Electronic Commerce Under the Federal E-sign
Legislation
Title I of the federal E-sign legislation fosters
the continued expansion of electronic commerce by encouraging uniform
regulation of electronic transactions, maintaining the effectiveness of
certain consumer protection laws, and providing legal certainty for
businesses that use electronic methods of doing business. Title I
affects Internet transactions and contracts that may be formed through
the use of email, voicemail, and other electronic technologies.
by Robert
J. Marchant
Electronic commerce is expanding rapidly. An increasing number of
consumers are shopping electronically, as evidenced by the record 4
million new customers Amazon.com added during the fourth quarter of
2000.1 It is predicted that electronic commerce will
account for 5 percent of retail sales during 2001-02 and 15 percent by
2005.2 In addition, an increasing number of businesses
are engaging in electronic transactions with one another. If
business-to-business electronic commerce continues to grow as expected,
it will account for almost one-fourth of all business-to-business
commerce by 2003.3 This growth in business-to-business
electronic commerce is expected to be fueled in large part by small
businesses, 85 percent of which are predicted to be conducting business
over the Internet by 2002.4
Status of UETA in Wisconsin:
The Uniform Electronic Transactions Act has already been adopted by 32
states but has yet to see significant activity in Wisconsin. UETA was
included in the biennial state budget bill, Senate Bill 55 and Assembly
Bill 144, as originally introduced. It continues to be a subject of
discussion in the Legislature.
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Against this backdrop, Congress enacted the Electronic Signatures in
Global and National Commerce Act (E-sign) which, with certain
exceptions, took effect in Wisconsin on Oct. 1, 2000.5
Title I of E-sign was designed to foster the continued expansion of
electronic commerce.6 Title I encourages uniform
regulation of electronic transactions, maintains the effectiveness of
certain consumer protection laws, and provides legal certainty for
businesses that use electronic methods of doing business. Title I
affects not only Internet transactions but also contracts that may be
formed through the use of email, voicemail, and other electronic
technologies. This article highlights the primary aspects of Title I and
discusses the peculiar relationship between Title I and a bill relating
to electronic commerce that currently is pending in the Wisconsin
Legislature.
Enforceability of Electronic Transactions
The most important aspect of Title I is the certainty that it
provides with regard to the enforceability of electronic contracts and
signatures. Each Internet transaction is typically based upon
computer-generated electronic documents that evidence each party's
promise to do business - that is, a contract. Similarly, a transaction
may be evidenced by an exchange of emails. In such transactions, the box
"clicked" by the person assenting to an order over the Internet or the
attached name of the person sending an email may be generally understood
to be the person's electronic signature. Title I provides that these
documents and signatures may not be denied legal effect solely because
they are in an electronic form.7 Title I also protects
the enforceability of a contract that is not in electronic form, but
that is formed through the use of electronic signatures or documents.8
Due to the broad way that E-sign defines the terms "electronic
record," "electronic signature," and "record," Title I also validates
certain transactions that are evidenced by voicemail recordings.9 This effect may have unintended consequences for
businesses and consumers. A voicemail communication that, under prior
law, would have been at best an oral, implied contract may be elevated
under Title I to the status of a written agreement. Thus, a person may
use a voicemail to satisfy the statute of frauds or to modify an
existing contract that is required to be in writing.10
Businesses and consumers should be aware of this potential effect and
should exercise care when leaving any voicemail message that may be
understood as an offer to contract, an acceptance of such an offer, or a
modification of an existing contract.
Consent to Deal Electronically
Generally, Title I "does not ... require any person to agree to use
or accept electronic records or electronic signatures."11 This language likely is intended to permit a party to
a transaction to refuse to deal electronically. For example, a party
might rely upon this language to demand that acceptance of the party's
offer be communicated on paper.
However, as noted above, Title I specifies that a document relating
to a transaction may not be denied legal effect solely because it is in
an electronic form.12 This conflicting language may
permit the accepting party in this example to argue, and a court to
hold, that an electronic acceptance must be honored. A party that wishes
to deal only in paper may want to take steps to avoid this potential
result. For example, the party might include in its offer a statement
that any response to the offer must be communicated on paper and that,
if the party refuses to honor a response made in violation of this
condition, that refusal is due to a violation of this condition and not
solely because the response is in an electronic form.
Consumer Transactions
Title I contains additional requirements that apply specifically to
transactions in which at least one of the parties is a consumer.
Generally, a consumer is an individual who obtains products or services
that are used primarily for personal, family, or household purposes.13 While Title I has no effect on the content or timing
of any document or disclosure required to be provided to a consumer,
Title I does regulate the method by which the document or disclosure may
be provided.14
For example, Title I prohibits a business from using voicemail to
provide a required document or disclosure to a consumer, unless the use
of voicemail is permitted under other applicable law.15 In addition, Title I prohibits a business from
providing a required document or disclosure to a consumer electronically
unless the consumer consents. This consent must be given after the
consumer is informed of certain rights and of the technical requirements
necessary to access and retain the electronic disclosures.16 In addition, this consent must be given or confirmed
electronically in a manner that reasonably demonstrates that the
consumer can access the information that is required to be provided.17
For Internet transactions, these consumer requirements should be
relatively easy to comply with through the use of a preprogrammed "click
through" procedure, which permits a consumer to enter into a transaction
only after acknowledging his or her consent and receipt of all required
information. A business using this procedure also might obtain a
consumer's consent to receive disclosures of information through the
business's Web site, rather than through a direct mailing. The consumer
requirements of Title I are more problematic, though, in the context of
less regularized consumer transactions, like those evidenced by an
exchange of emails. Any business that engages in this type of consumer
transaction may want to generate standard electronic forms, for use as
email attachments, to satisfy these requirements.
It also is important to note that the consumer requirements in Title
I apply regardless of the amount or value of a particular transaction.
Thus, they are broader in scope than other consumer requirements under
Wisconsin and federal law, which typically apply only to a transaction
of $25,000 or less.18
Retention of Contracts and Documents
 Robert J. Marchant, U.W. 1997, is a legislative
attorney with the Wisconsin Legislative Reference Bureau, practicing in
commercial and banking, safety and buildings, and election law.
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Title I permits a business to use electronic
storage as a more efficient means of retaining copies of documents
relating to the business's transactions. Under Title I, electronically
retained information satisfies any law that requires retention of a
contract or other document relating to a transaction, as long as the
retained information satisfies certain requirements relating to accuracy
and accessibility.19 Title I
contains similar provisions with regard to laws requiring retention of a
check.20
In addition, a person may use an electronic document relating to a
transaction to satisfy any law that requires the person to retain an
original copy of the document.21 Any document retained
in electronic form under this provision also must satisfy certain
requirements relating to accuracy and accessibility. Although these
provisions may be interpreted narrowly to apply only in the context of
electronic transactions, the plain language of the provisions would
permit a business that was a party in a paper transaction to scan the
original contract into the business's electronic files and destroy the
nonelectronic original.
Exemptions From Title I
All of the following documents are exempt from the provisions
discussed above and, as a result, their use is largely unaffected by
E-sign:
- a contract or document to the extent that it is governed by a law
covering the creation and execution of wills, codicils, or testamentary
trusts;
- a contract or document to the extent that it is governed by a law
covering adoption, divorce, or other matters of family law;
- a contract or document to the extent that it is governed by sections
of the Uniform Commercial Code other than the statute of frauds (Wis.
Stat. section 401.206), the chapter regulating sales of goods (Wis.
Stat. chapter 402), the chapter regulating leases (Wis. Stat. chapter
411), and provisions governing written waivers (Wis. Stat. section
401.107);
- notices of the cancellation or termination of utility services,
including water, heat, and power;
- notices of default, acceleration, repossession, foreclosure, or
eviction, or the right to cure, under a credit agreement secured by, or
a rental agreement for, an individual's primary residence;
- notices of the cancellation or termination of health insurance or
life insurance, other than annuities; and
- product recall notices.22
Title I and Pending State Legislation
Although Title I provides increased certainty in the law of
electronic transactions, the legal environment with regard to electronic
commerce in Wisconsin may change again soon. Despite the fact that Title
I generally preempts state laws that are inconsistent with it, Title I
does allow the states to regulate electronic transactions by enacting a
version of the Uniform Electronic Transactions Act (UETA).23 This uniform act was approved by the National Council
of Commissioners on Uniform State Laws in 1999 and recommended for
passage in all states.24 A version of UETA was
introduced in Wisconsin for the first time as part of the 2001 executive
budget bill.25
If enacted, UETA would for the most part displace Title I as the law
of electronic commerce in this state. There are major differences
between UETA and Title I, including:
- UETA's exemptions are less extensive than those in Title I and, as a
result, UETA applies to more types of transactions and documents. (For
example, unlike Title I, UETA permits the use of an electronic
foreclosure notice under a credit agreement secured by a primary
residence.)
- UETA contains no provisions that specifically apply only to consumer
transactions. (For example, unlike Title I, UETA does not require a
business to give any special notice or warning to a consumer with regard
to the technical requirements necessary to access information
electronically disclosed to the consumer.)
- UETA creates standards for determining, for legal purposes, the
location where an electronic transaction takes place and the time an
electronic document is sent or received. (For example, UETA specifies
that, with certain exceptions, an electronic document is deemed to be
sent from the sender's place of business that has the closest
relationship to the underlying transaction. This provision, which may be
important for tax reasons and for determining jurisdiction in the event
of a lawsuit, is unlike anything in Title I.)
- UETA has provisions outlining the legal effect of errors that occur
during an electronic transmission. (For example, unlike Title I, UETA
includes a procedure an individual may follow to avoid the effect of
certain erroneous, automated transactions.)
Although uncertainty over the status of UETA may slow the expansion
of electronic commerce in Wisconsin, there are some areas of overlap
between UETA and Title I that would permit businesses to adopt more
efficient practices immediately. For example, both UETA and E-sign
authorize electronic storage of documents relating to transactions.26 Furthermore, the debate over UETA provides an
opportunity for citizens to shape the regulation of electronic
commerce.
Conclusion
Title I goes a long way toward fostering the continued expansion of
electronic commerce. It provides certainty to parties who enter into
electronic transactions and provides safeguards for consumers who may be
wary of transacting business electronically. However, Title I
establishes some policies with which Wisconsin businesses or consumers
may disagree. In addition, as Title I is litigated, certain unforeseen
and potentially undesirable consequences may become apparent. The
possible enactment of UETA further complicates the status of Title I as
the law of electronic commerce in Wisconsin. Given the differences
between Title I and UETA, businesses and consumers both have interests
at stake and both can be expected to take part in the debate as it takes
place in the legislature.
Endnotes
1 Amazon.com
Releases Preliminary Fourth Quarter Highlights - Sales Up More than 40%
Over 1999, Fueled by Growth in Electronics, Kitchen and Tools,
(Press release, Jan. 8, 2001).
2 Organisation
for Economic Co-operation and Development, The Economic and Social
Impacts of Electronic Commerce: Preliminary Findings and Research
Agenda, copyright OECD, (OECD 1999) .
3 The Boston Consulting Group,
Business-to-Business
Race is On, (BCG 2000) .
4 U.S. Small Business
Administration, Small Business Expansions in Electronic
Commerce, (SBA 2000) .
5 15 U.S.C. 7007.
6 E-sign also contains two other
Titles that are relevant to electronic commerce. Title II deals with
electronic versions of certain negotiable instruments that are secured
by an interest in real property. See 15 U.S.C. 7021. Title III deals
with the promotion of international electronic commerce. See 15 U.S.C.
7031.
7 15 U.S.C. 7001 (a) (1).
8 15 U.S.C. 7001 (a) (2).
9 See 15 U.S.C. 7006 (4),
(5), and (9) (definitions of "electronic record," "electronic
signature," and "record," respectively).
10 See Wis. Stat. sections
402.201 (1) and 706.02, which, among other things, require certain sales
of goods or land to be evidenced in writing.
11 15 U.S.C. 7001 (b) (2).
12 15 U.S.C. 7001 (a) (1).
13 15 U.S.C. 7006 (1).
14 15 U.S.C. 7001 (c) (2) (A).
Under 15 U.S.C. 7004 (d), however, a federal agency may exempt a
specified category or type of document from the consumer requirements in
Title I, if the agency determines that the consumer requirements are too
great of a burden on electronic commerce.
15 15 U.S.C. 7001 (c) (6).
16 15 U.S.C. 7001 (c) (1).
17 15 U.S.C. 7001 (c) (1) (C) (ii).
However, under 15 U.S.C. 7001 (c) (3), the legal effect of a contract
may not be denied solely because of a failure to obtain the consumer's
consent consistent with this requirement.
18 See Wis. Stat.
§§ 421.301 (17) and 421.202 (6) and 12 C.F.R. 226.2 (a) (11)
and 226.3 (b).
19 15 U.S.C. 7001 (d) (1).
2015 U.S.C. 7001 (d) (4).
21 15 U.S.C. 7001 (d) (3). See, for example, Wis.
Stat. section 422.303 (5), which requires certain creditors to retain
copies of documents that evidence closed-end consumer credit
transactions.
2215 U.S.C. 7003. This statute also
permits a federal agency to remove any of these exemptions if the agency
finds that exemption is no longer necessary for the protection of
consumers and that elimination of the exemption will not increase the
material risk of harm to consumers.
23 15 U.S.C. 7002 (a) (1).
24 The text of UETA may be obtained
from http://www.law.upenn.edu/bll/ulc/ulc_frame.htm.
25 See 2001 Assembly
Bill 144, sections 261-263, 2829-2841, 3028, 3036, 3037, 3862,
3874-3876, 9101 (5) and (6), and 9301 (2) .
26 See 15 U.S.C. 7001 (d)
(1) and UETA § 12.
Wisconsin Lawyer
