The U.S. government and many states are now passing Uniform Electronic Transaction Act (UETA) laws that recognize the legal validity of electronic signatures and transactions.
While the UETA does not affect basic business-to-consumer (B2C) shopping on the Internet for products like books, CDs, clothing and other material items, it will have a large impact on more complex forms of e-commerce, such as the sale of insurance policies or other products that require signed contracts. Presently, many transactions that are conducted online require that paper documents with physical signatures be sent separately before the transactions are considered legally binding.
Model Law for Governments To Adopt
The UETA was approved last July as a model law by the National Conference of Commissioners on Uniform State Laws. The model operates from a very simple premise: Electronic signatures and records should have the same legal protections as paper transactions.
Both houses of Congress have already passed versions of the UETA. House Resolution 1714 and Senate Bill 761 have gone to conference committee, where a final bill is being developed for expected passage later this year. Both federal bills encourage states to adopt UETA laws, and both contain preemption clauses that apply until individual states enact their own UETA laws.
At the state level, California and Pennsylvania have already enacted UETA model laws, and at least 15 other states are considering such laws this year.
Principles of the UETA
The UETA does not attempt to create a new system of legal rules for the electronic marketplace. Rather, the model relies on existing contract law principles, and says those rules should now apply to electronic transactions.
The UETA model defines certain key principles. For example, a “signature” is attributable to a person if it is an “act” of that person, and that act may be shown in any manner. If a security procedure is used, its efficacy in establishing the attribution may be shown.
UETA also clearly validates contracts formed by electronic agents. When somebody buys something on the Internet, that person will be assured the agreement is valid, even though the transaction is conducted automatically by a computer that solicits orders and payment information.
The model is also “technology neutral” in that it does not impose specific security or encryption requirements on any electronic transaction. The parties are free to choose their own security and encryption procedures, or follow those already mandated by some states.
Wills and Codicils Exempted
While the UETA covers most documents, it specifically does not include wills and codicils, which still must be signed manually. The model also includes provisions that allow states to add their own exemptions.
The law in California, for example, excluded real estate transactions and other transactions in which physical signatures are expressly required by law. In addition, the California law excluded specified notices and transactions under various consumer protection laws.
As an example, even though the law enables consumers in California to purchase insurance via e-commerce without physically signing a policy, an insurance carrier still must mail non-renewal notifications.