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Client Alert - The Electronic Signatures in Global and National Commerce Act

08.12.2000

This Fall, in all fifty states, most documents captured in an electronic format or formalized with an electronic signature will be given the same legal effect as their paper-and-ink counterparts. On October 1, 2000, the Electronic Signatures in Global and National Commerce Act will go into effect making it easier to do business and complete transactions online. The Act provides that a signature, contract or other record pertaining to any transaction affecting interstate or foreign commerce may not be denied legal effect 'solely because it is in electronic form.' According to the House Report, electronic documents will now enjoy 'a consistent legal foundation, across multiple jurisdictions.'

While the validity of a document may not be challenged solely because it is in electronic form, its authenticity and enforceability can still be challenged under traditional rules governing contract law. Likewise, although the Act requires the courts to acknowledge the validity of electronic documents and signatures, individuals and non-governmental entities will not be compelled to memorialize their agreements electronically; the parties will make this decision themselves based on their preferences and respective bargaining power.

The Act sets national standards for the enforceability of agreements formalized through electronic means, but it does not foreclose states from adopting their own unique procedures consistent with the spirit of the Act. Specifically, the Act provides that states may pass legislation addressing the legal force of electronic documents and electronic signatures provided such legislation either adopts the Uniform Electronic Transactions Act or (i) creates specific alternative procedures for the use or acceptance of electronic documents and signatures; (ii) such procedures are consistent with the Act; (iii) such procedures do not require the use of a specific technology; and (iv) the state statute explicitly refers to the Act.

While individuals -- and not just businesses -- can benefit from this new-found ability to create binding agreements without waiting for written agreements to make their way through the mail for full execution, Congress incorporated into the Act certain exceptions intended to protect individuals in their day-to-day affairs. Therefore, while individuals will be able to take out mortgages and buy insurance without ever putting pen to paper, we cannot expect to do all our personal business electronically.

First, several categories of documents are clearly excluded from the Act including wills, adoption documents, pre-nuptial agreements, divorce agreements or other documents related to family law. Likewise, notices from courts, notices of foreclosure upon or eviction from a primary residence, notices regarding the cancellation of utility services, notices relating to the cancellation of health or life insurance and product safety recalls must still be formalized or presented on paper in order to be recognized by the law.

Second, government-mandated consumer disclosures may not be made through electronic means unless, after the consumer is fully informed of his or her right to receive the disclosures on paper, the consumer consents to the receipt of the disclosures through electronic means, demonstrates an ability to communicate electronically and does not withdraw the consent.

Congress will re-evaluate the Act as it applies to mandatory consumer disclosures and it has enlisted the help of at least two federal agencies to monitor its effectiveness in this area. No later than October 1, 2001, the Secretary of Commerce will be required to submit to Congress a report evaluating the effectiveness of the delivery of records to consumers via electronic mail as compared to delivery via the United States Postal Service or private mail carriers. Also no later than October 1, 2001, the Secretary of Commerce and the Federal Trade Commission will be required to submit a report evaluating the benefits and burdens of the consumer-disclosure exceptions and recommending any changes to the Act deemed appropriate. In preparing this report, the Secretary of Commerce and FTC are required to solicit comments from the general public, consumer representatives and electronic commerce businesses. Therefore, this may present an opportunity for you to seek changes to the Act which could benefit your business or industry.

This Act is purposely technology neutral, so the procedures for actually entering into binding electronic contracts will evolve through practice.

Our firm will continue to monitor relevant developments, and to help our clients adopt procedures that comply with the Act's requirements.

For more information, contact Kieran Doyle.

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