OLR Research Report


November 27, 2000

 

2000-R-1076

UNIFORM ELECTRONIC TRANSACTION ACT

 

By: Sandra Norman-Eady, Chief Attorney

You wanted (1) a summary of the Uniform Electronic Transaction Act (UETA), (2) to know the states that have adopted it, and (3) to know the states that have adopted an alternative to it.

SUMMARY

UETA provides uniform rules governing electronic commerce transactions. It establishes a legal foundation for the use of electronic communications in transactions where the parties have agreed to deal electronically. UETA validates and supports the use of electronic communications and records and places electronic commerce and paper-based commerce on the same legal footing.

UETA rules are primarily for “electronic records and electronic signatures relating to transactions” that are not subject to the Uniform Commercial Code (UCC). But they do affect sale transactions under Articles 2 and 2A of the UCC.

The National Conference of Commissioners on Uniform State Laws (NCCUSL) adopted and recommended UETA to states for enactment on July 29, 1999. UETA consists of 21 sections and can be viewed in its entirety at www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta99.htm.

To date, 23 states have enacted some type of electronic transactions act. Most of them adopted UETA and added other provisions. California was first, enacting its law on September 16, 1999. Michigan was last, enacting its law on October 14, 2000. The other states are Arizona, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Nebraska, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Utah, and Virginia. For a brief state-by-state comparison of electronic transaction laws, including links to each state's legislation, visit www.bmck.com/ecommerce/uetacomp.htm.

While some groups have questioned the need for states to adopt UETA in light the new federal Electronic Signature Act (E-Signatures), most agree that Congress specifically endorsed state consideration and enactment of UETA in the E-Signatures legislation. The president signed the E-Signatures bill into law on June 30, 2000 and it was effective on October 1, 2000. The act (1) creates a uniform standard for validating online contracts, (2) provides for the validity of transferable records executed on line, and (3) creates consumer protections and safeguards. For more information on E-Signatures visit the Information Technology Association of America's website at www.itaa.org.

Maryland and Virginia have also enacted the Uniform Computer Information Transactions Act (UCITA). UCITA provides legal rules for agreements covering all kinds of computer information, such as standard software licenses, contracts for the custom development of computer programs, a license to access an on-line database, and a website user agreement. NCCUSL adopted and recommended UCITA to states for enactment on the same date that it adopted UETA. For a summary of UCITA, visit www.bmck.com/ecommerce/nccusl.htm.

UETA

The act is designed to facilitate and promote commerce and governmental transactions by validating and authorizing the use of electronic records and signatures and to promote uniform electronic transaction laws among the states. It is also designed to be consistent with other applicable law.

Scope ( 3 to 5)

The act provides uniform rules to govern transactions in electronic commerce. The rules are primarily for electronic records and signatures relating to a transaction that occurs on and after the act's effective date. “Transaction” means an action or set of actions occurring between two or more people relating to business, commercial, or governmental affairs. UETA applies only to transactions where the parties have agreed to conduct business electronically. The context of the agreement and the surrounding circumstances are the determining factors when the parties' agreement to conduct a transaction electronically is at issue.

UETA does not apply to (1) wills, codicils, or testamentary trusts; (2) the UCC, other than sections 1-107 (rights after a breach) and 1-206 (statute of frauds), and Articles 2 and 2A (sales); (3) transactions governed by UCITA; or (4) transactions states identify as not being covered.

Legal Recognition of Electronic Records, Signatures, and Contracts ( 7)

This section contains the act's fundamental principles, namely that the medium in which a record, signature, or contract is created, presented, or retained does not affect its legal significance. All of the act's other rules serve these principles and tend to answer basic legal questions about the use of electronic records and signatures.

The fundamental principles are:

1. a record or signature may not be denied legal effect or enforceability solely because it is in electronic form;

2. a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation;

3. an electronic record satisfies a law that requires a record to be in writing; and

4. an electronic signature satisfies a law that requires a signature.

Providing Information Electronically ( 8)

This section addresses the legal requirement for information to be presented in writing. It sets forth the standards to be applied when determining whether information provided in an electronic record is equivalent to information provided in writing. It should not be confused with section seven that addresses how electronic records and signatures may be used when the law requires a written document.

Section eight provides that information provided, sent, or delivered in an electronic record that the recipient is capable of retaining upon receipt satisfies a law that requires information to be provided, sent, or delivered in writing to another person. But if the law specifies the manner in which a record must be posted, displayed, sent, communicated, transmitted, or formatted, the law governs and the information cannot be presented electronically unless the law permits a waiver.

Security Procedures ( 9)

An electronic record or signature is attributable to the person who created it. Creation may be proven in any manner, including a showing of the efficacy of a security procedure. “Security procedure” means a procedure employed to verify that an electronic signature, record, or performance is that of a specific person or to detect changes or errors in the electronic record formation.

The legal effect of the attribution is determined from the context and surrounding circumstances at the time the record or signature was created, executed, or adopted, including the parties' agreement.

Errors and Changes ( 10)

If a change or error occurs in an electronic record between parties to a transaction, the following rules apply:

1. A person may avoid a transaction caused by an inadvertent error if, upon learning that another party believes a transaction occurred, he gives prompt notice of the error, does not use or receive a benefit from the transaction, and complies with any instructions for returning or destroying any received consideration.

2. If the parties agreed to use a security procedure to detect changes or errors and only one party conforms, the conforming party may avoid the effect of any error or change if the nonconforming party would have detected it if he had conformed.

3. In all other instances the change or error has the effect provided by law, including the law of mistake and the parties' contract.

Notarization and Acknowledgement ( 11)

The act permits a notary and other authorized officers to act electronically, effectively removing requirements for a stamp or a seal. The notary's (or other officer's) electronic signature, together with all other information required by law, must be attached or logically associated with the electronic record.

Retaining Electronic Records ( 12)

An electronic record that accurately reproduces information required by law and that is accessible at a later time satisfies legal requirements for a record to be retained, unless a law passed after the act's effective date prohibits the use of an electronic record. A third party may be used to retain records.

The act validates electronic records as originals where the law requires retention of the original. An electronic record of a check is valid only if the front and the back of the check are recorded.

Nothing in the act precludes a state agency from imposing additional record retention requirements.

Admissibility ( 13)

The act provides that electronic records cannot be denied admissibility into evidence solely because they are electronic.

Automated Transactions ( 14)

A person may form a contract by using an electronic agent even if no one is aware of or reviews the agent's actions or the resulting terms and agreements. In such contracts, the principal is bound by the contract his agent makes. For example, articles purchased from a website by a click of a button obligates the owner of the site to produce the article at the posted price.

Time and Place of Sending and Receipt ( 15)

This section establishes default rules regarding when and from where an electronic record is sent and received. It does not address what happens when a record is unintelligible or unusable by a recipient. The effectiveness of an illegible record and whether it binds any party are left to other law.

Unless otherwise agreed, an electronic record is sent when it:

1. is properly addressed or otherwise properly directed to an information processing system (a) that the recipient has designated or uses to receive electronic records of the type sent and (b) where the recipient can retrieve the electronic record,

2. is in a form that the system can process, and

3. enters a system outside of the sender's control or enters a region of the system the recipient controls and designates or uses.

Unless otherwise agreed, an electronic record is received when:

1. it enters a system the recipient has designated or uses to receive electronic records of the type sent and from which he can retrieve the record, and

2. it is in a form capable of being processed by that system.

The record is received even if no one is aware of its arrival. An acknowledgement of receipt sent by an information processing system establishes that a record was received but, by itself, does not establish that the contents sent correspond to those received.

Unless otherwise expressly provided, an electronic record is deemed sent from and received at the parties' place of business. If they have more than one place of business, the business with the closest relationship to the transaction is “the” place of business. If the parties do not have a place of business, their residence substitutes as the place of business.

Transferable Records ( 16)

If the issuer of a record explicitly agrees it is subject to the act, a person in control of the record may have the rights, and an obligor may have the liabilities, that exist for an equivalent paper record or document under the UCC.

Government Records ( 17 to 19)

These sections authorize state agencies to create, retain, accept, and distribute electronic records and to convert written records into electronic databases. They also authorize agencies to adopt necessary regulations. Finally, they encourage and urge all such regulations to promote interoperability.

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