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By
Daniel L. Jacobson
On June 3, President Bill Clinton signed into law a bill
that allows “electronic signatures” and electronically created
and stored documents to have the same legal effect as actual
signatures and actual documents. The bill (S761), which was
sponsored by Sen. Spencer Abraham, R-Mich., uses the Interstate
Commerce and Foreign Commerce clauses of the Constitution to
make the law applicable to transactions that are "in or
affecting interstate or foreign commerce."
The U.S. Supreme Court has liberally defined "interstate
commerce" not only to allow Congress to govern commerce among
the states, but also to govern much commerce that actually takes
place intrastate. United States v. Wrightwood Dairy Co.,
314 U.S. 605 (1941). Congress has stretched the jurisdiction of
the electronic-signature law as far as it is constitutionally
feasible to stretch it. By its terms, the new law applies not
only to interstate and foreign-commerce transactions, but also
to transactions that affect interstate or foreign transactions.
So, the law will have wide application.
The legislative history of the new law indicates that it
was born out of need created by the growth of Internet commerce.
A Senate committee report states: "Internet commerce has already
been estimated at more than $100 billion and is growing rapidly.
But for the Internet to reach its potential and function as a
substitute for traditional paper transactions, the public must
trust the integrity and reliability of electronic commerce and
be assured that consistent and predictable legal rules will
govern electronic transactions." S. Rep. No. 106-131 (1999).
The Millennium Digital Commerce Act was a predecessor
popular name to the law's final popular name, the Electronic
Signatures in Global and National Commerce Act.
The new name may be misleading. The terms of the new law
apply not only to signatures but also to the substantive
contents of documents themselves. Also, as will be seen, the new
law reaches far beyond Internet commerce.
The National Conference of Commissioners of Uniform
State Laws has prepared a uniform state law on the subject of
electronic signatures and documents. That law is called the
Uniform Electronic Transactions Act. Until a state adopts the
Uniform Electronic Transactions Act, or something substantially
similar to it, the new federal law will pre-empt state law where
appropriate to give electronic signatures and documents legal
effect.
The national conference is the same group that first
promulgated the Uniform Commercial Code. It was not until many
years after the promulgation of that code that all 50 states had
adopted it. With the Electronic Signatures in Global and
National Commerce Act, Congress is attempting to get ahead of
the states by putting the philosophy of the national
conference-promulgated Uniform Electronic Transactions Act into
effect as federal law. If a state chooses to adopt the Uniform
Electronic Transactions Act or something similar to it, then the
pre-emption effect of the Electronic Signatures in Global and
National Commerce Act will fail as to that particular state.
Thus, under the terms of the new law, a state can prevent the
law's pre-emption effect only by adopting their own
substantially similar electronic-signature law.
So, whether the rules come from the new Electronic
Signatures in Global and National Commerce Act or from the
Uniform Electronic Transactions Act as it may be adopted by a
particular state, electronic signatures and electronic documents
are here to stay.
Therefore, a close analysis of the Electronic Signatures
in Global and National Commerce Act is required to understand
what "documents" may now look - or even sound - like.
The law states: "[A] signature, contract or other record
relating to [a transaction in or affecting interstate or foreign
commerce] may not be denied legal effect, validity, or
enforceability solely because it is in electronic form," and "a
contract relating to [a transaction in or affecting interstate
or foreign commerce] may not be denied legal effect, validity,
or enforceability solely because an electronic signature or
electronic record was used in its formation."
California's general statute of frauds is found at Civil
Code Section 1624, which states that certain contracts must be
"in writing" (e.g., contracts for the sales of land). Now, the
question of what "in writing" means has a federally provided
broader answer than it had before. In transactions that are in
or affecting interstate or foreign commerce, Congress has
expanded the definition of "in writing" to include those
documents and signatures that are electronically generated.
Under the new law, "[t]he term 'electronic' means
relating to technology having electrical, digital, magnetic,
wireless, optical, electromagnetic, or similar capabilities." In
addition, "[t]he term 'electronic record' means a contract or
other record created, generated, sent, communicated, received,
or stored by electronic means."
So, generally, if the subject matter of a particular
contract is in or affecting interstate or foreign commerce and
that contract is created by "technology having electrical,
digital, magnetic, wireless, optical, electromagnetic, or
similar capabilities," then that contract is "in writing," and
statutes of frauds such as Civil Code Section 1624 will be
satisfied.
The new law provides an additional definition for
"signature" in the appropriate interstate or foreign-commerce
cases: "The term ‘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."
Since the term "electronic" means "relating to
technology having electrical, digital, magnetic, wireless,
optical, electromagnetic, or similar capabilities," an
“electronic signature” is a "sound, symbol, or process" composed
by such means and "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." Such a "signature" will now
be valid.
The law contains several notable exceptions to the use
of electronic means to form documents and signatures. It does
not apply to probate matters, family-law matters, certain
portions of the Uniform Commercial Code, court documents,
notices of cancellation of utility services, notices regarding
the forfeiture of a primary residence, notices of health and
safety-related recalls or documents required to accompany
transportation or handling of pesticides or hazardous materials.
So, for instance, Probate Code Section 15206, which is a
statute of frauds governing real property trusts, will still
require a traditional writing and signature. On the other hand,
the new law does apply to Article 2 of the Uniform Commercial
Code. So, in California, Commercial Code Section 2201, which is
a statute of frauds governing the sale of goods for the price of
$500 or more, will allow for electronic writings and signatures.
The new law has a special requirement for the
dissemination of documents that are legally required to be given
to a "consumer." A consumer is defined as "an individual who
obtains, through a transaction, products or services which are
used primarily for personal, family, or household purposes, and
also means the legal representative of such an individual."
Consumer consent is required for the use of electronic
records in such situations. Also, the new law specifies that "[a]n
oral communication or a recording of an oral communication" will
not suffice as an electronic record in the circumstance of
legally required dissemination of documents to consumers.
A negotiable instrument that relates to a real property
loan and that the issuer has agreed is a "transferable record"
may be electronically executed if certain technical requirements
for authentication are utilized.
An interesting question arises from the definitions
provided by the new law. Will parties be able to create a
"written" contract by using a tape recorder that uses a standard
magnetic recording tape?
Boiling those definitions down to the terms that would
be applicable to answer this question, the definitions provide:
"Electronic" is defined as "relating to technology having ...
magnetic capabilities." "Electronic record" is defined as "a
contract or other record created, generated, sent, communicated,
received, or stored by electronic means." So, it would seem as
if a magnetic tape would suffice as a writing.
“Electronic signature is defined as "an electronic sound
... 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." So, it appears as if it is possible to audibly
sign an electronic document. Furthermore, the fact that an
electronic "sound" is specifically allowed as a type of
electronic signature, Congress must have anticipated and
approved audibly recorded "writings."
Another interesting situation: One merchant e-mails
another, "Please send me 50 barrels of widgets at a price of $10
each. Joe Smith."
Is this a document that can be enforced under a statute
of frauds? Electronic "means relating to technology having
electrical, digital, magnetic, wireless, optical,
electromagnetic, or similar capabilities." E-mail is at least
created by electricity. "Electronic record" is defined as "a
contract or other record created, generated, sent, communicated,
received, or stored by electronic means." So, this hypothetical
e-mail is an electrically created contract and, thus, must be
afforded the same respect as that afforded to a paper contract.
But, has Joe Smith effectively "signed" this
hypothetical contract? "The term ‘electronic signature’ means an
electronic ... symbol ... 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." If Joe Smith's
symbol is "Joe Smith," then this should suffice as a signature
because that symbol is at the end of the e-mail and, thus, is
logically associated with the contract; and Joe Smith apparently
intended to sign the contract.
What will be fascinating to see is how problems of proof
in this area are overcome. What if Lisa Jones wrote the e-mail
and forged Joe Smith's name? One would hope that people will
keep good records of their electronic transactions. That way
when someone shows up with 50 barrels of unordered widgets,
there will be testimony similar to the following: "I only e-mail
from this address. I keep all of my e-mails. There are no
e-mails regarding 50 barrels of widgets."
Generally the new law will become effective Oct. 1.
However, with respect to records that must be retained pursuant
to statute, it will not become effective until either March 1 or
June 1 (depending on action or inaction by certain regulatory
agencies). With respect to certain federal loans, it will not
become effective until June 3. With respect to student loans, it
will not become effective until the Education Department revises
the promissory-note forms or June 3, whichever occurs first.
Daniel L. Jacobson is a senior trial attorney at
Kelley, Downes, Jacobson, Chase & Martin an adjunct professor of
constitutional law, the Uniform Commercial Code and evidence at
Pacific West College of Law. |