners and financial institutions in their information technology risk assessments and control evaluations,” according to the results of the study.

While on a federal level such guidance by federal employees may be possible, Nuciforo said such a program wouldn’t be likely in the commonwealth.

“We don’t have the staffing capability to do that … We certainly hope the industry evolves in such a way that the strongest technology survives,” he said,

The governor has also filed an e-signature bill, and Nuciforo’s office has been working closely with the governor’s office while drafting the legislation, according to Nuciforo.

New Legislation Would Make E-Signatures Legally Binding

by Banker & Tradesman time to read: 3 min