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Howrey LLP
President Clinton has signed the Electronic Signatures
in Global and National Commerce Act. Known as "E-SIGN," the
new federal law gives electronic signatures, contracts
and records the same validity as their handwritten and
hard
copy counterparts. The new law, signed June 30, removes
uncertainty as to the enforceability of online transactions,
will cut transaction costs and will otherwise facilitate
contracting in all industries.
The
new law validates electronic signatures, contracts and records,
but does not affect any substantive rights or obligations
of the parties. A signature, contract or other record relating
to a transaction in interstate or foreign commerce "may
not be denied legal effect, validity, or enforceability
solely because it is in electronic form." Similarly,
a contract may not be denied legal effect simply because
it was formed using an electronic signature or record. The
law does not, however, affect any other right or obligation
under any statute, regulation or rule of law (except those
requiring that signatures, contracts or other records be
in writing). For example, E-SIGN does not affect any existing
statutory and common law rules regarding formation of contracts,
such as those requiring manifestation of assent and authentication,
other than to recognize the validity of electronic records
to create binding agreements.
Uniformity:
The law promotes uniformity in electronic contracting nationwide
by pre-empting inconsistent state laws. Currently, 18 states
have adopted some form of digital signature or electronic
transaction legislation. Although many of those laws are
derived from the Uniform Electronic Transactions Act ("UETA"),
some states, such as California, have adopted variations
on UETA that differ significantly. E-SIGN pre-empts those
inconsistent state provisions. It also expressly pre-empts
any state law that is not technology neutral, such as a
Utah law that recognizes digital signatures originating
from jurisdictions with similar (non-UETA) authentication
requirements.
Certain
procedures must be used in consumer transactions. If state
or federal law requires written notices to "consumers"
(defined in E-SIGN as individuals who obtain "products
or services that are used primarily for personal, family
or household purposes"), electronic transmission of
such notices will satisfy those requirements but only if
certain procedures are implemented. For example, the consumer
must affirmatively consent to receiving communications electronically
and must be provided with a "clear and conspicuous
statement" that such consent is strictly optional -
and that consent may be withdrawn. The consumer also must
demonstrate, e.g., through the exchange of confirming e-mails,
that he or she can access the electronic information upon
which consent will be based. The business also must inform
the consumer how to obtain a hard copy of an electronic
record and what fees, if any, will be charged to obtain
that record. E-SIGN establishes other requirements.
E-SIGN
carves out several exceptions. The new law does not apply
to wills and testamentary trusts or to records related to
adoption, divorce or "other matters of family law."
E-SIGN also does not affect any contract governed by the
Uniform Commercial Code other than those formed under
Articles 2 and 2A, relating to the sale of goods and leases
of personal property, respectively.
The
law also does not allow for electronic communication of
"court orders or notices, or official court documents."
E-SIGN specifically excludes notices to: (1) cancel or shut-off
"utility services" (defined to include "water,
heat, and power"); (2) repossess, evict or foreclose
on a primary residence of an individual; or (3) cancel health
or life insurance benefits. Notices recalling or warning
of defects in products that could endanger health or safety
and documents accompanying hazardous materials, pesticides
and other toxic substances also must be in paper form.
The
law is neutral as to the methods or technologies used to
accomplish its purposes. E-SIGN permits the parties to decide
whether electronic signatures will be used at all and what
technologies to apply to the transaction.
E-SIGN
also does not require anyone to accept or to use electronic
records or electronic signatures (other than a governmental
agency, in some circumstances).
Validity:
The law expressly recognizes the validity of contracts or
other records created by electronic agents. Electronic agents
are computer programs or other means used to automate an
electronic communication or response "in whole or in
part without review or action by an individual at the time
of the action or response." E-SIGN expressly validates
contracts and records made using electronic agents.
E-SIGN
authorizes federal and state regulators and self-regulatory
organizations to make or amend their rules consistently
with E-SIGN's principles and procedures. The new law also
preserves the authority of federal agencies to make rules
consistent with E-SIGN. Prior interpretive releases and
other rulings on electronic transmissions therefore remain
in effect.
If
existing law mandates the retention of a contract or other
record, parties can satisfy that requirement by retaining
an electronic record that "accurately reflects the
information" set forth in the contract or other record
and "remains accessible" to anyone entitled to
access to that document. In addition, federal regulators
have until March 1, 2001, to propose rules "to specify
performance standards to assure accuracy, record integrity
and accessibility of records that are required to be retained"
by federal law or regulation.
Although
certain aspects of the new law, such as the prohibition
on "inconsistent" state laws, undoubtedly will
find their way into the courts for judicial interpretation,
E-SIGN eliminates much of the uncertainty encountered by
businesses that wish to enter into transactions online.
The new powers E-SIGN gives to businesses - whether buying
or selling over the Internet or simply negotiating transactions
using e-mail -plainly make it imperative for any business
operating in the 21st Century to evaluate with counsel how
the new law affects its operations.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2000 Howrey LLP
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