Intellectual Property Law

Scope of the U.S. Uniform Electronic Transaction Act

By IBLS Editor

The U.S. Uniform Electronic Transaction Act (UETA) was drafted by the Uniform Conference of Commissioners on Uniform State Law to validate commercial electronic transactions, concretely, those involving electronic records and signatures. Its goal is not to establish contractual rules for e-transactions; instead, it is designed to complement state statutes dealing with digital signatures and electronic records. This article offers a summary of UETA's scope and application.

In the U.S., commercial contracts are regulated by state law.  Also, most states have enacted digital signature statutes to be applied to commercial dealings. Thus, UETA was not enacted to supersede state law, but to complement it.  UETA § 3 limits its scope; it states that UETA applies to electronic records and electronic signatures related to a "transaction." It does not apply to (1) the creation and execution of wills, codicils, or testamentary trusts; and (2) to transactions subject to other substantive state law.  Transaction is defined as "an action or set of actions occurring between two or more persons relating to the conduct of business, commercial, or governmental affairs." For instance, UETA applies to electronic signatures and records hold by the banking and insurance industry. In sum, UETA influence the way commercial information, records, and signatures may be presented and retained under current legal standards.

In practice, UETA application may prove to be complex. This may be the reason why the drafting Commission provided extensive Legislative notes for § 3.  For instance, Legislative note for § 3, expressly clarifies that UETA applies to the following transactions, even though they might seem excluded from § 3.  UETA applies to the following transactions,

(1) Commercial trusts or trusts other than testamentary trusts.  Following UETA's definition of transaction, business and commercial trusts are covered by the Act.  Since commercial trusts may be agreed on orally, the Legislative Commission did not see the reason why commercial trusts should be excluded from UETA's application scope;

(2) Power of attorney.  The Commission noted that, usually, no formal requirements for paper or execution were found to be applicable to the validity of power of attorneys. Thus, UETA's rules are applicable to these powers unless excluded by specific state substantive law.  For instance, special health power of attorneys may be ruled by specific state laws; in this case, UETA may not apply according to § 3;

(3) Real estate transactions.  The Legislative Commission distinguished between the efficacy of paper involving real estate between the parties as opposed to their effects on third parties.  UETA may apply to the commercial transactions between the parties if they so agree.  Yet, for these transactions to be effective against third parties, state law usually requires specific filings with state government offices.  If the state has not yet validated electronic filings and electronic notarizations, physical paper requirements and signatures may still apply in those cases. Hence, in those states allowing real estate electronic filings, UETA's rules apply;

(4) Consumer protection transactions.  The Legislative Commission was concerned with those state consumer protection statutes that require paper and actual signatures; the paper requirement leaves them outside UETA's scope. It is precisely in these consumer/government transactions where electronic means prove to be efficient. Thus, the Legislative Commission stated UETA's rules could coexists with those consumer statutes requiring writings, specific forms, and formatting (letter size, type, etc.). UETA, the Commission noted, would not eliminate those requirements but make them accessible through electronic means, together with an opt-out feature for consumers. 

UETA applies to "any electronic record or electronic signature created, generated, sent, communicated, received, or stored" on or after its effective date.  It applies to commercial transactions that do not require written formalities under state law; however, special analysis is advisable because UETA may apply to some transactions that initially seem out of its scope.     

Full post as published by IBLS Internet Law Blog on December 15, 2008 (boomark / email).