Non-lawyers have an intuitive understanding of what makes up a legally binding contract. This understanding is particularly important in jury trials involving contract disputes, where jurors bring to the table their pre-existing beliefs about what a legally binding contract should look like. Legal psychologists have long understood this and sometimes use the term “cognitive contract schemas” to refer to the collection of intuitive notions most people have of what a legally binding contract is. If Stephen Colbert were describing cognitive contract schemas, he might refer to them as being the stuff that leads to “contractiness.”
Research that I and others published in the 1990s explored and defined some of the elements that laypeople would expect to see in order to conclude that a document is a legally binding contract. See e.g., Dennis P. Stolle & Andrew J. Slain, Standard Form Contracts and Contract Schemas: A Preliminary Investigation of the Effects of Exculpatory Clauses on Consumers’ Propensity to Sue, 15 BEHAV. SCI. & L. 83 (1997). These elements often include certain types of legal jargon and, importantly, almost always include a signature block and signature. In fact, for laypersons the signature block and accompanying signature has traditionally been the most defining feature of a legally binding contract. If you are trying a case to a jury that involves asserting rights under an unsigned document, you have a hurdle to overcome (as anyone who has done this knows). It may not be an insurmountable hurdle, but it is a hurdle. An unexecuted document is simply inconsistent with jurors’ everyday beliefs about what makes a contract a contract.
But over the last decade, the prevalence of traditional signatures has steadily waned as the use of e-signatures has become increasingly common. In 2000, Congress enacted the Electronic Signatures in Global and National Commerce Act (ESIGN). ESIGN provides that “[n]otwithstanding any statute, regulation, or other rule of law . . ., with respect to any transaction in or affecting interstate or foreign commerce . . . a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature . . . was used in its formation.” 15 U.S.C. § 7001. Similar language appears in the Uniform Electronic Transactions Act (“UETA”), which has been adopted by most states. Further, under these acts a “signature” is not limited to something resembling the longhand script of yesteryear, it doesn’t even have to be a name. Under ESIGN, an “electronic signature” 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.” 15 U.S.C. § 7006(5). Together, ESIGN and UETA have changed the way people do business, adding a level of electronic convenience in executing documents that most of us now take for granted.
For all the convenience that e-signatures provide, there is still something almost magical to non-lawyers about a real-life, pen-and-ink signature. It seems plausible that there are lingering, intuitive notions that an e-signature may be good enough for some routine contracts, but may not be good enough for something really important. In 2012, point guard Deron Williams signed a five-year, $98 million contract with the Brooklyn Nets using his finger on an iPad. William’s deal, while headline worthy even without the e-signature, was met with headlines such as: “Know What’s Crazy? People Are Signing $100 Million NBA Contracts on an iPad” (from TECHCRUNCH), and “The $98,000,000 Contract Inked on an iPad” (from FORBES). Although anecdotal, these headlines suggest that an e-signature still doesn’t quite square with most laypeople’s intuitive notions of what makes a legally binding contract.
Recently, a social scientist named Dr. Eileen Chou conducted a series of experiments to study laypeople’s perceptions of various types of e-signatures compared to a handwritten signature. In general, e-signatures were perceived as less trustworthy and the associated document was perceived as more likely to be breached. Dr. Chou’s results, which were published online in December of 2014, will be forthcoming in the print edition of the journal SOCIAL PSYCHOLOGY & PERSONALITY SCIENCE.
In one of her studies, Dr. Chou had nearly 300 research participants read a contract. Unknown to them, the research participants had been assigned to one of six different groups. The contracts seen and read by the participants in each group were identical in every respect except one – the type of signature on the document. One group read a contract with a hand signature. The other five groups read the identical contract with one of five different types of e-signatures – a check box, a PIN, an avatar, a typed name, or a software generated signature (essentially a font that looks somewhat similar to handwriting). The participants were not asked to focus on the signature, nor were they asked any question about the signature. The signature was simply there as part of the overall document. Eileen Y. Chou, Paperless and Soulless: E-Signatures Diminish the Signer’s Presence and Decrease Acceptance, SOCIAL PSYCHOL. & PERSONALITY SCI. (2014) DOI 10.1177/1948550614558841.
After reading the contract, the participants answered a series of questions. The same questions were asked regardless of which group the participant was in. The questions included several about the likelihood that the contract would be breached. Dr. Chou then conducted a statistical analysis to compare the results of each group against each other group. Her statistically significant findings were that participants in the hand signature group believed the contract was less likely to be breached than the participants in any of the five e-signature groups. Again, it was the exact same contract in every group. But, putting a hand signature on the document resulted in participants showing a stronger belief that the contract would not be breached. Dr. Chou also found that, of the five e-signature groups, the participants in the software-generated signatures group had the lowest belief that the contract would be breached, whereas the participants in the avatar signatures group showed the highest belief that the contract would be breached. Interestingly, of the five e-signatures, the software-generated signatures look the most like a real signature and avatars arguably resemble a real signature the least. The chart below summarizes Dr. Chou’s findings.
Click here to view the image.
In looking at the results above, it is important to keep in mind that the participants were not comparing one type of signature to another. The participants in each group only looked at one contract, and they were not even asked any questions about the signature. Instead, they were asked to rate their level of agreement with statements such as: “The signer is likely to breach this contract.” and “The signer will think twice before breaching this contract.”
The results of Dr. Chou’s study have practical implications for commercial litigation as well as for client counseling before a transaction. In the context of commercial litigation, Dr. Chou’s findings suggest that jurors in trials involving documents with e-signatures, especially those that do not resemble traditional signatures (such as PINs or avatars), may bring to the table a certain degree of skepticism regarding the validity, or at least the wisdom, of relying on electronic signatures. Perhaps basic education of the jury regarding the legal validity of such signatures would quickly overcome any such skepticism, but it is certainly a point that cannot simply go unaddressed. In the client counseling context, her results serve as a reminder that even sophisticated clients may benefit from hearing an explanation of ESIGN and UETA. Further, for some deals, it may be psychologically prudent to execute the documents in pen and ink, even if it is not legally necessary.