United States: Enactment Of The Electronic Signatures In Global And National Commerce Act

Scope of Federal Electronic Signature Legislation. In passing the E-Signatures Act, Congress purported to "promote electronic commerce by providing a consistent national framework for electronic signatures and transactions" without preempting or overruling the development of state law governing electronic signatures embodied in UETA. Accordingly, the E-Signatures Act includes a provision allowing state law to preempt portions of the Act provided that the preemptive state law constitutes an enactment of UETA or makes reference to UETA and specifies alternative procedures through which legal effectiveness, validity, and enforceability may be achieved using electronic records or signatures. Thus, the E-Signatures Act uniformly legitimizes the use of electronic instrumentalities to form contracts in interstate commerce and in states that, so far, have not enacted legislation to the same effect.

Note: To date, the following states have adopted UETA: Arizona, California, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Nebraska, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Utah, and Virginia. Additionally, to date, the Uniform Electronic Transactions Act has been introduced in the following states: Alabama, Colorado, District of Columbia, Michigan, New Jersey, Vermont, and West Virginia.

Legal Effect. The E-Signatures Act prohibits the denial of legal effectiveness, validity, or enforceability of: "a signature, contract, or other record. . . solely because it is in electronic form; or a contract. . . solely because an electronic signature or electronic record was used in its formation." The Act does not modify other contract law except by requiring that such law encompass electronic contracts, signatures and records as a way to satisfy statutory requirements that contracts or other records be in writing and/or signed. With the exception of government agencies, the Act does not require any person, corporation, trust, or any other legal or commercial entity to use electronic records or signatures in any transaction to which it is a party. The E-Signatures Act also validates contracts whose formation involved electronic agents providing that "the action of such electronic agent is legally attributable to the person to be bound."

Consumer Disclosure. Where statutes require that information be transferred or made available to consumers, the E-Signatures Act permits consumers to consent to electronic transmission provided that consumers each receive a clear and conspicuous statement of information prior to giving consent. First, the disclosure statement must inform the consumer of the opportunity to receive written records in nonelectronic form and the right to withdraw consent to receive electronic records. Second, if the transaction requires records be provided to the consumer, the consumer must be informed of records or transactions to which the consent applies and of the information that may be collected in the course of the relationship. Third, the disclosure statement must detail the consent withdrawal procedure, including the information that will be needed to contact the consumer. Fourth, the disclosure statement must state the way in which, after consent is given to electronic transmission, a consumer would go about requesting paper copies of records and the cost of doing so. Importantly, if the consumer withdraws consent, such withdrawal shall not impact the transaction's legal effectiveness, validity, or enforceability.

Additionally, prior to giving consent, the Act requires that a consumer be provided with a statement of the hardware or software necessary to access and retain information transmitted electronically. The consumer must then affirm that he can access and retain the information in the specified manner. Failure to obtain such affirmation, however, is not in itself a reason to deny a contract's legal effectiveness. If the consumer consents to using electronic instrumentalities and subsequent to such consent the hardware or software requirements change in a way that effects the consumer's ability to access and retain information, the consumer must be informed (a) of the updated hardware or software necessary to access and retain records; and (b) that he may withdraw consent without the imposition of cost or condition.

Record Retention. The E-Signatures Act does not alter content and timing requirements that other statutes impose with regard to records and disclosures. Instead, the Act allows electronic transmission and retention of records to satisfy such statutes. If, however, a statute requires that contracts and other records be in writing "the legal effect, validity, or enforceability of an electronic record. . . may be denied if such electronic record is not in a form that is capable of being retained and accurately reproduced for later reference. . . ." If a statute requires verification of receipt of the record, then electronic transmission may only be used if it will satisfy such requirements.

In connection with transactions affected through interstate or foreign commerce where the parties are required to retain contracts or other records, electronic retention may be used if: (a) the electronic record accurately reflects the information contained in the contract or other record; and (b) all persons statutorily entitled to access the record can do so.

Exemptions. The E-Signatures Act does not apply to transactions governed by: (a) laws regulating the creation and execution of wills, codicils, or testamentary trusts; (b) the Uniform Commercial Code other than Sections 1-107, 1-206 and Articles 2 and 2A; (c) the Uniform Computer Information Transactions Act; and (d) other state laws identified by the State.

The Act also will not apply where the documents required to be retained are: (a) court documents; (b) notice of default, acceleration, repossession, foreclosure, or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual; (c) notice of cancellation or termination of health insurance benefits; (d) notice of product recall or material failure that risks endangering health and safety; or (e) the required accompanying documents of hazardous materials, pesticides, or other toxic or dangerous materials.

Applicability to Federal and State Governments. The Act shall not be construed to limit or supercede requirements by Federal regulatory agencies, self-regulatory organizations, or State regulatory agencies, that records be filed with such agency or organization in accordance with specified standards and formats. Federal and State regulatory agencies responsible for rulemaking under any other statute may interpret section 101 through: (a) the issuance of regulations pursuant to a statute; and (b) the issuance of publically available orders and guidance to the extent that the agency is authorized by statute to issue orders and guidance. Federal and State regulatory agencies shall not enact or adopt regulations unless: (a) such regulations are consistent with section 101; (b) such regulations do not add to the requirements of section 101; and (c) such agency finds that substantial justification exists for the regulation, the regulation does not impose unreasonable costs or burdens, and does not require or accord greater legal status or effect to the electronic record or signature.

Studies. The Act contains specific requirements for the Secretary of Commerce to conduct studies on the use of electronic records and signatures, and report its findings to Congress.

The Electronic Signatures in Global and National Commerce Act provides uniformity in electronic contracting while imposing numerous requirements upon the transacting parties. Before affecting a transaction through electronic instrumentalities, both parties must voluntarily elect to use electronic records and signatures to effect a transaction, except for government agencies, which are records and signatures. In addition, information may be transferred electronically provided that numerous consumer disclosure and consent requirements are complied with. Moreover, records retained in order to satisfy a statute that requires parties to maintain a copy of the contract will only be satisfied if the electronic records accurately reflect the transaction.

Importantly, since the E-Signatures Act is binding on every state unless a state has enacted legislation comparable to or providing an alternative to UETA, it is essential to discern if a state has enacted its own electronic signatures legislation and if so, if that legislation preempts the E-Signatures Act. In applying electronic signature laws, practitioners must take care to find out (a) whether states have enacted electronic signature laws; (b) whether states have adopted either of the uniform acts; (c) if so, whether a state's adoption of a uniform act is as drafted by the National Conference of Commissioners on Uniform State Laws, or if changes have been made; and (d) if a state has enacted or adopted any electronic signature laws, whether those laws preempt the federal E-Signatures Act. In addition, it is essential to examine whether a transaction falls within one of the Act's excluded categories, or whether the transaction or portions of the transaction are governed by other contract law, either in addition to or instead of the E-Signatures Act.

Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mayer Brown is a combination of two limited liability partnerships: one named Mayer Brown LLP, established in Illinois, USA; and one named Mayer Brown International LLP, incorporated in England.