Pen and paper is an inferior option for executing legally binding agreements. Yet a recent study commissioned by Adobe Systems Inc. found that 98 percent of surveyed managers "still rely on hard copy in the ‘last mile’ to deliver contracts to get clients and customers to sign on the dotted line." Such madness needs to cease. Electronic signatures are an idea whose time has long since come.
First, a confession of bias: I lose physical objects. At this point, family members gift me key finders for sport. They wager on how long it will take me to misplace both my keys (weekly) and the finder (immediately to three months). Paper, in particular, seems to vanish into thin air despite the fact that I use so little of it — the 20 pages currently in my office are conspicuous and easy enough to sift through.
Serial mislaying of physical objects is an unfortunate trait for a lawyer. I find solace in having company. Porous paper trails plague even the largest, most sophisticated organizations. Consider some recent legal events:
- Missing and unauthenticated documents were at the heart of mortgage lenders’ $25 billion settlement with the Department of Justice.
- The Los Angeles Dodgers baseball team was found to be community property because a lawyer accidentally had a couple execute different versions of a marital property agreement. Bingham McCutchen’s Lawrence Silverstein tried to call it a "drafting error," and acknowledged in open court that he had switched the offending pages to make all pages match. It proved to be a $131 million mistake.
- Facebook engaged in a multi-year legal battle when Paul Ceglia claimed he had cut a deal in 2003 to design and develop the website, with founder Mark Zuckerberg, for a 50 percent stake in the $62 billion company. He also claimed that Zuckerberg had agreed to pay Ceglia another 1 percent stake per day if it missed its launch deadline, for a total of 84 percent of Facebook. Facebook asserts that the contract was probably forged, reported PC Magazine.
Electronic records are, of course, also a pain point. But it is usually a different kind of pain. It is not that electronic records can’t be found; it is that they are found in such astonishing large volumes. Needles and haystacks do not do it justice. Individual water droplets in a lake is the more apt analogy.
Paper and electronic documents are sources of unrelenting frustration. Yet both pale in comparison to the sieve of human memory. As criminal justice researchers long ago concluded, the perceived credibility of circumstantial evidence and eyewitness testimony is inversely related to their respective reliability. People constantly recall with sincere, unshakable confidence that which never happened. Memory is malleable and in a constant state of revision by its self-interested author, the human subconscious. Plus, people lie, all the time, about everything, for reasons vile, venal, noble, petty, and inexplicable. The real fun comes when the three converge: lawyers get rich attempting to fill gaps in the paper record with scattershot emails and conflicting testimony.
Contracts exist primarily for when things go wrong. It therefore helps to have the contract and to be able to avoid disputes about the content or execution thereof (interpretation is another story). Executing in hard copy substantially increases the likelihood that a contract will be lost or that the parties will disagree about whom executed which version. Electronic signatures mitigates many of these issues.
Before I converted my internal clients to electronic signatures, executing contracts was a daily struggle. The main signatory works out of the corporate headquarters in Irvine but travels constantly. His staff is responsible for securing his signature. Our regional offices are responsible for securing the signatures of our typical counterparty, dealer groups (I work at a car company), which often have multiple signatories living in different locations. Moreover, the dealers rely on their own attorneys who, understandably, want to review what their clients are signing. Finally, impending deadlines (e.g., lease expiration, loan contingency, administrative hearing) regularly compel immediate execution.
With so many steps, the execution process could easily, and too frequently did, go wrong. One person — of the five to 10 in the chain —would have a problem finding a printer, scanner, or fax. Human error intrudes with outdated addresses, inaccurate fax numbers, missing pages, forgotten exhibits, printing of the wrong version, failure to put the executed copy in the correct file, etc. Indeed, even when the process went right, much was sacrificed at the altar of expedience. The scans and faxes were often limited to signature pages that offered little evidence of what was actually signed.
Electronic signatures fix much of that mess. One person can now upload one copy of the contract and route it for signature. The signatories can still print the contract out, if that is that their preferred method of review, or forward it for input (e.g., from their lawyer). But the actual signing takes place online. Upon completion, an identical, verified, secured copy of the executed document is automatically placed in a central repository, as well as and emailed to each signatory and every cc (e.g., staffers and lawyers). The executed document includes an audit trail with the routing information, email addresses, and IP addresses of the signatories.
Because documents can be executed on a smartphone, disparate locations and finding equipment are no longer issues. During the process, anyone involved can immediately and accurately answer the question, "where are we on that?" Mistakes still occur but are limited to the single instance of uploading; nothing is lost in transit or after execution. The final document can always be located, and its contents are virtually impossible to dispute. As always, anyone could claim not to have signed what they signed but the document itself contains a record of the multiple emails they and their lawyer received, including the final email containing the executed copy of the document — i.e., a story of an undetected, phantom signer is far more incredible than a forged signature.
The technology is there. So is the law. With few exceptions, electronic signatures are equal to their ink counterparts. Since being introduced in 1999, the Uniform Electronic Transactions Act has been adopted in 47 states and the District of Columbia. The U.S. federal government joined the party in 2000 with the Electronic Signatures in Global and National Commerce Act. ESIGN has a European counterpart in the 1999/93/EC Directive on Electronic Signatures.
Indeed, the "last mile" is the worst place to preference paper over bytes. I can appreciate the desire to review an important contract in corporeal form (I’m lying. I can’t actually appreciate it. But I recognize that I am an outlier). I don’t care if you have an implacable vendetta against trees or a soft spot for the ink industry. Print out whatever you want as often as you like. But when the process finally reaches its denouement, sign electronically. Your record will be better for it.
D. Casey Flaherty is corporate counsel at Kia Motors America Inc. He developed and administers an in-person, technology competency audit for his outside counsel. The opinions expressed herein are his own. Email: CFlaherty@kiausa.com.
This article originally appeared in Law Technology News.