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Thursday, Mar 28, 2024

CONTRACTS—Lawyer Attempts to Write a New Book on Contracts

As a boy, Thomas R. Mullally always had a fascination with machines. He tinkered with his family’s radios and clocks, fascinated by their technology and what made them work. As a teenager in the early 1970s, Mullally found a new toy when he bought his first home computer. He couldn’t get enough of it; he soon began playing with the programs and even creating some of his own. “(It) was a Timex Sinclair that had 2K memory,” he recalled. “I had to use a tape recorder to download the program and plug it into the TV to use (as) a monitor. “I thought it was the best thing ever.” Today, the 44-year-old Mullally is a Sherman Oaks attorney who is still at it with his personal computer, having become an ardent advocate of e-commerce and e-contracts. As a specialist in business litigation, Mullally is on a one-man crusade to introduce e-contracts and the world of digital signatures. Through free symposiums and speeches he hosts for local business people, Mullally spreads the gospel of e-contracts. “I’m hoping that I can help bring more acceptance of e-contracts,” said Mullally, a partner with the law firm Szabo, Spencer & Mullally. “The technology is out there, but the acceptance of it is really slow. I just hope I can change that.” As he travels around the state speaking at conventions, trade organizations and elsewhere, Mullally says he sees e-contracts as the wave of the future. “I don’t think that we’ll completely abandon paper. But I’d like to say that in four or five years, e-contracts will be commonplace,” he said, admitting he’d like to be the first attorney to try an e-contract case. Many banks and financial institutions already offer loan applications on line, allowing customers to complete nearly the entire process via the Internet. “The only thing that’s keeping it from developing faster is a lack of a standard for attribution and authentication that allows you to prove you are who you say you are,” Mullally said, noting that many of the nation’s biggest banks, including Bank of America and Citibank, already offer some forms of e-contracts. Last October, the U.S. Congress passed the E-Sign Act, which ensures the validity of electronically signed contracts. But the legislation stopped short of approving a uniform standard for verifying the identity of a contract signer. “They intentionally did not dictate an authentication and attribution procedure because, wisely, they left it up to industry to develop it,” Mullally said. Today, banks can use passwords or personal identification numbers for customer authentication but, Mullally said, he expects a standard system will develop in the next two years. “I don’t think that high-tech things like retinal scans and palm prints would be accepted because they’re too costly. It would probably be something like a password,” Mullally said. Michael S. Hodes, an equity analyst with Goldman Sachs, said so-called e-contracts have yet to receive wide acceptance but, “there are many financial institutions that are expressing an interest in the Internet as a channel to offer loans. “In general mortgage lending and commercial banking there’s been online activity, but I haven’t seen a whole lot of it.” Hodes says companies like Dublin, Calif.-based E-Loan Inc., which offers consumer loans and then passes them on to local banks where the loan process is completed, are examples of the move toward online business contracts. Jim Smith, senior vice president for consumer Internet services at Wells Fargo Bank, said his company uses e-contracts in its online credit card applications but is still a few years away from paperless contracts in loan programs. “Customers can fill out a (loan) application that goes to our automatic underwriting system,” he said. “We’ll answer back within seconds and that would kick off the process.” While customers must now go to a local bank to finish the application process, Smith said Wells Fargo hopes to kick off a pilot program in the next two to three years that would keep the process online, using digital signatures and online contracts. Wayne Lewis, vice president of Granada Hills Bank, said online loan applications at his bank have been few and far between in the past year. “We’ve worked with a few online outfits to get loans and we thought it would be a good source for loan applicants, but it hasn’t really worked that way,” Lewis said. Mullally sees state governments eventually getting behind the e-contract movement by providing an electronic signature for everyone. Such a move would ensure that a person’s identity could be verified online. But the state’s involvement could spark a backlash among civil libertarians who may complain of invasion of privacy, Mullally said. “There is that ‘Big Brother’ worry that the government will control all transactions, so that would need to be resolved.” Mullally foresees states providing an electronic signature that would not be a handwritten signature image, but something like a set of numbers and letters, like a personal identification number for an ATM.

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