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| The Proliferation of State and Federal Legislation Relating to the Validity of Electronic Transactions Over the past few years, and as the Internet has continued to expand into almost every aspect of daily life, lawmakers, both federal and state, have tackled the problem of ensuring that statutory laws remain effective with regard to Internet transactions. The problem created by the proliferation of Internet transactions is the same problem that historically recurs when new technology grows at a rapid pace; that is, existing laws tend to ambiguously, rather than specifically, relate to the new technology. When this occurs, courts are faced with the dilemma of applying existing laws to the issues that develop from use of the new technology, a process which is somewhat akin to fitting a square peg into a round hole. The outcome of that process easily can become a patchwork of case law, with each decision narrowly controlling a very specific set of facts and giving little guidance to subsequent courts faced with similar, yet slightly different, issues. Legislators therefore have the problem of cleaning up the law to ensure more continuity. Currently, many legislators are dealing with the issue of whether transactions consummated over the Internet, or by various other electronic methods, are valid with regard to traditional contract laws. Many statutory laws now require certain transactions to meet specific requirements in order to be held binding on the contracting parties. Such requirements include the presence of a written document, evidencing the terms of the contract and intent of the parties involved, and the appearance of a signature on the written document, attesting to the parties' intent to agree to the written terms. Now that many transactions are consummated over the Internet with an increasing degree of regularity, questions have emerged as to whether electronic, or digital, records meet legal requirements that a document be in writing and whether electronic, or digital, signatures meet legal requirements that a signature appear on the document. It is these questions that legislators have begun to address with new and pending legislation, usually in the form of the Uniform Electronic Transactions Act. In general, the Uniform Electronic Transactions Act ("UETA") gives an electronic record the same force and effect of a written record and also gives an electronic signature the same force and effect of a signature affixed by hand. Thus, for example, where a contract for the sale of goods, transacted over the Internet, is required by the Uniform Commercial Code to be in writing, the electronic record of the transaction would, by law, satisfy the requirement in a state that has adopted UETA. Another example of a similar situation is where a contract not capable of being completed within one year is required to be signed, a common requirement found in a state "Statute of Frauds." An electronic signature would satisfy such a requirement in a state that has adopted UETA. Several states, including California, Indiana, Utah, Kentucky, Minnesota, and Virginia, have already enacted versions of UETA while two additional states, Kansas and Maryland, require only the Governor's signature for enactment. Furthermore, several other states, including Iowa, Colorado, Hawaii, Maine, Michigan, Rhode Island, Vermont, West Virginia, and New Jersey, Delaware and D.C., have legislation pending in their respective legislatures relating to UETA. Many of these recently enacted and pending statutes recite, without alteration, standard UETA provisions. Others, such as West Virginia House Bill 4493, alter standard UETA provisions. H.B. 4493, in its present form, specifically excludes telephone calls and records of telephone calls from the definition of an electronic record, an exclusion not found in most versions of UETA. Thus, an electronic transaction that is communicated or received by telephone would not be afforded the same force and effect of other electronic transactions in West Virginia if H.B. 4493 were enacted in its present form. UETA, in its various state-specific forms, also tends to contain provisions that safeguard a party who transacts by electronic means. For instance, in most cases, UETA requires that each party agree to perform the specific transaction electronically. UETA generally also states that an electronic transaction must comply with all other applicable laws, thus deterring the argument that any legal requirement not specifically mentioned in UETA does not apply to an Internet transaction. Finally, UETA, again in its various forms, can encompass many other aspects of contract law, such as what an "electronic record" or "electronic signature" encompasses; how an electronic record must be stored; when an electronic record is deemed to be received and sent; and, how and whether an electronic signature is deemed attributable to an individual. Many state legislatures have adopted, or are in the process of adopting, other legislation that also regulates transactions over the Internet. Some of the legislation is narrowly tailored to enforce electronic records and electronic signatures in very specific situations. For example, the Connecticut Electronic Records and Signatures Act (1999 Ct. P.A. 155) applies only to state agencies while the Maine Revised Statutes contain a section (16 M.R.S. ß 456-A) devoted to the admissibility of electronic records as evidence in a court of law. Other state laws are as comprehensive as, if not more comprehensive than, UETA. Virginia, for example, has very recently passed the Uniform Computer Information Transactions Act ("UCITA"). UCITA, although different in scope from UETA, also gives legal effect to Internet transactions. Federal legislation is also pending which would affect the validity of electronic transactions. The Electronic Signatures in Global and National Commerce Act, H.R. 1714, would prohibit the denial of the legal effect of a contract, agreement or record on the ground that it is not in writing, if it is an electronic record, or on the ground that it is not signed, if it contains an electronic signature. H.R. 1714 was passed by the House of Representatives and then referred to the Senate Committee on Commerce, Science and Transportation, where it remains as of the writing of this article. The Millennium Digital Commerce Act, S. 761, is also currently pending in Congress. This Act, as passed in the Senate, declares that, in a commercial transaction affecting interstate commerce, a contract may not be denied legal effect solely because an electronic record or electronic signature was used in its formation. S. 761 was referred to a conference committee in February of this year, where it currently remains for consideration. This is a very broad overview of pending and recently passed legislation regarding certain aspects of Internet transactions. In general, this new legislation not only creates some new law, it also gives effect to traditional principles of law with regard to new technology. Consequently, both courts deciding issues arising out of electronic transactions and parties intending to transact electronically will soon have much more statutory guidance. As always, you should check with your legal counsel to determine whether any of these new and pending laws will have an effect upon the way you do business over the Internet and whether you should change your practices in the states in which you do business. © 2000 Davis & Gilbert LLP |
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