Electronic contracting received a major boost this past summer when the Oregon Legislature quietly passed the Uniform Electronic Transactions Act (UETA). Most notably, this legislation reduces uncertainty associated with the enforceability of electronic contracts and signatures. The fundamental tenet of this new law is that contracts executed electronically or online, such as through email or by clicking "I Agree," may not be denied legal effect or enforceability solely because they are in electronic form or were formed electronically.

Sections 1 to 21 of 2001 Oregon Laws, chapter 535, which became effective on June 22, 2001, adopt that version of UETA approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in July, 1999, with very minor variation for the sole purpose of ensuring consistency with Oregon law. Although Oregon made no substantive changes in its adoption of UETA, it did enact additional state-specific provisions which will be discussed later. Consequently, to understand Oregon law it is first necessary to clearly understand UETA.

Rule of Equivalence

UETA was the first major effort to gain traction toward providing uniform laws related to transactions in electronic commerce. Its fundamental tenets can be found in section 7 of UETA:

1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.

2. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

3. If a law requires a record to be in writing, an electronic record satisfies the law.

4. If a law requires a signature, an electronic signature satisfies the law.

Under UETA, records created, generated, sent, communicated, received or stored by electronic means can be the legal equivalent of paper documents. Furthermore, electronic signatures can be the legal equivalent of physical signatures. The term electronic signature is broadly defined under UETA as "an electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record." UETA §2(8). The use of specific technology to create a valid signature is not necessary, the signer's intent at execution is what governs. As noted in the Official Comments, whether a record has been "signed" is a question of fact and subject to proof under other applicable law. A recorded voice, email header or footer, firm name on a facsimile, or other electronic communication might all constitute an electronic signature if the requisite intent to sign is found. Similarly, clicking "I agree" on a website may also be deemed an electronic signature.

Scope

The application of UETA has a generally broad scope, but includes a number of significant limitations. Section 3 specifies that UETA applies only to electronic records and electronic signatures relating to a "transaction." A transaction is broadly defined in section 2 as "an action or set of actions occurring between two or more persons relating to the conduct of business, commercial, or governmental affairs." Although not clear in the language of UETA, the Official Comment notes that commerce and business are to be construed broadly to include transactions involving individuals who may qualify as 'consumers' under other applicable law. The Comments also clarify that unilateral or non-transactional actions are not included within the scope of UETA. Regardless whether inside the scope of UETA, section 3 provides that all transactions remain subject to other applicable substantive law.

UETA does not apply to transactions governed by laws listed in section 3 of that Act. Oregon lists, and thereby excludes from the scope of UETA, transactions governed by laws related to the creation and execution of wills, codicils, or testamentary trusts and the Uniform Commercial Code (UCC), other than sections 1-107, 1-206, article 2, and article 2A.

It is important to note, UETA is an opt-in statute. Under section 5, both parties must specifically assent to conduct transactions by electronic means. No party can be compelled to engage in transactions by electronic means, and any party consenting to electronic means may later refuse to engage in future transactions by electronic means. However, whether the parties agree to use electronic means may be determined by the context and surrounding circumstances of the transaction, including the parties' conduct.

Default Rules

UETA, following the model of the UCC, is principally a set of default rules. Except where otherwise specified in UETA for certain policy considerations, the effect of any provision of that Act may be varied by agreement of the parties. Here are the more significant rules to consider:

Attribution. Section 9 provides the rather vague rule that an electronic signature is attributable to a person if it was the act of that person. Although such "act of the person" may be shown in any manner, UETA encourages the use of security procedures be explicitly pointing out that a showing of the efficacy of any security procedure is specifically relevant in determining the person to which an electronic record or electronic signature is attributable.

Change or Error. Section 10 also encourages the use of security procedures by providing that if two parties agree to use a particular security procedure, and one party fails to conform to that procedure, the conforming party may avoid the effect of any changes or errors that occurred and could have been prevented had the other party also conformed. This section additionally provides a process for an individual to avoid any changes or errors resulting in an automated transaction with an electronic agent if the electronic agent does not provide an opportunity for prevention or correction of the error.

Time and Place of Sending and Receipt. Section 15 includes detailed rules on when and where an electronic record is deemed sent and received, similar to the "mailbox rule" under UCC Article 2. Generally, an electronic record is sent when it enters a system outside the sender's control and received when it enters a system designated by the recipient for the receipt of such records.

Application

In addition to the general rule of equivalence discussed above, UETA provides several specific rules regarding its application in certain circumstances:

Notarization and Acknowledgement. Section 11 allows satisfaction of any notary, acknowledgment, verification, or oath requirement under any law through the use of an electronic signature provided such electronic signature is attached to or logically associated with the underlying signature or record being notarized, acknowledged, etc.

Record Retention. Section 12 provides that an electronic record will satisfy any law that requires a record be retained if the electronic record is accurate and remains accessible for later reference. Governmental agencies may specify additional retention requirements within their respective jurisdiction. Since UETA is limited to prospective application from the date of its passage under section 4, it should not be relied upon to convert current paper records into electronic format with the intention of destroying the paper originals.

Admissibility in Evidence. Section 13 provides simply: "In a proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form."

Electronic Agents. Section 14 allows for the formation of contracts through the use of electronic agents. An electronic agent is defined as "a computer program or electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual."

Transferable Records. Section 16 enables the use of electronic negotiable instruments, referred to as "transferable records," by establishing a system which parallels UCC Article 3 and 7 (ORS chapter 73 and 77). To create and maintain transferable records under the statute, a system must be implemented that only allows a single (unique, identifiable, and unalterable) authoritative copy of the transferable record. Any person seeking to enforce a transferable record must be in "control," similar to a "holder" under the UCC, of the transferable record.

Government Agencies. Sections 17 to 19 are optional provisions under UETA, which were adopted in Oregon. These sections authorize governmental bodies to regulate the use of electronic signatures and records in transactions to which they are a party and encourage government bodies to adopt standards that promote consistency and interoperability.

Consumer Protection

Consumer protection is a significant political issue for any state considering adoption of UETA. To understand the issue, it is important to have some familiarity with the federal Electronic Signatures in Global and National Commerce Act (E-Sign) which generally became effective on October 1, 2000. 15 USC §§ 7001 to 7031. E-Sign is similar to UETA in many ways and was enacted to resolve the lack of uniformity among state laws and ensure the enforceability of electronic signatures and contracts in interstate commerce, regardless whether individual states adopt UETA. Seeking to preserve states' rights, E-Sign includes complex and narrow "exemption to preemption" provisions which allow states to opt-out of a major portion of E-Sign. States may opt-out by adopting the uniform version of UETA or alternative procedures and requirements which are consistent with E-Sign. 15 USC §7002(a). Oregon's statute was carefully crafted to fall within this exemption by adopting both the uniform version of UETA and additional provisions consistent with E-Sign.

One of the significant distinctions between E-Sign and UETA is that E-Sign includes detailed consumer protection provisions not found in UETA. See 15 USC §7001(c). Because of the exemption to preemption mentioned above, a state adoption of the uniform version of UETA arguably preempts E-Sign's consumer protection provisions. The Oregon Legislature made a policy decision to adopt the consumer protection provisions of E-Sign into Oregon law. Consequently, 2001 Oregon Laws, chapter 535, section 24 contains the consumer protection provisions found in E-Sign with no substantive change. Those provisions contain certain criteria which must be met before various statutory notice requirements can be satisfied by electronic means and preclude the use of electronic notice for actions such as termination of utility services or residential eviction.

It should be noted that UETA does contain more general requirements regarding the presentation of electronic records. According to section 8, if certain information is required by law to be provided, sent or delivered in writing, an electronic record must be capable of retention by the recipient at the time of receipt to satisfy that law. Capable of retention includes the ability of the recipient to print or store the electronic record. Any specific format or presentation requirements specified in a law must also be complied with in the electronic record. If any sender inhibits the ability of a recipient to store or print an electronic record, the record is not enforceable against the recipient.

Digital Signatures

In discussing "electronic signatures," one should note the important distinction between this term and "digital signatures." As mentioned, any electronic sound, symbol or process may be deemed an electronic signature if the requisite intent to sign is present. Digital signatures, on the other hand, are technology specific forms of electronic signatures which offer additional advantages such as authentication and encryption. Documents executed with digital signatures provide greater assurance of the identity of the signatory and are more difficult to alter and forge.

Prior to the passage of 2001 Oregon Laws, chapter 535, Oregon had adopted an Electronic Signature Act which thinly addressed the enforceability of electronic and digital signatures and provided an infrastructure for registering companies which issue digital signatures (Certification Authorities). Sections 31 to 36 of 2001 Oregon Laws, chapter 535 significantly amend the Oregon Electronic Signature Act by renaming it the "Digital Signature Act" and reconciling it with UETA. The amendment limits the Digital Signature Act's application to digital signatures only and makes appropriate reference to the newly adopted UETA provisions which govern the enforceability of electronic signatures.

Conclusion

Between E-Sign and UETA, there is substantially less risk associated with the enforceability of electronic contracts and signatures today. Although electronic contracting in Internet based transactions is fairly common, these new laws will foster more extensive development and use of electronic contracting technology.