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At the heart of electronic commerce is the need for parties to form valid and legally binding contracts online. Basic questions relate to how contracts can be formed, performed, and enforced as parties seek to replace paper documents with electronic equivalents. It is often difficult, if not impossible, to be certain about the identity of the party with whom one is dealing on the Internet. Web transactions, particularly consumer-oriented transactions, often occur between parties having no preexisting relationship. Not knowing the identity of a party to an online transaction can raise concerns about whether a seemingly valid contract is actually enforceable. Appropriate use of digital signatures has been one solution to this problem.

The term “digital signature” describes a technology that is not based upon hand-signed instruments but rather on complex mathematical algorithms that facilitate the verification, integrity, and authenticity of electronic communications to make them non-reputable. “Non- reputable” means that evidence exists to link the identity of a party to the substance of an electronic message or data and that the evidence is sufficient to prevent a party from falsely denying having sent the message or data. The evidence usually comes in the form an electronic “seal” on a digital work, which typically requires that the parties signing a contract have access to cryptographic software.

The Uniform Electronic Transactions Act (UETA) endorses the use of digital or electronic signatures. UETA provides that “a record or signature may not be denied legal effect or enforceability solely because it is in electronic form.” It also provides that electronic records may substitute for typewritten or handwritten records when the law requires that a document be in writing. Finally, for contracts and agreements that require a signature to be enforceable UETA provides that an electronic or digital signature will suffice. UETA has been adopted in 22 states.

Inside Contracts