- 07.27.21 •
The Legal Framework of Electronic Signatures and Records – Understanding UETA
Every discussion regarding the legality of electronic signatures in the United States inevitably refers to the legal framework established by the Electronic Signature in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transaction Act (UETA). The ESIGN Act is a federal law that was enacted into law on June 30, 2020 and became effective on October 1, 2020. UETA is a model law that was proposed and approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in July of 1999.
Because ESIGN is a federal law, it preempts any inconsistent state law, but there is a specific provision in ESIGN that states it will not preempt a state UETA law if the state enacts UETA without amendment. In order to understand the legal framework governing electronic signatures and records this article will take a closer look at UETA and a later article will examine ESIGN in more depth and explore the relationship and interplay between the two frameworks.
NCCUSL, also known as the Uniform Law Commission, is an organization established in 1892 that provides states with non-partisan model legislation which can be passed in states to promote uniformity, clarity, and stability to critical areas of law. Recognizing the need for uniformity between the states regarding electronic records and signatures, NCCUSL began drafting UETA in 1997. Since being approved, a version of UETA has now been passed in forty-nine states, the District of Columbia, and the U.S. Virgin Islands. With the enactment of UETA in Washington in 2020 and in Illinois in 2021, New York is now the only state that has not enacted UETA, but it has enacted its own law governing electronic signatures and records.
The Prefatory Note to the UETA gives important background to the intent and purpose of UETA. “It is important to understand that the purpose of the UETA is to remove barriers to electronic commerce by validating and effectuating electronic records and signatures. It is NOT a general contracting statute – the substantive rules of contracts remain unaffected by UETA. Nor is it a digital signature statute. To the extent that a State has a Digital Signature Law, the UETA is designed to support and complement that statute.”
The UETA is divided into 21 different sections. The main purpose of the act is outlined in Section 7 which sets forth the legal recognition of electronic records, electronic signatures, and electronic contracts. The rest of the act explains, limits, and defines the basic principles found in Section 7. While there is no substitute for reading the entire act, which can be found on the Uniform Law Commission website www.uniformlaws.org, most people don’t enjoy spending their free time reading model acts, so following is a summary of several important provisions.
Section 5 governs the use of electronic records and electronic signatures and limits the applicability of the act to transactions where parties agree to transact electronically. It states that the UETA does not require any record or signature to be electronic or in electronic form. It clarifies that the act “only applies to transactions between parties each of has agreed to conduct the transaction by electronic means.” It further specifies that “[w]hether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct.”
Section 7 is the heart of the UETA, as the comment states “This section sets forth the fundamental premise of the Act; namely, that the medium in which a record is created, presented or retained does not affect its legal significance.” It is titled Legal Recognition of Electronic Records, Electronic Signature, and Electronic Contracts. Subsection (a) states: “A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.” Subsection (b) continues: “A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.” These subsections are designed to eliminate the form or medium of a record or signature as a reason to deny enforceability to a record, signature, or contract. It means that the form of a record, signature, or contract, whether is in physical paper form, or in electronic form, is not relevant to its enforceability. Subsection (c) states: “If a law requires a record to be in writing, an electronic record satisfies the law. And finally, subsection (d) addresses eSignatures: “If a law requires a signature, an electronic signature satisfies the law.” These provisions clarify that if there is a law that requires a writing or a signature, and electronic writing or electronic signature will satisfy those legal requirements.
Section 8 addresses legal requirements or agreements where information or records are required to be presented in writing. It states that these requirements are met if “the information is provided, sent, or delivered, as the case may be, in an electronic record capable of retention by the recipient at the time of receipt.” This section indicates that to meet the requirement of a writing, the recipient must be able to obtain the information and read it and must have the ability to retain or access it at a later date.
The issue of attribution is outlined in Section 9. Attribution essentially means that something was caused by a person, in this case, the question of whether a record or signature was caused by a person. Subsection (a) states “An electronic record or electronic signature is attributable to a person if it was the act of the person.” It continues that the “act of the person may be shown in “any manner” including the use of security procedures. Subsection (b) discusses the legal effect of attribution. “The effect of an electronic record or electronic signature attributed to a person under subsection (a) is determined from the context and circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if an, and otherwise provided by law.” An example of an act that would be attributable to a person under this section would be when a person types his or her name as part of an email purchase order.
Section 16 entitled Transferable Records provides a legal framework for the creation and transferability of electronic notes and documents. Electronic notes require special treatment because of their status as negotiable instruments. A paper negotiable instrument is unique because it is a piece of paper that embodies certain intangible rights and obligations. Section 16 outlines a framework for the benefits associated with a paper promissory note to be translated into a more efficient electronic marketplace. Section 16(a) defines a transferable record as an electronic record that would be a note or document under article 7 of the UCC if the record were in writing, it also requires the issues to expressly agree that the record is a transferable record. Subsection (b) explains that a person has control of a record if a system reliably establishes the person is the person to whom the transferrable record was issued or transferred. The system described in this section must be able to create, transfer, and record the single authoritative copy of the record and ensure it is unique, identifiable, and unalterable. Subsection (d) identifies the person having control of a transferable record as the equivalent of a holder in the paper world. It also provides for the applicable rights and defenses of a holder in due course of a paper negotiable instrument would have in the electronic framework. These are important building blocks that provide the framework for a system in which eNotes can be created, transferred, and stored.
It has been over 20 years now since the UETA was proposed by NCCUSL and was rapidly adopted by many states. Now, it has almost been universally adopted as state law across the country. It was the first major step toward the adoption of electronic signatures and records and was soon followed by federal legislation that would introduce uniform standards for eCommerce. A coming article will summarize the ESIGN Act and examine how it works together with UETA to form the backbone of today’s digital economy.
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