Connecticut Law Revision Commission - Electronic Communications Committee Report to Judiciary

REPORT OF THE CONNECTICUT LAW REVISION COMMISSION

ELECTRONIC COMMUNICATIONS COMMITTEE TO THE JUDICIARY COMMITTEE

By request dated May 30, 1997, Senator Donald E. Williams, Jr. and Representative Michael P. Lawlor, Co-Chairmen of the Judiciary Committee of the Connecticut General Assembly asked the Connecticut Law Revision Commission to study electronic commerce in Connecticut and make recommendations for any necessary remedial legislation to permit and encourage electronic commerce in Connecticut. In response to the request, the Commission formed a drafting committee consisting of individuals in both the public and private sectors who are knowledgeable about electronic technology to undertake the study. A list of members of the drafting committee is included with this report.

In the 1999 legislative session, the General Assembly passed limited legislation recommended by the drafting committee that permits state agencies to use electronic documents and signatures in conducting their business, but does not affect electronic commerce in the private sector.

The drafting committee studied the use of electronic technology in transactions in the private sector and submitted a report of its findings, along with proposed legislation to provide a framework for electronic commerce in Connecticut, to the Law Revision Commission. In so doing, the committee relied on the Uniform Electronic Transactions Act (UETA). The UETA is a model act, drafted by the National Conference of Commissioners on Uniform State Laws, that may be used by states as the basis for drafting similar legislation. The UETA draws heavily from existing state law and from the model act developed by the United Nations Committee on International Trade Law (UNCITRAL).

The Law Revision Commission voted on October 17, 2000 to adopt the report and proposed legislation of the drafting committee and to submit it to the Judiciary Committee for its review in the 2001 legislative session.

The primary need for this legislation is that uncertainty exists as to whether electronic documents and electronic signatures satisfy Connecticut statutes or common law that require certain documents to be "in writing," or to be "signed," key among them being Connecticut’s Statute of Frauds. By addressing the issue statutorily, parties doing business in Connecticut will more certainty about the legal status of electronic documents and electronic signatures and about the admissibility of electronic evidence in Connecticut courts.

The overarching goal of any legislation adopted in this area should be to permit and encourage electronic commerce and other electronic transactions in Connecticut, without imposing barriers to the development or use of new technologies or new applications for existing technology. The drafting committee believes the Connecticut Uniform Electronic Transactions Act (the Connecticut Act, Attachment A to this report): 1) Provides "technology neutral" legislation, i.e., legislation that does not favor any single kind of technology; 2) provides greater certainty for parties involved in inter or intrastate commerce in Connecticut; 3) validates electronic documents and signatures; and 4) permits electronic documents and signatures to be admitted as evidence in Connecticut courts.

A. General Comments About the Connecticut Act

1. Scope of the Connecticut Act

Since the Connecticut Act closely follows the UETA, comments applicable to the model act apply as well to the Connecticut Act and have been included in this report where appropriate. The scope of the Connecticut Act is circumscribed by the definition of "transaction." Thus, the act does not apply to all writings and signatures, but only to those relating to "an action or set of actions occurring between two or more persons relating to the conduct of business, commercial, charitable or governmental affairs."

Further, the act applies only where surrounding circumstances indicate that the parties have agreed to conduct a transaction electronically (Section 5(b)). The introductory commentary to the UETA explains: "[R]ecognition that the paradigm for the Act involves two willing parties conducting a transaction electronically, makes it necessary to expressly provide that some form of acquiescence or intent on the part of a person to conduct transactions electronically is necessary before the Act can be invoked."

Finally, the Connecticut Act in no way requires any transaction to be completed in electronic form (Section 5(a)). The purpose of the act is to permit parties to use electronic technology in conducting business, and not to favor technology or exclude more traditional means.

2. Procedural Approach

According to the UETA commentary: "Another fundamental premise of the Act is that it is minimalist and procedural.... The Act defers to existing substantive law." The Connecticut Act provides a procedural framework for determining such questions as when an electronic record or signature has been created, sent or received, but does not create independent substantive law as to the effect of that creation, sending or receiving. Nor does it interfere with existing substantive law in such areas as attribution of a record or signature to a person or mistake. For example, while the Connecticut Act provides that a signature created electronically has the same effect as a written signature, it defers to other law to determine what that effect might be. Similarly, although a particular document may be created and signed electronically and have the same validity as a comparable document in paper form with a handwritten signature, if other law requires that the document be delivered by certified mail, then the electronic document must be delivered by that method (presumably by sending a disk containing the document to the recipient by certified mail).

The Connecticut Act does establish rules and standards for using electronic records. Section 15, for example, provides for the formation of contracts by "electronic agents," which are computer programs or other automated means which, once programmed, act independently of individuals to initiate or respond to an action. While the Connecticut Act acknowledges and validates this method of conducting business, the contract that is formed in this manner is governed by other substantive law. Likewise, Section 16 provides rules for determining, in the electronic context, when an electronic record has been sent and received. However, it does not alter existing law as to the effect of a document having been sent or received.

B. Federal Electronic Commerce Legislation

1. Electronic Signatures in Global and National Commerce Act

Recently the United States Congress adopted, and the President signed into law on June 30, 2000, Public Law 106-226, the federal Electronic Signatures in Global and National Commerce Act (Federal Act). Section 102 of the Federal Act preempts state law pertaining to interstate and foreign commerce as to the matters covered by the act; except that, as provided in Section 102 (a) of the act:

A State statute, regulation, or other rule of law may modify, limit or supersede the provisions of section 101 with respect to State law only if such statute, regulation, or rule of law –

(1) constitutes an enactment or adoption of the Uniform Electronic Transactions Act as approved and recommended for enactment in all the States by the National Conference of Commissioners on Uniform State Laws in 1999, except that any exception to the scope of such Act enacted by a State under section 3(b)(4) of such Act shall be preempted to the extent such exception is inconsistent with this title or title II, or would not be permitted under paragraph (2)(A)(ii) of this subsection....

(2)(A) Specifies the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records, if –

(i) such alternative procedures or requirements are consistent with this title and title II; and

(ii) such alternative procedures or requirements do not require, or accord greater legal status or effect to, the implementation or application of a specific technology or technical specification for performing the functions of creating, storing, generating, receiving, communicating, or authenticating electronic records or electronic signatures; and

(B) If enacted or adopted after the date of the enactment of this Act, makes specific reference to this Act.

The proposed Connecticut Act conforms generally to the UETA as adopted by the National Conference of Commissioners on Uniform State Laws in 1999. To the extent that the Connecticut Act varies from the model law, the drafting committee believes the variations are, in compliance with Section 102(a)(2)(A)(i) of the Federal Act, consistent with that act, and that the variations do not favor any specific technology, as prohibited by Section 102(a)(2)(A)(ii). In addition, Section 19 of the proposed Connecticut Act makes specific reference to the Federal Act, as required by Section 102(a)(2)(B) of the Federal Act. Thus, the drafting committee believes the Connecticut Act, if adopted by the General Assembly as drafted, will survive federal preemption.

2. Reasons for Adopting the Connecticut Act After Passage of the Federal Act

Although the Federal Act is similar to both UETA and the proposed Connecticut Act, the drafting committee believes that the General Assembly should adopt the Connecticut Act in addition to the federal law because:

a. Interstate Transactions. The Federal Act applies only to interstate electronic transactions. Any transactions deemed to be wholly intrastate would be governed exclusively by the Connecticut Act.

b. Attribution. The Federal Act does not address the matter of attribution of an electronic signature or electronic record. Section 10 of the Connecticut Act provides that an electronic record or signature is attributed to a person if it was the act of the person, which may be proved by relevant evidence. The section provides further that the effect of the record or signature on the person to whom it is attributed is determined from the context and surrounding circumstances at the time of the creation, execution or adoption of the record.

c. Agreement of the Parties. The Connecticut Act permits parties to enter into agreements concerning their use of technology, e.g., to determine the effect of an electronic record or to use security procedures. The Federal Act has no provision concerning variation of the act by agreement of the parties.

d. Sending and Receiving Electronic Records. The Federal Act does not specify when an electronic record is sent or received. Section 16 of the Connecticut Act provides criteria for determining when an electronic record is sent or received based on the types of systems being used by the sender and recipient. The section also provides that, unless otherwise agreed by the parties, electronic records are sent from or received at the parties’ principal places of business or residence.

e. Effect of Change or Error. Section 11 of the Connecticut Act makes provision for the effect of failure to use an agreed security procedure and the effect of mistakes made by an individual while dealing with an electronic agent. The Federal Act has no comparable provision.

f. Admissibility Into Evidence. Section 14 of the Connecticut Act mandates that an electronic record or signature not be excluded solely on the basis that it is in electronic form. The Federal Act does not address the matter.

g. Transferable Records. The Federal Act provides for electronic equivalents to paper negotiable instruments in transactions secured by real property. Section 17 of the Connecticut Act applies to all documents which would, if on paper, be either a promissory note under Uniform Commercial Code Article 3 or a document of title under UCC Article 7.

h. Record-Keeping. The Federal Act requires that an electronic record remain accessible to "all persons who are entitled to access by statute, regulation, or rule of law" for the time specified as a condition to enforceability. The Connecticut Act more broadly requires that the record be accessible for later reference without limitation as to who may access it or for how long it must remain accessible.

In addition, the Connecticut Act permits persons to satisfy their record-keeping obligations through the use of third parties and states that retained records satisfy evidentiary, audit and similar requirements. The Federal Act has no similar provisions.

i. Automated Transactions. The Federal Act provides that the use of an electronic agent in a transaction does not effect enforceability, provided the agent’s activities are attributable to the person to be bound. The Connecticut Act states that a contract may be formed through the use of electronic agents. It also provides rules for the effect of a party’s failure to use a security procedure to detect changes or errors and a provision addressing mistakes made by individuals dealing with electronic agents. The Federal Act does not provide comparable provisions.

Thus, the Connecticut Act is broader in scope in certain areas covered by the Federal Act. However, since those broader provisions are contained in UETA, they are not preempted by the Federal Act. Similarly, the Connecticut Act contains other provisions not addressed at the federal level, and therefore, not subject to federal preemption. In addition, twenty-two states have adopted some form of UETA, eight others have introduced it in their 2000 legislative sessions, most with only minor revisions to the model act. Connecticut will be consistent with those states, and with the Federal Act, if it adopts the proposed Connecticut Act.

Please note that more specific detail about the Connecticut Act is provided in the commentary following each section of the act.

Attachment A - Table of Contents of Sections

Attachment B - Proposed Draft