This is a presentation that discusses the basics of contracting over the Internet -- back in 2001 -- before the rules for Internet contracting were settled. The date of the presentation was February 2, 2001. This is a Golden Oldie!

1. E-Contracting:E-Contracting:
The Basic RulesThe Basic Rules
Shawn E. Tuma
Attorney at Law
February 2, 2001

2. 2
MythsMyths
Internet contracting
Is not
– Just for “.com” or “e-” businesses
– Is not a revolutionary new area of law
Is
– For every business
– Simply a tool

3. 3
Why Are The “Rules”Why Are The “Rules”
Important?Important?
We all know that contracts can be made
verbally
Why should we worry about electronic
contracts?

4. 4
Statute of FraudsStatute of Frauds
A writing is required for
– Decedent estates
– Answering for another’s debts
– Real estate transactions
– Agreements not performable within one year
– Loan agreements
– Investment securities

5. 5
Uniform Commercial CodeUniform Commercial Code
A writing is required for
– Certain leases
– Sale of goods in excess of $500
– Transfer of personal property

6. 6
Prudence!Prudence!
Seriousness of client’s interests
Cost of our services
Professionalism

7. 7
Three GoalsThree Goals
1. Inform you of major bodies of law
2. Alert you to key issues
3. Encourage you to obtain these laws and
use them as a reference

8. 8
Three Areas of CoverageThree Areas of Coverage
1. Sources of e-contracting laws
2. When the laws apply and the key
provisions of the major laws
3. Effect of the laws on common issues

9. 9
Sources of LawSources of Law
Texas
Federal
Proposed Uniform Laws

10. 10
TexasTexas
Texas Legislature
Little opportunity to address most e-
commerce issues
Should be significant interest in e-
commerce issues this session
– Proposed uniform laws
– Substantial equivalent

11. 11
Texas has two different laws entitled
“Digital Signature”

12. 12
Business & Commerce Code, section 2.108
– Documents with digital signatures are just as valid as
documents with manual signatures
– A “digital signature” is “an electronic identifier
intended by the person using it to have the same force
and effect as the use of a manual signature”
– Bare minimum requirements
– Applies to the UCC

13. 13
Government Code, section 2054.060
– Allows digital signatures to be used in communicating
with State governments and agencies, as long as the
signatures meet certain requirements
– Guidelines for agency rules are more stringent,
requiring true “digital signature” technology as Mr.
Ward discussed
– Application is limited to contacts with State and local
governments and agencies

14. 14
FederalFederal
Transactions Affecting Interstate or Foreign
Commerce
– E-Sign
– Public Law Number 106-229; 114 Stat. 464
(June 30, 2000)

15. 15
Transactions Affecting Interstate orTransactions Affecting Interstate or
Foreign Commerce (E-Sign)Foreign Commerce (E-Sign)
When does it apply?
– Effective date: October 1, 2000
– E-Sign applies to all transactions Affecting
Interstate or Foreign Commerce
 Commerce Clause is the limit

16. 16
Preemption
State law may preempt E-Sign if the state law
 Is an enactment of the UETA, or
 (1) Specifically addresses electronic records,
 (2) Is consistent with E-Sign,
 (3) Doesn’t favor any particular technology, and
 (4) Specifically refers to E-Sign if adopted
subsequently.

17. 17
Key provision
A contract can not be challenged solely because
it is in electronic form, or because an electronic
signature or record was used

18. 18
Consumer Disclosures
– Applies when required to make certain
disclosures to consumers and making the
disclosures available electronically
– Detailed and thorough list of rules and
procedures that must be followed before the
consumer can consent to electronic disclosures
 Ensure consumers
– Understand what they are doing
– Are given an option

19. 19
Retention of Electronic Documents
– Electronic retention is acceptable if
 Accurate
 Accessible
– Applies to
 Contracts & Records
 Originals
 Checks
 Notarizations and verifications

20. 20
Electronic Agents
– Electronic agents are computer programs or
systems “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 at the time of
the action or response.”
– A contract cannot be denied simply because an
electronic agent was used.

21. 21
Exceptions to E-Sign
– Testamentary documents
– The Uniform Commercial Code
– State acting as market participant
– Court documents
– Cancellation of utility services
– Consumer housing matters (i.e., default, acceleration,
repossession, foreclosure, eviction)
– Cancellation of health and life insurance benefits
– Product recalls
 3 Year review of exceptions
 Possible administrative elimination

22. 22
Proposed Uniform LawsProposed Uniform Laws
 Uniform Electronic Transactions Act
– UETA
 Uniform Computer Information Transactions Act
– UCITA
 Drafted by the National Conference of
Commissioners on Uniform State Laws
 Each state must adopt
– Texas likely will
– Treat as the law

23. 23
Uniform ElectronicUniform Electronic
Transactions Act (UETA)Transactions Act (UETA)
When is it applicable?
– UETA “applies to electronic records and
electronic signatures relating to a transaction.”
 Very broad in scope
 Very similar to E-Sign
– Only if the parties agree to conduct transactions
by electronic means
 Agreement can be inferred from a person’s actions
 Consent can be revoked

24. 24
Exceptions
– Testamentary documents
– Uniform Commercial Code
 Except Sections 1-107 & 1-106, and Articles 2 & 2A, to which
it does apply
– UCITA
– Fewer exceptions than E-Sign
 Real estate transactions
– UETA applies the actual transaction process, but it does not
displace State recording laws
 Consumer protection
– UETA applies to many consumer but contains requirements that
(1) give the consumer an option and (2) allow the consumer to
understand his or her actions.

25. 25
Key Provisions
UETA is intended to facilitate the use of
electronic signatures and records
 A contract, record, or signature may not be denied
legal effect or enforceability solely because it is in
electronic form
 “If a law requires a record to be in writing, an
electronic record satisfies the law”
 “If a law requires a signature, an electronic
signature satisfies the law”

26. 26
Key Points
– UETA does not validate electronic contracts
– UETA does not require the use of electronic
signatures or records
– Parties may alter the terms of UETA by
agreement

27. 27
Limited Nature of UETA
– UETA does not affect other provisions of law
– Substantive laws governing the form and
substance of contracts and records must be
followed

28. 28
Attribution of Electronic Records and
Signatures
Electronic records or signatures are attributable
to a person if it resulted from that person’s
action
 “Electronic agents” actions are attributable to the
“principal” and not legal effect on the basis that it
was not an actual person

29. 29
Electronic Agents
– “A contract may be formed by the interaction of
electronic agents of the parties, even if no
individual was aware of or reviewed the
electronic agents’ actions or the resulting terms
of the agreements.”
– This is the very essence of “B2B e-Commerce”

30. 30
Time and Place of Sending and Receipt
– Electronic records are deemed sent upon
dispatch, from the sender’s place of business
– Electronic records are deemed received when
the recipient is first able to retrieve the
electronic record
 This effectively eliminates the “Mailbox Rule”
discussed in the materials

31. 31
Effect of Change or Error
– The law of “mistake” is expressly made
applicable with regard to electronic contracts
– When the parties agree to use security
procedures (e.g., encryption technology) and a
party fails to use the agreed procedure, the
conforming party may avoid the mistake if the
non-conforming party would have detected the
mistake by using the procedure

32. 32
Notarization and Acknowledgment
– Electronic signatures may be used when the law
requires a signature or record be notarized,
acknowledged, verified, or made under oath
– All other requirements for these procedures
must be followed

33. 33
Retention of Electronic Documents
– Electronic retention is acceptable if
 Accurate
 Accessible
– Applies to
 Contracts and records
 Originals
 Checks

34. 34
Admissibility of Electronic Records &
Signatures
– “In a proceeding, evidence of a record or
signature may not be excluded solely because it
is in electronic form.”
– Very important should the validity of the
contract be challenged in court

35. 35
Uniform Computer InformationUniform Computer Information
Transactions Act (UCITA)Transactions Act (UCITA)
Generally
UCITA is highly specialized and detailed
 UCITA is analogous to Articles 2 and 2A of the
UCC (i.e., sale or lease of goods) for computer
information transactions
 Originally proposed as UCC Article 2B

36. 36
When does it apply?
UCITA is limited to “computer information transactions”
 “Computer information transaction” means an agreement or
the performance of it to create, modify, transfer, or license
computer information or informational rights in computer
information.
 “Computer information” is “information in electronic form
which is obtained from or through the use of a computer or
which is in a form capable of being processed by a computer.
The term includes a copy of the information and any
documentation or packaging associated with the copy.”
 UCITA does not apply simply because electronic
communications or the Internet was used to complete the
transaction.

37. 37
Three Very Basic Points
– Electronic records and signatures
– Electronic agents
– The Mailbox Rule is abandoned

38. 38
Mechanics of CreatingMechanics of Creating
Enforceable Contracts OverEnforceable Contracts Over
the Internetthe Internet

39. 39
#1#1
Know and understand the traditional
requirements for a contract
– Offer
– Acceptance
– Consideration
– Intent to contract

40. 40
#2#2
Make sure
– The object of the contract is legal
– There is no fraud, mistake, or duress in the
execution
 True “digital signature” cryptology is very helpful
in preventing, detecting, and resolving such
problems

41. 41
#3#3
Make sure all parties agree to contract
electronically

42. 42
#4#4
Know the object of your agreement so as to
determine which body of law applies
– Does that body of law have special
requirements for electronic contracts?
– Does it have any “formal” requirements for the
electronic contract to be valid?

43. 43
#5#5
Use a valid signature in “signing” the
contract
– Typically, any mark with the intent to form a
contract meets the minimum requirements
– Prudence requires more because of the potential
for fraud or mistake
 Use true “digital signatures” with encryption
technology as discussed by Mr. Ward so as to
ensure the integrity of the process

44. 44
#6#6
Keep Accurate Records!Keep Accurate Records!
 This is most important
 These laws do not validate electronic contracts
 They only prevent contracts from being
invalidated solely because they are electronic
 Electronic contracts can still be challenged in
court and when they are, your records will provide
valuable evidence

45. 45
The Internet: Source for theThe Internet: Source for the
Laws and Acts DiscussedLaws and Acts Discussed
Texas Laws
– http://www.capitol.state.tx.us/capitol.htm
E-Sign
– http://thomas.loc.gov
– Search for “S. 761”
UETA & UCITA
– http://www.law.upenn.edu/bll/ulc/ulc_frame.htm

46. 46
Remember . . .Remember . . .
 Follow the six steps
 Refer to the source laws for specific questions and
issues
 Feel free to contact me with any questions:
– Shawn E. Tuma
– http://www.e-lawcounselor.com
– (214) 698-3854

47. The EndThe End