Business-to-consumer and business-to-business e-commerce has become a fact of life for most businesses. Even those businesses that, at the beginning of the Internet phenomenon, were reluctant to participate now include e-commerce as a regular part of their planning. A problem businesses face as they expand into e-commerce is whether their electronic agreements with other businesses and consumers will have the same legal effect as the paper counterparts traditionally used.
Until recently the law had not addressed this problem in a systematic way. Businesses and lawyers were forced to cobble together arguments to support the idea that electronic contracts should be as enforceable as paper contracts. But with the enactment of two laws, one at the federal level and one at the state level, the law has started to catch up with business by ensuring that electronic contracts will be enforceable.
E-Sign Act
Last summer the federal government enacted the Electronic Signatures in the Global and National Commerce Act (commonly referred to as the "E-Sign Act"). The E-Sign Act created a universal standard for contracts, signatures and records created by electronic means. The most important aspect of the E-Sign Act is that "a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic format. In other words, electronic signatures and contracts are legally enforceable.
As with most laws there are some limitations. The E-Sign Act does not require any person or business to use or accept electronic signatures, records or contracts. The E-Sign Act only states that if parties do agree to record and execute their agreements electronically the agreement will have the protection of federal law. Because the E-Sign Act is a federal law, its scope is limited to only those electronic transactions occurring in interstate commerce. Also, during the hearings on the E-Sign Act, consumer advocates were concerned that essential disclosures to consumers may go unnoticed if sent by businesses in an electronic form. As a result, the E-Sign Act requires that consumers expressly waive their right to receive a written copy of any information required by law to be disclosed to the consumer before the electronic disclosure can be issued.
The E-Sign Act is not the only recent development bringing the law back into line with business. To address electronic commerce occurring at state level, some states have recently adopted the Uniform Electronic Transactions Act (commonly referred to as UETA).
UETA
UETA is a model law similar to the Uniform Commercial Code that establishes rules for electronic commerce within the state adopting UETA. In the last few years at least 21 states (including Kansas) have enacted UETA. Those states were free to make changes to UETA when they enacted the model law, but generally most states adopt UETA without significant changes.
The key provision of UETA is similar to the E-Sign Act, as illustrated by the Kansas version, which states that records, signatures and contracts "may not be denied legal affect or enforceability" solely because they were created electronically. Congress recognized the uniformity between its E-Sign Act and UETA by including a provision within the E-Sign Act expressly allowing states to adopt UETA without running afoul of federal law. In the jurisdictions that have adopted UETA, businesses can be also assured that e-commerce occurring within those jurisdictions will be legally enforceable.
As with the E-Sign Act there are limitations on the application of UETA to e-commerce. Parties are not required to use or accept electronic contracts or signatures and people and businesses are still free to continue to insist upon having signed and written agreements. UETA also contains some specific procedures that do not exist in the E-Sign Act that must be followed to ensure that an electronic contract or signature will be legally enforceable.
The Impact of the E-Sign Act and UETA
Courts throughout the country have been generally slow to respond to the challenges created by e-commerce and, as a result, the E-Sign Act and UETA have yet to be fully interpreted. It may be some time before there is a clear understanding of the full impact of these laws. What is known at this time, however, is that the E-Sign Act and UETA do provide a legal foundation for expansion of e-commerce by ensuring that businesses can use electronic signatures and contracts.