SIGN LANGUAGE: What is an electronic signature and when is one valid?

By Jay Calhoun, Esq. and Fred Zenzen[1]

Introduction

            We live in a world where we sign our names electronically every day. For example, lawyers who practice in Maricopa County electronically file motions and other documents through AZTurboCourt. Using an AZTurboCourt account to upload documents and file them, and overlaying your typed name in a document, constitutes an electronic signature and an electronic record. After you file your document you receive an e-mail that you have filed a document, which includes the name of the filer, the name of the document, the case name, and the case number. As an attorney practicing in Maricopa County using AZTurboCourt, you have agreed to do business electronically; by logging in you intentionally file documents using your electronic signature; and any document you file is verifiable and associated with your signature. This is because of a little-known law called the Arizona Electronic Transactions Act (AETA)[2] that expressly provides that an electronic signature is valid and binding if certain requirements are met. Despite having this law, there remains confusion as to what serves as a valid electronic signature, and when an electronic signature is binding under Arizona law. This Article addresses the key features of the AETA, the circumstances under which Arizona has upheld parts of the AETA, and best practices for alleging an electronic signature in court proceedings.

What is an electronic signature

            The AETA defines an electronic signature as an electronic sound, symbol, or process that is attached to or logically associated with a record, and that is executed or adopted by an individual with the intent to sign the record.[3] E-Signatures and Digital Signatures are types of electronic signatures that are used interchangeably, although they are completely different. An E-signature is an image of a signature overlaid on top of a document. Typing your name into the signature area on a contract, pasting a scanned version of your signature into the signature area on a contract, or clicking an “I accept” button on a contract are examples of E-Signatures. A Digital Signature is cryptographically secure, and verifies that someone with your private signing key (in other words, you) has seen the document and authorized it. Digital signatures embed the signer’s unique digital “fingerprint” into a document. These fingerprints are based on certificate-based digital IDs which are issued by certification authorities (CAs).

            The process by which an electronic signature is created can vary from less secure to more secure. There are generally two types of electronic signatures: (1) a Basic Electronic signature which is simply an E-Signature (i.e. a signature overlaid on a document); and (2) an Advanced Electronic Signature (AES) or Qualified Electronic Signature (QES) – which consists of an E-Signature combined with a Digital Signature.  Credibility-wise, the distinction between the two types of electronic signatures is like the distinction in the paper world between an un-notarized and a notarized signature – the notarized signature is more credible because it required proof of identity of the signer at the time of signing.

The Limitations and Requirements under the AETA

           The AETA is limited in its scope to “transactions” as defined in the Act.[4] It only applies to business, commercial and government affairs transactions. Also, under the AETA, parties must agree to conduct business electronically - if they do not agree, the AETA is not applicable.[5] If the AETA applies, it expressly requires evidence that, at the time the electronic signature was created, all of the following criteria must be met to be a secure signature:  the signature is (1) unique to the person using it; (2) capable of verification; (3) under the sole control of the person using it; and (4) linked to the electronic record to which it relates in such a manner that if the record were changed the electronic signature would be invalidated."[6]

Circumstances under which Arizona courts have enforced parts of the AETA

           Arizona tackled the issue of what constitutes an electronic signature in three key cases. In 2006, the Arizona Supreme Court, in Haywood Securities v Ehrlich, determined that a judge’s typed signature on electronically filed judgments complied with civil procedure requirement that an appealable judgment be “signed.”[7] In 2011, the Arizona Court of Appeals, in Allstate Utility Const. v. Towne Bank[8], determined that a preliminary 20-day notice need not contain the handwritten signature of the claimant. Towne Bank expressly held that the act of signing a document "is not limited to manual, handwritten signatures." The most recent case was Young v. Rose, 230 Ariz. 433, 286 P.3d 518 (App. 2012). Young was a real estate agent and represented the Roses in a home search for over a year during 2006-07. The final agreement between the parties expired in 2007. In 2009, Young sent the Roses an exclusive buyer-broker agreement for four properties she believed would interest them. The Roses manually signed the new agreement and sent it back to Young via e-mail.  Young never manually signed the agreement, but sent a thank-you e-mail. During the term of the agreement, the Roses purchased a home through another licensed real estate agent.  Young filed a breach of contract action against the Roses. The Roses filed a motion to dismiss the complaint arguing the agreement was never signed by Young or her brokerage firm. Young claimed she “signed” the 2009 Agreement by virtue of the thank you e-mail, which was "intended to be [her] signature and acceptance of the contract" pursuant to the Arizona Electronic Transactions Act (the "Act"). The trial court agreed with the Roses and dismissed the case. The Court of Appeals affirmed the decision in part and reversed the trial court in part because the trial court relied on matters outside of the pleadings, and failed to notify the parties that it had converted the motion to one for summary judgment. The Court of Appeals stated the following in reference to the AETA:

Under the Act, an electronic signature "satisfies any law that requires a signature." A.R.S. § 44-7007(D). Unlike the pure issue of law resolved supra, whether Young electronically signed the 2009 Agreement is a question that cannot be answered in the context of a Rule 12(b)(6) motion. In deciding such a motion, "courts look only to the pleading itself and consider the well-pled factual allegations contained therein." Cullen, 218 Ariz at 419, ¶ 7, 189 P.3d at 346. "Ordinarily, reliance on evidence extrinsic to the pleadings requires the court to treat the motion to dismiss as a motion for summary judgment." Dube v. Likins, 216 Ariz. 406, 417 n. 2, ¶ 34, 167 P.3d 93, 104 n. 2 (App.2007).  

    

Hypothetical 1

           You are served with a breach of contract complaint. Plaintiff is a debt collector who claims he was assigned your alleged debt. Attached to the complaint is an unsigned agreement with your name and the alleged assignor’s name typed in the heading. The agreement contains no signatures. In the complaint, Plaintiff (debt collector/assignee) alleges that you “digitally affixed your electronic signature” to the unsigned agreement. You file a motion to dismiss arguing among other things, the absence of a signature is not evidence of an electronic signature, there is no evidence of either your or the alleged assignor’s intent to sign the agreement, and Plaintiff cannot prove that any “digital signature” is associated with the unsigned agreement.  Basically, anyone with a word processor could have created the alleged agreement, and there is no evidence supporting an assignment of interests in the alleged contract.

The trial court denies your motion to dismiss, cites to Young v. Rose as controlling authority, and rules that whether you “digitally affixed your electronic signature” to an unsigned contract is a factual issue that cannot be decided on a motion to dismiss.

Was Young applicable here? In Young, the Roses had signed the agreement and intended to be bound by it, thus there was no question of the defendants’ signatures. No one claimed the thank-you e-mail was from someone other than Young. In contrast, in the above-referenced hypothetical, Plaintiff alleged the contract was electronically signed but failed to produce any evidence required under the AETA. Young is not applicable.

Hypothetical 2

           You go to your favorite store for a soda. At the register, the cashier offers you a deal for your favorite magazine for free. The cashier assures you the subscription is free. You pay for the soda, and sign your name on the electronic signature pad at the register. After you receive eight free issues of the magazine, the credit card you used at the store is billed for $80.00. You sue the no-longer-favorite store for breach of contract. The store files a motion to dismiss. The court sides with you because you were not informed that you would be charged $80.00 after eight free issues, and you agreed to that the subscription only because it was free. Even though the store proved you electronically signed the pad, the store could not prove you saw and approved a disclosure or your signature was associated with any disclosure.

           This second hypothetical is based on an actual case, Labajo vs. Best Buy Stores, L.P., 478 F.Supp.2d 523 (2007). The Labajo court noted three important things: (1) the managers specifically instructed the employees to inform the consumer that the credit card information was used to validate the consumer's information for the magazine subscription, and that the card would not be charged; (2) when consumers were asked to sign the electronic credit-card signature pad, the conditions of the magazine subscription offer were not displayed on the screen they were signing - consumers were not informed as to the terms of the subscription until after the transaction had been processed and the consumer's credit card information had already been collected by Best Buy; and (3) the exhibit that purported to show the display of the electronic signature pad did not include Labajo's signature.  Labajo's signature was shown in a separate exhibit, one without any disclosures. Although Best Buy had Labajo’s signature, Best Buy failed to comply with two major requirements to demonstrate a valid electronic signature – intent to sign the disclosed document, and association of the electronic signature with the disclosed document. Although Labajo’s signature was legal, Best Buy could not prove that Labajo read and agreed to the terms of the document she signed, and Labajo’s signature could not be connected directly with the content to be signed. Young is not applicable in this case either, because there was no evidence the agreement was associated with a signature – a requirement of the AETA.

           Having an electronic signature is not enough under the AETA: intent to sign and association of the electronic signature with the disclosed agreement is paramount.

Best Practices for Enforcing the AETA

           A review of the three Arizona decisions about electronic signatures reveals: there was confusion whether an electronic signature is as valid as its manual ink counterpart (Haywood, Towne Bank, Young). The Labajo case in California demonstrates the signer’s electronic signature must be associated with the document and as with non-electronic signatures, there must be an intent to sign a document by the signer. To date, we have not had an Arizona appellate case in which one party alleges the opposing party electronically signed a document and the other party denies it. In the event such a case is on the horizon or people are conducting business electronically, a person can increase the likelihood that a court will enforce an electronic signature by collecting the following:

(1)       evidence that the signer intended to conduct business electronically;

(2)       evidence that the signer intended to, and did, sign the document at issue; and

(3)       evidence that the signer’s signature is associated with the document at issue (e.g., an electronic record of the process by which the electronic signature was created).

 

Plaintiffs, courts, and defendants will benefit from such a clear presentation of the above-referenced AETA requirements. These elements provide the court more certainty in knowing whether or not an electronic signature exists and is valid.

Conclusion:

           Ultimately, the more normal, credibility-related facts the parties and the court have about an electronic transaction at the beginning of the case, the better, particularly so courts may dismiss cases that fail to meet the AETA’s criteria. Most important, simply alleging an electronic signature is not and should not be sufficient. In pleading an electronic signature in a case, the issues are whether the signer intended to, and did, electronically sign the purported agreement, and whether the electronic signature is associated with the agreement.  Evidence to support these issues must be submitted to support an allegation of a valid electronic signature under the AETA.

 

If you have questions, please contact Jay Calhoun at contactus@law4sb.com or Fred Zenzen at Fred.Zenzen1@gmail.com

 

[1] Jay Calhoun practices business, e-commerce, and intellectual property law. Fred Zenzen holds a B.S. degree in Operations Research, a M.S. degree in Engineering, Operations Research from Cornell University, and an M.B.A. from Syracuse University. Mr. Zenzen has worked in the technology industry for over 40 years with major Fortune 500 companies. The authors would also like to thank Co Horgan for her invaluable assistance.

 

[2] The primary purpose of the AETA is to remove barriers to e-commerce by giving the same legal effect to electronic records and signatures as it gives to its paper documents and signatures.  A.R.S.§§ 44-7000 -7052.

 

[3] A.R.S. §44-7002(8)

 

[4] A.R.S. §44-7002(17)

 

[5] A.R.S. §44-7005

 

[6] A.R.S. §44-7031.

 

[7] 214 Ariz. 114, 149 P.3d 738 (2007)

 

[8] 228 Ariz. 145, 236 P.3d 694 (App. 2011).

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