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November 12, 2011 /Electronic Signatures /

The Senior Partner, The Paper Switcheroo, and Avoiding The $130,000,000 “Mistake” with E-Signatures

One of the most important and fundamental topics we talk about with our users and customers is authentication and fraud.  Our users have a basic understanding of how fraud can in theory, and in practice, work in the paper world, and go through an educational process to see that electronic signatures and web contracts are inherently more secure and more tamper resistant than paper ever can be.  Web contracts are locked down.  They are immutable.  They contain an integrated forensic audit trail.  And they cannot be changed once signed.

Let’s contrast that with one of the most basic issues with paper contracts — they can be modified once signed.  Not just the signature itself – but just as importantly, the body of the contract itself and especially the attachments.  Attachments in paper contracts are routinely left off, updated, or attached after the fact.  It’s at best a horribly sloppy practice, but it’s a common one.

With web contracts and e-signatures, swamping out attachments and portions of signed contract is simply impossible by contrast.  Whatever is signed, is locked down and signed forever. Period.

larry_davidWhich makes this $130,000,000 signature story in today’s Wall Street Journal about the ownership of the L.A. Dodgers in the divorce of its owners one that simply never should happen in the electronic age.  In a nutsell, the appendix to the signed contract that stated who owned what portion of the Dodgers was swapped out — after the signature and after the fact itself.

“Last year, while preparing for the McCourts’ divorce trial, questions surrounding the agreement came up. Evidence surfaced that there were discrepancies among the original six signed copies, namely that attachments to three named Mr. McCourt as the sole owner of the Dodgers while attachments to the three others didn’t. Evidence also revealed that the copies with attachments that didn’t name Mr. McCourt as the sole owner had been replaced by attachments that did shortly after all six copies had been signed.

At trial last fall, Mr. Silverstein testified that he didn’t remember switching the attachments, but he conceded that he was likely the one who switched them. He also said he didn’t tell the McCourts about the switch, likely because he felt he had the implied consent from the McCourts to make a simple drafting change he felt squared with their original wishes. Mr. Silverstein, described by several Boston lawyers as a highly regarded attorney, declined to comment for this article.

The end result?   Frank McCourt is suing his attorney for this $130,000,000 “mistake”.

This is simply stunning.  Because in 2011, a senior attorney at a law firm simply shouldn’t be able to swap out one part of a contract for another, after it’s signed.  Imagine someone adding a few zeros to a check, and stating there was as “implied consent” to increase the payment two orders of magnitude.  That’s why we don’t use paper checks anymore.

With EchoSign, by contrast, this lawsuit would never have happened.  It would have been impossible to swap out the attachments, or any part of the signed contract.

Paper contracts.  They’re on the path of paper payments, paper checks, analog photos, faxes, and other relics of an age without full transparency and automatic auditability.  Too much risk, too much downside, really … there’s no point.

2012.  The Year of the Web Contract.

Categories: Electronic Signatures

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