Electronic Signatures In Missouri: Moving To UETA Or Staying With E-SIGN - Winter 2003
Electronic Signatures In Missouri: Moving To UETA Or Staying With E-SIGN Winter 2003
We recently marked the second anniversary of the federal Electronic Signatures in Global and National Commerce Act, widely known as "E-SIGN."1 In 2000, then President Clinton signed E-SIGN with much fanfare and publicity, and E-SIGN was touted as an essential building block for the development of e-commerce. E-SIGN was necessary due to, among other things, (1) the uncertainty surrounding the use of electronic signatures and electronic records in contracts, and (2) the failure of states to alleviate this uncertainty by enacting uniform state laws. The Uniform Electronic Transaction Act ("UETA")2 is a model statute that was drafted before E-SIGN by the National Conference of Commissioners on Uniform State Laws ("NCCUSL") in order to provide uniformity among state laws with respect to electronic signatures and electronic records.3 However, at the time E-SIGN was enacted, many states had failed to enact UETA, and some states, notably California, enacted non-uniform versions of UETA by, among other things, adding consumer protection provisions.4 Thus, it was apparent to Congress that relying on the 50 states to adopt UETA in piecemeal fashion would not result in the uniformity necessary to let e-commerce develop.
In simplest terms, E-SIGN provides for equivalent treatment of electronic records and signatures with written records and signatures in transactions in or affecting interstate or foreign commerce and preempts all state laws on electronic signatures and electronic records that are inconsistent with E-SIGN. Congress viewed E-SIGN as a way to "protect and foster commerce during this transition period [to the adoption of UETA] by providing a predictable legal regime governing electronic signatures."5 E-SIGN does not preempt a state's enacted version of UETA if the applicable state enacts a "clean" version of UETA. That is, if a state enacts a version of UETA that is identical to the original NCCUSL version or one that contains only limited variations specified under E-SIGN, it will not be preempted.6 In a sense, E-SIGN represents the beginning of a likely trend of federalization of traditional areas of state commerce law in order to facilitate international e-commerce standards.
Since E-SIGN's effective date of October 1, 2000, 40 states have enacted UETA.7 Most, if not all, of the remaining states have introduced and at least partially considered UETA. UETA has been introduced in the Missouri legislature in both the 2001 and 2002 sessions, but, while approved by the Missouri Senate, UETA has not been enacted by the full Missouri legislature.8
This article provides some background on UETA and E-SIGN and addresses the impact, both legally and otherwise, of Missouri's failure to adopt UETA and the implications of relying upon E-SIGN for Missouri's law on electronic signatures and electronic records. Are there advantages or disadvantages of not adopting UETA? If the disadvantages outweigh the advantages, as this article will conclude, what steps should Missouri take?
1. General Principles of E-SIGN and UETA.
Both UETA and E-SIGN were designed to be limited in scope and not to change the underlying substantive law. Both provide for an equivalency of electronic signatures and electronic records with writings and signatures on paper. They are also both technology-neutral. That is, unlike now-pre-empted older digital signatures acts, such as Section 28.600, R.S.Mo. UETA and E-SIGN do not specific any technology which should be used. Both also provide in principle the freedom to use or not use electronic records and electronic signatures.9
Both E-SIGN and UETA also have common objectives with other international efforts to set standards for e-commerce. First they attempt to remove perceived barriers to the free flow of e-commerce. Second, they are intended to increase speed in both contract formation and the giving of notices. Third, and outside the scope of this article, they encourage and permit the use and retention of electronic records. Fourth, they allow parties to conduct business in a way that provide substantial cost savings through the elimination of paper and otherwise take full advantage of electronic commerce.
The initial question is what, if anything, are these laws necessary for? There has been some confusion over whether the enactment of E-SIGN or UETA was necessary to make an electronic contract enforceable. The answer is no. Courts have been enforcing electronic contracts without traditional signatures and/or writings prior to the enactment of E-SIGN or UETA and some courts have concluded that electronic documents satisfy statutory "writing" requirements.10 More importantly, however, is that many contracts, even prior to the e-commerce era, were not required by law to be in writing or signed. In each of these cases, electronic records and electronic signatures are and have been acceptable even in the absence of E-SIGN or UETA.
A. Is a writing or a signature required to create an enforceable contract?
Any analysis of the impact of E-SIGN or UETA begins with the simple question of whether a writing or a signature is required for the transaction or contract at issue.
The traditional elements of a contract include offer, acceptance and bargained for consideration.11 UCC Section 2-204(1) addresses the elements of a contract and specifies that "a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties, which recognizes the existence of such contract." (emphasis added)
Under both the traditional contract approach and the UCC, writing or a signature is not expressly required for a contract to be enforceable. Examples of contracts not documented by a traditional writing include handshake or oral agreements and clickwrap or click-through agreements.12 Examples of contracts not requiring signatures include shrinkwrap licenses, tickets or click-through agreements. E-SIGN and UETA come into play only when a law requires that a contract and/or signature be in writing to be enforceable. Therefore, if there is a requirement for a contract to be in writing or signed, it must come from another state or federal law.
B. Requirements for Writing or Signature.
The principal source of a writing requirement for contracts is the general statute of frauds of a state.13 Examples of contracts that will not be enforced unless in writing under the statue of frauds include conveyance of real estate, contracts that cannot be completed within one year, guarantees to pay the debt of another, and leases for more than one year. The UCC statute of frauds requires written contracts for the sale of goods having a value greater than $500 and for the lease of goods where the total payments are greater than $1,000.14 There may be a variety of other statutes that require certain types of contracts be in writing, contain certain language to be presented in a certain font or in boldface, or to include a signature. In some states, the number of statutes with writing requirements or signature requirements can total in the thousands.15
Writing or signature requirements may also arise under federal law. Examples include copyright assignments and exclusive licenses, trademark and patent assignments.16 Other laws and regulations also have certain requirements for writing, particularly in the area of consumer notices and disclosures. Examples include consumer lease disclosures, truth-in-lending disclosures and privacy notices.
C. Key Questions.
Unless there is a legal writing or signature requirement, a contract need not be in writing or be signed to be enforceable. In cases where there is no applicable legal writing or signature requirement, E-SIGN and UETA will play no role. Those types of contracts can be and could have always been transacted using electronic methods.
If there is a legal writing or signature requirement for the subject matter of the contract and/or related notice, the key questions become, as applicable: (1) does an electronic record satisfy the writing requirement and/or (2) does an electronic signature satisfy the signature requirement?
In simplest terms, E-SIGN and UETA answer both questions in the affirmative. If there is a writing requirement, an electronic record will satisfy it. If there is a signature requirement, an electronic signature will satisfy it. However, E-SIGN and UETA are not intended to change substantive contract law. All other requirements of contracts must be satisfied and all defenses are applicable. In the case of electronic signatures, all other requirements associated with traditional written signatures, such as competency, intent to sign and the like must also be met.
As a general matter, E-SIGN provides that electronic signatures and electronic records satisfy a legal requirement for writing or signature with respect to a transaction in or affecting interstate or foreign commerce. More specifically, Section 101(a) of E-SIGN states that "(1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation." E-SIGN also authorizes substitution of electronic notices for paper notices, including many, but not all, consumer notices.
E-SIGN takes a minimalist and procedural approach. Section 7001(b)(1) provides E-SIGN does not "limit, alter, or otherwise affect any requirement imposed by a statute, regulation, or rule of law relating to the rights and obligations of persons under such statute, regulation, or rule of law other than a requirement that contracts or other records be written, signed, or in nonelectronic form." It also adopts the principal of freedom of the parties to use electronic methods. Section 7001(b)2 states that E-SIGN does not "require any person to agree to use or accept electronic records or electronic signatures, other than a governmental agency with respect to a record other than a contract to which it is a party." As we will discuss later, E-SIGN's approach to freedom to use electronic contracting is somewhat different that that of UETA.
The definitions of E-SIGN are broad. The term "electronic record" means a contract or other record created, generated, sent, communicated, received, or stored by electronic means.17 An electronic signature means 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.18 It is worth noting that electronic sounds, symbols and processes can all be electronic signatures. For example, in exchange of voicemails or emails might well constitute an electronic signature. In addition, the electronic signature must be attached to or logically associated with the contract and there must be an intent to sign the record.
The term "transaction" is especially important under E-SIGN because it relates to the conduct of business, consumer or commercial affairs between two or more persons.19 Standard sales, leases, exchanges, licenses or other disposition of property all qualify as "transactions". Living wills and health care power of attorneys do not qualify as "transactions" because they do not involve commercial matters between two people. In addition, E-SIGN explicitly does not apply to wills, codicils or testamentary trusts, laws governing adoption, divorce, or other matters of family law, and to the Uniform Commercial Code other than Section 1-107 and 1-206 and Articles 2 and Article 2A.20
In response to consumer concerns raised about UETA, E-SIGN also includes a number of consumer protection exceptions. E-SIGN does not apply to matters such as court orders, notices in documents, notices of cancellation of utility services, notices of default on mortgages, notices of cancellation of health or life insurance benefits, notices of product recalls, and documents related to hazardous materials.21 In the case of consumer notices, E-SIGN requires specific consent before consumer notices that required by law can be given electronically. In these cases the current consumer must provide affirmative consent that has not been withdrawn. The non-consumer party must obtain consent from a consumer after it has provided clear and conspicuous statement informing the consumer of any right or option to receive the information on paper, how to withdraw the consent and any of the consequences of withdrawal, how to update contact information, and how to obtain a paper copy on request and a fee, if any, for that copy. The consumer must be provided with hardware or software requirements and the consent must be either obtained or confirmed electronically, not just on paper. Consent must be reacquired if there is a change in hardware or software requirements that will create a material risk that the consumer will not be able to access or store records delivered electronically. In all events, the manner of obtaining consent must reasonably demonstrate that the consumer can access information in the electronic form that will be used to provide that information.22
While E-SIGN is intended to provide certain consumer protections, it also sets out a complex and cumbersome procedure for obtaining consent to electronic transactions that will be problematic for both businesses and consumers.
In substance, UETA adopts nearly the same minimalist and procedural approach to electronic signatures and electronic records as does E-SIGN. A fundamental premise of UETA is that the medium in which a record, signature, or contract is created, presented or retained should have no impact on its legal significance.23 The key language of UETA is very similar to the comparable language in E-SIGN. Section 7 of UETA provides that:
(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
(c) If a law requires a record to be in writing, an electronic record satisfies the law.
(d) If a law requires a signature, an electronic signature satisfies the law.
Another important term in UETA, like E-SIGN, is "transaction." UETA does not apply to all writings and signatures, only to electronic records and signatures relating to a "transaction," which is defined as those interactions between people relating to business, commercial and governmental affairs. UETA, unlike E-SIGN, specifically includes governmental affairs in the definition of "transaction."24
UETA approaches the principal of freedom to choose electronic methods somewhat differently than E-SIGN does. Section 5(b) of UETA provides that UETA applies only to transactions where both parties have agreed to conduct transactions by electronic means. Whether there is such an agreement is determined from the context and surrounding circumstances, including the parties' conduct. Section 5(c) gives a party that agrees to conduct a transaction by electronic means a nonwaivable right to refuse to conduct other transactions by electronic means. Section 5(d) also provides that, with certain exceptions, the parties can vary the effect of UETA in their agreement.
UETA is in some ways even more minimalist than E-SIGN. It does not affect wills, codicils, or testamentary trusts or the Uniform Commercial Code other than Sections 1-107 and 1-206, Article 2, and Article 2A, and Section 3(d) specifically states that other state substantive law is applicable. Unlike E-SIGN, UETA does not specifically exempt any categories of consumer notices. While E-SIGN requires specific and complex notice procedures, UETA takes a "context and circumstances" approach to notices and does not address specific consumer protection scenarios. UETA also permits the consumer to agree to future electronic notices through a paper notice, without requiring a confirmation that the consumer can receive electronic notice, a concern the E-SIGN drafters wanted to address.
UETA also addresses a good number of issues that are not dealt with in E-SIGN. For example, UETA addresses attribution issues, evidentiary issues, applicability issues, error correction issues, and sending and receipt issues. UETA also covers rules for contracts involving electronic agents in much more detail than does E-SIGN.
4. Major Differences Between E-SIGN and UETA.
This section of this article will highlight and discuss some of the major differences between E-SIGN and UETA. This discussion is not intended to be exhaustive.25
Approach to Consumer Protection. E-SIGN was drafted with some specific consumer protection issues in mind because consumer advocates were unhappy with UETA's approach to consumer protection. E-SIGN has elaborate consumer notice provisions and other mechanisms for consumer protection. UETA specifically defers to state consumer protection laws and requires only that both parties agree to use electronic methods. This combined approach is intended to address consumer protection issues under UETA while giving states the flexibility to enact other consumer protection laws as appropriate in the future.
Exclusions. E-SIGN has a broader list of exclusions from coverage of the law. These additional exclusions include family law matters, foreclosures, and similar matters.
Extent of Coverage. UETA is generally more comprehensive than E-SIGN. UETA addresses the question of when electronic records are deemed to be sent and received. UETA covers the issue of attribution of signatures. UETA specifies that it applies only to transactions after its effective date. UETA covers the issue of admissibility of electronic records into evidence. UETA also addresses changes and errors in electronic transactions. E-SIGN is silent on each of these matters.
Agreement to Use Electronic Methods. UETA provides that both parties must consent to the use of electronic methods. This consent may be inferred from the actions of the parties or other evidence. Critics of UETA point out that this approach may lead to situations where a consumer agrees to electronic methods unwittingly.26 In addition, unlike E-SIGN, there is no requirement that the ability to receive electronic notice must be confirmed. The wording of E-SIGN, on the other hand, states only that a party may not be "required" to use electronic methods. This language has led some commentators to question whether the consent of both parties is required, especially in a business-to-business transaction.27
Other State Law. UETA explicitly defers to other substantive state law. E-SIGN's approach is not to preempt "consistent" laws.
Agreement of Parties. Under UETA, the parties can agree not to have provisions of UETA apply, such as those relating to the timing of the receipt of electronic documents. E-SIGN does not have similar provisions.
Record-keeping. UETA's approach to maintenance of records is less specific and more flexible than the approach under E-SIGN. UETA also specifically permits the use of third parties to maintain records. E-SIGN does not address this issue.
Electronic Agents. The drafters of UETA put a good deal of effort into the issue of transactions where one party is "represented" and engages in a transaction by an electronic agent or software program. Those types of transactions are becoming increasing more common. As a result, UETA's approach to electronic agents is much more comprehensive than that of E-SIGN.
Preemption Issues. E-SIGN's preemption rules are complex and difficult. In some cases, it simply is not clear how the preemption will work. The adoption of UETA allows a state to avoid these preemption issues.
5. E-SIGN or UETA for Missouri?
Our analysis of E-SIGN and UETA lead us to the conclusion that Missouri should follow the other 40 states that have adopted UETA in its clean form rather than to remain under the default rules of E-SIGN.
One of the primary arguments in favor of E-SIGN is the emphasis it places on consumer protection.28 It is important to note that those consumer protections were determined on a national rather than a Missouri basis. Because UETA explicitly defers to state consumer protection laws, consumer protection concerns should be addressed in amendments to the appropriate consumer protection statutes as part of the passage of UETA.
On many other grounds, UETA is preferable. Especially compelling are its broader coverage of related e-commerce issues, such as attribution and timing, its treatment of electronic agents, and its requirement that parties agree to use electronic methods, highlighting the element of choice. UETA, because it was drafted through the National Conference of Commissioners on Uniform State Laws process, in general appears to be a more thorough and better-drafted law.
By not adopting UETA, Missouri has placed itself in a clear minority of only ten states that have not addressed the issue of UETA and have instead acquiesced to the default federal rules of E-SIGN. There is no evidence that the remaining non-adopting states have not done so as a result of opposition to or new concerns about UETA. The continuing failure to adopt UETA will raise questions whether Missouri will be considered as a "technology friendly" state to technology companies considering whether to locate in or relocate to Missouri. Lawyers and their clients who have an interest in seeing Missouri thought of a leading technology and e-commerce state will want to make efforts in the next legislative session to make sure that UETA is fully acted upon and adopted.
ABOUT THE AUTHORS
Charles H. Fendell (firstname.lastname@example.org) is a partner and vice-chair of the Intellectual Property and Information Technology Practice Group at Thompson Coburn LLP as well as co-chair of BAMSL's Computer and E-Commerce Law Committee. Mr. Fendell is also an Adjunct Professor of Law at Washington University School of Law where he co-teaches Cyberspace Law and Intellectual Property and E-Commerce Planning and Drafting.
Dennis M. Kennedy Mr. Kennedy is an Adjunct Professor of Law at Washington University School of Law where he co-teaches Intellectual Property and E-Commerce Planning and Drafting.
The authors' article, "UCITA is Coming!!! Part 2: Practical Analysis for Licensors' Counsel", 17 The Computer Lawyer No. 8, p. 3 (August 2000), received a 2001 Burton Award for Legal Achievement.
1 15 USC §7001.
2 The text and official comments of UETA, along with links to related articles and news, may be found online at http://www.uetaonline.com.
3 Due to the international dimension of e-commerce, UETA itself grew out of efforts to standardize international e-commerce through the United Nations Commission on International Trade Laws Model Law on Electronic Signatures ("UNCITRAL Model Law") and adopts an approach and method that largely tracks the UNCITRAL Model Law. (For an excellent discussion of the role the UNCITRAL Model Law played in the UETA drafting process, see Boss, The Uniform Electronic Transactions Act in a Global Environment, 37 Idaho L. Rev. 275 (2001).)
4 See generally, Senate Report No. 106-131.
5 Senate Report No. 106-131.
6 15 USC §7002.
7 See list at http://www.bmck.com/ecommerce/uetacomp.htm.
8 See 2002 legislative history of Missouri UETA bill at http://www.house.state.mo.us/bills02/bills02/sb1014.htm.
9 For an excellent and thorough introduction to UETA and the principles behind it, see Fry, Introduction to the Uniform Electronic Transactions Act: Principles, Policies and Provisions, 37 Idaho L. Rev. 237 (2001).
10 E.g., In re RealNetworks, Inc., Privacy Litigation, 2000 WL 6313341 (N.D. Ill. 2000); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) (contract terms displayed on screen). Note, however, that the Kansas District Court opined in Klocek v. Gateway, Inc., 104 F.Supp.2d 1332 (D. Kan. 2000) that Missouri courts might not follow the reasoning of the ProCD and similar cases.
11 See generally, Restatement of Contracts, 2nd.
12 See discussion non-traditional contracts and acceptance in ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1451 (7th Cir. 1996) (contract terms displayed on screen) and in Section III of Specht v. Netscape Communications Corporation, __ F.3d ____ (Oct. 2, 2002, 2d.Cir.) (available online at http://laws.findlaw.com/2nd/017860v2.html).
13 See Section 432.010, R.S.Mo.
14 Section 400.2-201, R.S.Mo.; Section 400.2A-201, R.S.Mo. Note that ALI has approved the increase of the amount in UCC Section 2-201 from $500 to $5,000 (see http://www.ali.org/forum4/StatuteFrauds2-201.htm). Missouri has not made this amendment.
15 For example, a study by the Federal Reserve Bank of Boston found more than 2,500 different state laws requiring that canceled checks be physically stored in drawers. See Fry, Introduction to the Uniform Electronic Transactions Act: Principles, Policies and Provisions, 37 Idaho L. Rev. 237 (2001).
16 See, e.g., 17 USC §204.
17 15 USC §7006(4).
18 15 USC §7006(5).
19 15 USC §7006(13).
20 15 USC §7003(b).
21 15 USC §7003(b).
22 See generally 15 USC §7001(c).
23 See Official Comments to Section 7 of UETA.
24 UETA, §2(16).
25 There are a number of excellent articles comparing E-SIGN and UETA. See, e.g., Fry, Why Enact UETA? The Role of UETA After E-SIGN, http://www.nccusl.org/nccusl/whatsnew-article2.asp; Hillebrand and Saunders, E-SIGN and UETA: What States Should Do Now, http://www.consumersunion.org/finance/e_sign.htm; Fry, Introduction to the Uniform Electronic Transactions Act: Principles, Policies and Provisions, 37 Idaho L. Rev. 237 (2001); Boss, The Uniform Electronic Transactions Act in a Global Environment, 37 Idaho L. Rev. 275 (2001); Massachusetts Information Technology Division, General Counsel ESIGN v UETA, http://state.ma.us/itd/legal/esignvueta.htm.
26 See discussion of E-SIGN consent requirements in text, supra, at note 22.
27 See, e.g., Section 4(b) of the Official Comments to Section 5 of UETA: "B. Joe gives out his business card with his business e-mail address. It may be reasonable, under the circumstances, for a recipient of the card to infer that Joe has agreed to communicate electronically for business purposes. However, in the absence of additional facts, it would not necessarily be reasonable to infer Joe's agreement to communicate electronically for purposes outside the scope of the business indicated by use of the business card."
28 See Hillebrand and Saunders, E-SIGN and UETA: What States Should Do Now, http://www.consumersunion.org/finance/e_sign.htm.
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This article first appeared inThe Bar Association of Metropolitan St. Louis (BAMSL)