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UNIFORM ELECTRONIC TRANSACTIONS ACT

PATRICIA BRUMFIELD FRY, University of North Dakota, School of Law, P.O. Box 9003, Grand Forks, ND 58201, Chair

STEPHEN Y. CHOW, One Beacon Street, 30th Floor, Boston, MA 02108

KENNETH W. ELLIOTT, Suite 630, 119 N. Robinson Avenue, Oklahoma City, OK 73102

HENRY DEEB GABRIEL, JR., Loyola University, School of Law, 526 Pine Street, New Orleans, LA 70118

BION M. GREGORY, Office of Legislative Counsel, State Capitol, Suite 3021, Sacramento, CA 95814-4996

JOSEPH P. MAZUREK, Office of Attorney General, P.O. Box 201401, 215 N. Sanders, Helena, MT 59620

PAMELA MEADE SARGENT, P.O. Box 846, Abingdon, VA 24212

D. BENJAMIN BEARD, University of Idaho, School of Law, 6th and Rayburn Streets, Moscow, ID 83844-2321, Reporter

GENE N. LEBRUN, P.O. Box 8250, 9th Floor, 909 St. Joseph Street, Rapid City, SD 57709, President

HENRY M. KITTLESON, P.O. Box 32092, 92 Lake Wire Drive, Lakeland, FL 33802-2092, Division Chair

C. ROBERT BEATTIE, 150 S. 5th Street, Suite 3500, Minneapolis, MN 55402, Business Law Section

AMELIA H. BOSS, Temple University, School of Law, 1719 N. Broad Street, Philadelphia, PA 19122, Advisor

THOMAS J. SMEDINGHOFF, 500 W. Madison Street, 40th Floor, Chicago, IL 60661-2511, Science and Technology Section

FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Road, Norman, OK 73019, Executive Director

WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104, Executive Director Emeritus

312/915-0195

SECTION 101. SHORT TITLE.

SECTION 102. DEFINITIONS.

SECTION 103. SCOPE.

SECTION 104. SCOPE - EXCLUSIONS AND LIMITATIONS. TRANSACTIONS SUBJECT TO OTHER LAW.

SECTION 105. VARIATION BY AGREEMENT.

SECTION 106. APPLICATION AND CONSTRUCTION.

SECTION 107. MANIFESTING ASSENT.

SECTION 108. OPPORTUNITY TO REVIEW.

SECTION 109. DETERMINATION OF COMMERCIALLY REASONABLE SECURITY PROCEDURE.

SECTION 110. EFFECT OF REQUIRING COMMERCIALLY UNREASONABLE SECURITY PROCEDURE.

SECTION 201. LEGAL RECOGNITION OF ELECTRONIC RECORDS.

SECTION 202. ATTRIBUTION OF ELECTRONIC RECORD TO PARTY PERSON.

SECTION 203. DETECTION OF CHANGES AND ERRORS.

SECTION 204. INADVERTENT ERROR.

SECTION 205. ORIGINALS - INFORMATION ACCURACY.

SECTION 206. RETENTION OF ELECTRONIC RECORDS.

SECTION 301. LEGAL RECOGNITION OF ELECTRONIC SIGNATURES.

SECTION 302. EFFECT OF ELECTRONIC SIGNATURES EFFECT AND PROOF.

SECTION 303. OPERATIONS OF ELECTRONIC DEVICES AGENTS.

SECTION 304. NOTARIZATION AND ACKNOWLEDGMENT.

SECTION 401. FORMATION AND VALIDITY.

SECTION 402. TIME AND PLACE OF SENDING AND RECEIPT.

SECTION 403. ELECTRONIC ACKNOWLEDGMENT OF RECEIPT.

SECTION 404. ADMISSIBILITY INTO EVIDENCE.

SECTION 405. TRANSFERABLE RECORDS.

SECTION 501. CREATION AND RETENTION OF ELECTRONIC RECORDS AND CONVERSION OF WRITTEN RECORDS BY GOVERNMENTAL AGENCIES.

SECTION 502. RECEIPT AND DISTRIBUTION OF ELECTRONIC RECORDS BY GOVERNMENTAL AGENCIES.

SECTION 503. [DESIGNATED STATE OFFICER] TO ADOPT STATE STANDARDS.

SECTION 504. INTEROPERABILITY.

SECTION 601. SEVERABILITY.

SECTION 602. EFFECTIVE DATE.

SECTION 603. SAVINGS AND TRANSITIONAL PROVISIONS.

SECTION 101. SHORT TITLE. This [Act] may be cited as the Uniform Electronic Transactions Act.

SECTION 102. DEFINITIONS.

(a) In this [Act] [unless the context otherwise requires]:

(1) "Agreement" means the bargain of the parties in fact as found in their language or inferred from other circumstances. [Whether an agreement has legal consequences is determined by this [Act], if applicable, or otherwise by other applicable rules of law.]

(2) "Automated transaction" means a transaction formed or performed, in whole or in part, by electronic means or electronic records in which the acts or records of one or both parties are not reviewed by an individual as an ordinary step in forming a contract, performing under an existing contract, or fulfilling any obligation required by the transaction.

(3) "Computer program" means a set of statements or instructions to be used directly or indirectly in an information processing system in order to bring about a certain result. The term does not include informational content.

(4) "Contract" means the total legal obligation resulting from the parties' agreement as affected by this [Act] and other applicable rules of law.

(5) "Electronic" means of or relating to technology having electrical, digital, magnetic, wireless, optical, or electromagnetic technology, or any other technology that entails similar capabilities.

(6) "Electronic device agent" means a computer program or other electronic or automated means configured and enabled designed, programmed, or used, selected, or programmed by a person to initiate or respond to electronic records or performances in whole or in part without review by an individual.

(7) "Electronic record" means a record created, stored, generated, received, or communicated by electronic means.

(8) "Electronic signature" means any signature in electronic form, attached to or logically associated with an electronic record.

(9) " Governmental agency" means an executive[, legislative, or judicial] agency, department, board, commission, authority, institution, or instrumentality of this State or of any county, municipality, or other political subdivision of this State.

(10) "Information" means data, text, images, sounds, codes, computer programs, software, databases, or the like.

(11) "Informational content" means information that in its ordinary use is intended to be communicated to or perceived by a person in the ordinary use of the information.

(12) "Information processing system" means a system for creating, generating, sending, receiving, storing, displaying, or otherwise processing information, including electronic records.

(13) "Notify" means to communicate, or make available, information to another person in a form and manner appropriate or required under the circumstances.

(14) "Organization" means a person other than an individual.

(154) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, two or more persons having a joint or common interest, government, governmental subdivision, agency, instrumentality, or public corporation, or any other legal or commercial entity.

(15) "Presumption" or "presumed" means that the trier of fact must find the existence of the fact presumed unless and until evidence is introduced which would support a finding of its non-existence.

(15) "Presumption" means that when a fact or group of facts giving rise to a presumption (the "basic fact") exists, the existence of the fact to be assumed upon a finding of the basic fact (the "presumed fact") must be assumed unless and until the party against whom the presumption is directed produces evidence which would support a finding of the non-existence of the presumed fact. "Presumed" has a corresponding meaning.

() "Presumption" means an inference of fact in issue which the law requires to be drawn from certain proven facts, unless and until the party against which the inference is directed produces evidence which would support a finding of its non-existence. "Presumed" has a corresponding meaning.

(16) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

[(17) "Rule of law" means a statute, regulation, ordinance, common-law rule, court decision, or other law enacted, established, or promulgated in this State, or by any agency, commission, department, court, or other authority or political subdivision of this State.]

(18) "Security procedure," means a procedure or methodology, [established by law or regulation, or established by agreement, or knowingly adopted by the each partyies,] for the purpose of verifying that an electronic signature, record, or performance is that of a specific person or for detecting changes or errors in the informational content of an electronic record. The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, callback or other acknowledgment procedures, or any other procedures that are reasonable under the circumstances.

(19) "Sign" means to execute or adopt a

signature.

(20) "Signature" means any identifying symbol, sound, process, or encryption of a record in whole or in part, executed or adopted by a person, as part of a record. or the person's electronic agent with intent to:

(A) identify that person;

(B) adopt or accept a term or a record; or

(C)establish the informational integrity of a record

or term that contains the signature or to which a record containing the signature refers.

(21) "Term" means that portion of an agreement which relates to a particular matter.

(22) "Transaction" means an action or set of actions taken by a person which relate to or involve another person or persons.

(232) "Transferable record" means a record, other than a writing, that would be an instrument or chattel paper under [Article 9 of the Uniform Commercial Code] or a document of title under [Article 1 of the Uniform Commercial Code], if the record were in writing.

(243) "Writing" includes printing, typewriting, and any other intentional reduction of a record to tangible form. "Written" has a corresponding meaning.

(b) Other definitions applying to this [Act] or to specified sections thereof, and the sections in which they appear are:

"Basic fact". Section 102(15)

"Inadvertent error". Section 204

"Presumed fact". Section 102(15)

"Relying person". Section 202

"Requiring party". Section 110

"Responsible person". Section 202

Sources: Definitions in this Act have been derived from Uniform Commercial Code definitions, in particular Article 2B drafts, and from other models, specifically the UNCITRAL Model Law, Illinois Model, Oklahoma Model and Massachusetts Model.

1. "Agreement"

Committee Votes:

1. To delete the concept of manifestation of assent from the definition - By consensus (no formal vote) (Sept. 1997)

2. To delete course of performance, course of dealing and usage of trade: Committee 4 Yes - 2 No; Observers 6 Yes - 1 No. (Jan. 1998)

At the September, 1997 Meeting the definition of agreement which included terms to which a party manifested assent was rejected. The consensus of both the Committee and observers was that there was no need to separate manifestations of assent from the language and circumstances which comprise the bargain in fact of the parties as part of the definition of agreement. Rather the Reporter was directed to return to the definition of agreement in the Uniform Commercial Code. Accordingly, the definition in the November Draft was taken from the most recent revision to Article 1. At the January, 1998 Meeting, the Committee more specifically defined the policy guiding this Act: the Act is a procedural act providing for the means to effectuate transactions accomplished via an electronic medium, and, unless absolutely necessary because of the unique circumstances of the electronic medium, the Act should leave all questions of substantive law to law outside this Act. In light of this principle the prior references to usage evidence as informing the content of an agreement was considered substantive, and therefore, best left to other law outside this Act.

The need for a definition of agreement was acknowledged largely because the existence of a security procedure, as defined below, often depends on the agreement of the parties. However, the facts and evidence which establish an agreement is intended to be left to other law, e.g., the Uniform Commercial Code, common law, etc.

Whether the parties have reached an agreement is determined by their express language and surrounding circumstances. The Restatement of Contracts §3 provides that

"An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances."

The Uniform Commercial Code specifically includes in the circumstances from which an agreement may be inferred "course of performance, course of dealing and usage of trade..." as defined in the UCC.

The existence and content of an agreement under this Act is determined by the parties' language and surrounding circumstances. The relevant surrounding circumstances and the context of the transaction will inform the precise terms of any agreement. The second sentence of this definition makes clear that the substantive law applicable to an electronic transaction effectuated by this Act must be applied to determine those circumstances relevant in establishing the precise scope and meaning of the parties' agreement. This sentence has been bracketed in recognition of the Style Committee's view that the provision is substantive and should not be included in the definition. Considering the source of this provision in the UCC which has a 40-50 year history of construction, the provision has been retained for discussion by the Drfating Committee at its next meeting.

The comment to this definition will make clear that, though derived from the UCC definition, there is no intent to affect the meaning of the term under the UCC or any other applicable law.

2. "Automated Transaction."

Committee Vote: To delete references to governmental and commercial: Committee 4 Yes (Chair broke tie) - 3 No; Observers 19 Yes - 1 No. (Jan. 1998)

Article 2B has conformed its terminology with this Act by adopting "automated transaction" in place of "electronic transaction." The definitions in each are conceptually the same. The definition in this Act is broader, going beyond contract formation to performances under a contract and other obligations accomplished by electronic means in a transaction, because of the diversity of transactions to which this Act may apply.

As with electronic devices, this definition addresses the circumstance where electronic records may result in action or performance by a party although no human review of the electronic records is anticipated. Section 401(a) provides specific contract formation rules where one or both parties do not review the electronic records.

3. "Computer program." This definition is from Article 2B. The term is used principally with respect to the definition of "electronic device" and "information."

4. "Electronic." This definition serves to assure that the Act will be applied broadly as new technologies develop. While not all technologies listed are technically "electronic" in nature (e.g., optical fiber technology), the need for a recognized, single term warrants the use of "electronic" as the defined term.

5. "Electronic device." This draft has replaced the term "electronic agent" from Article 2B, with the term "electronic device" in order to avoid connotations agency. Comments have been made at the Drafting Committee meetings from members of the Committee and observers that the key aspect of this term is its function as a tool of a party. The concern has been expressed that the use of the term "agent" may result in a court applying principles of the law of agency which are not intended and are not appropriate.

An electronic device, as a computer program or other automated means employed by a person, is a tool of that person. As a general rule, the employer of a tool is responsible for the results obtained in the use of that tool since the tool has no independent volition of its own. However, an electronic device by definition is capable, within the parameters of its programming, of initiating, responding or interacting with other parties or their electronic devices once it has been activated by a party, without further attention of that party. This draft contains provisions dealing with the efficacy of, and responsibility for, actions taken and accomplished through electronic devices in the absence of human intervention.

While this Act proceeds on the paradigm that an electronic device is capable of performing only within the technical strictures of its preset programming, it is conceivable that, within the useful life of this Act, electronic devices may be created with the ability to act autonomously, and not just automatically. That is, through developments in artificial intelligence, a computer may be able to "learn through experience, modify the instructions in their own programs, and even devise new instructions." Allen and Widdison, "Can Computers Make Contracts?" 9 Harv. J.L.&Tech 25 (Winter, 1996). If such developments occur, courts may construe the definition of electronic device accordingly, in order to recognize such new capabilities.

Section 303 and Section 401 make clear that the party that sets operations of an electronic device in motion will be bound by the records and signatures resulting from such operations. A party is bound by the actions of a computer program designed to act without human intervention, as well as electronic and automated means such as telecopy and facsimile machines used by a party.

6. "Electronic record." An electronic record is a subset of the broader defined term "record." Unlike the term "electronic message" used in Article 2B, the definition is not limited to records intended for communication, but extends to any information contained or transferred in an electronic medium. It is also used in this Act as a limiting definition in those provisions in which it is used.

Electronic means for creating, storing, generating, receiving or communicating electronic records include information processing systems, computer equipment and programs, electronic data interchange, electronic mail, or voice mail, facsimile, telex, telecopying, scanning, and similar technologies.

7. "Electronic signature." As with electronic record, this definition is a subset of the broader defined term "signature." The purpose of the separate definition is principally one of clarity in extending the definition of signature to the electronic environment.

The key aspect of this definition lies in the necessity that the electronic signature be linked or logically associated with the electronic record. For example, in the paper world, it is assumed that the symbol adopted by a party is attached to or located somewhere in the same paper that is intended to be authenticated. These tangible manifestations do not exist in the electronic environment, and accordingly, this definition expressly provides that the symbol must in some way be linked to, or associated with, the electronic record being signed. This linkage is consistent with the regulations promulgated by the Food and Drug Administration. 21 CFR Part 11 (March 20, 1997).

A digital signature using public key encryption technology would qualify as an electronic signature, as would the mere appellation of one's name at the end of an e-mail message - so long as in each case the signer executed or adopted the symbol and it identified the signer.

8. "Governmental agency." Although the approach to the Scope of this Act has been revised (See Notes to Section 103), this definition is important in the context of Part 5. The reference to legislative and judicial agencies, etc. has been bracketed for further discussion by the Drafting Committee, in light of comment from members of the Committee that these should not be included.

9. "Informational Content." This definition has been added to differentiate information in an electronic record, which includes all data forming part of an electronic record, with the informational content of an electronic record which is the portion of the electronic record intended actually to be used by a human being. An example from Article 2B establishing this distinction is the Westlaw user who uses the search program to retrieve a case. The search program would be information, but only the case retrieved would be informational content.

10. "Information processing system." This term is used in Section 402 regarding the time and place of receipt of an electronic record. It is somewhat broader than the Article 2B definition.

11. "Notify." As with the provisions on receipt in Section 402, a notice sent to a party must be in a proper format to permit the recipient to use and understand the information. For example, sending a message to a recipient in the United States in Chinese would not suffice to notify the recipient of the content of the message, in the absence of proof that the recipient understood Chinese. Similarly, sending a notice in WordPerfect 7.0 may not be appropriate when many people do not have the capability to convert from that format. In such a case, a more universal format such as ASCII would be required.

12. "Organization." This is the standard conference definition. It has been added because of its use in section 109.

13. "Record." This is the standard Conference formulation for this definition.

14. "Rule of Law." The definition is drafted broadly. It has been bracketed in recognition of the Style Committee's recommendation that it be deleted and the undefined term "law" be substituted. It has been retained for Drafting Committee consideration.

15. "Security procedure." Limiting security procedures to those which are either agreed to or knowingly adopted by parties or established by law eliminates much of the concern regarding the impact security procedures may have on unsophisticated parties. However, it was suggested at the Annual Meeting that the way in which a security procedure becomes applicable should be referenced in the substantive rule and not set forth as part of the definition. Accordingly, this clause has been bracketed gfor Committee consideration. DOES THE COMMITTEE AGREE THAT THE WAY IN WHICH THE SECURITY PROCEDURE BECOMES APPLICABLE SHOULD NOT BE IN THE DEFINITION?

The effect of unreasonable security procedures imposed by one party is addressed in Section 110. In such cases the party at risk is the party imposing the unreasonable procedure. In this way, the party with the greatest incentive to assess the risk of proceeding in a transaction with unreasonable procedures will bear the loss.

The key aspects of a security procedure have been expanded in this draft to include verification of an electronic signature in addition to verification of the identity of the sender, and assurance of the informational integrity, of an electronic record. The definition does not identify any particular technology. This permits the use of procedures which the parties select or which are established by law. It permits the greatest flexibility among the parties and allows for future technological development.

16. Signature." At the September Drafting Meeting, the consensus of the Committee and observers was to go back to the definition of signature, and to delete the definition of "authenticate." Given the purpose of this Act to equate electronic signatures with written signatures, the sense was that retaining signature as the operative word would better accomplish that purpose. However, the idea of fleshing out the concept of authenticate present in the existing UCC definition of signature was thought to be wise. Therefore, the definitional concepts set forth in the definition of authenticate in Article 2B were carried into this definition of signature.

At the April 1998 meeting a good deal of discussion related to the propriety of delineating the specific functions of a signature. The Committee deleted from Section 302 a provision establishing the specific effects of an electronic signature. The one critical aspect of a signature that was recognized was its purpose of identifying a person. Accordingly, the definition has been revised to reflect the principal function of a signature as an identifying mark. In addition, some volition must attach to application of a mark and this is noted by the requirement that the mark be "executed or adopted" by a person.

At the Annual Meeting it was suggested that an unrecorded statement over the phone might qualify as a signature under this broadened definition. In order to address this concern the definition now indicates that the symbol or sound must be "part of a record," which in turn requires inscription on a tangible medium. The effect of the signature is left to the underlying substantive law in light of the facts and circumstances. See Section 302. In short, the definition here reflects the bare minimum as to the function of a signature, with the substantive effect being treated in Section 302 and the substantive law underlying the transaction.

17. "Term." This definition has its principal significance in the context of manifestation of assent and opportunity to review. It is bracketed pending the Committee's determination of the status of those concepts in this Act.

18. "Transferable record." This definition is necessary in the event the Drafting Committee decides to retain the applicability of this Act to such records. See Section 405.

19. "Transaction." This is a new definition for the Committee's review. Comments have been raised by observers at prior meetings which were echoed at the annual meeting, that this term required definition. It is drafted as broadly as possible in order to encompass all interactions and relationships between two or more people which may give rise to electronic records.

20. "Writing." This definition reflects the current UCC definition.

SECTION 103. SCOPE. (a) Except as otherwise provided in Section 104 , this [Act] applies to electronic records and electronic signatures generated, stored, processed, communicated, or used for any purpose in that relate to any transaction.

(b)Principles of law and equity shall be used to supplement this [Act] except to the extent that those principles are [inconsistent with] [displaced by] the terms[, purposes and policies] of a particular provision of this [Act].

Source: Section 103 (Nov. 25, 1997 UETA Draft); Section 103 of Revised Draft of Article 1.

Committee Votes:

1. To delete references to commercial and governmental transactions - Committee 4 Yes - 3 No (Chair broke tie) Observers 19 Yes - 1 No (Jan. 1998).

2. To incorporate supplemental principles as part of Scope section - Committee Yes Unanimous Observers 12 Yes - 0 No (Jan. 1998).

3. To delete reference to supplemental principles (April 1998)

Reporter's Note:

1. The scope of the Act has been clarified by limiting its applicability to electronic records and adding electronic signatures. The underlying premise of this section is that this Act applies to all electronic records and signatures unless specifically excluded by the next Section.

2. At the May, 1997 meeting, the Drafting Committee expressed strong reservations about applying this Act to all writings and signatures, as is contemplated in the Illinois, Massachusetts and other models. These same reservations were again raised at the September Meeting. An attempt was made in the Nov. 1997 draft to address those concerns by limiting applicability of the Act to only those records and signatures arising in the context of a "commercial transaction" or "governmental transaction," as therein defined. However, the view of a majority of the committee and most observers was that defining the terms "commercial transactions" and "governmental transactions" was not possible with any degree of precision. Rather, a specific delineation of excluded transactions in the next section was considered preferable to an attempt to redefine commercial and governmental transactions.

3. Notwithstanding the apparent simplicity and clarity of this revised section, the Scope of this Act remains one of the most difficult aspects in the drafting of this Act. At the January meeting it was the view of many observers and members of the Committee, that the attempt to limit scope based on a definition of commercial and governmental transactions was unworkably vague, while at the same time being overly broad. In order to achieve clarity and precision, the committee narrowly voted to eliminate the restriction to commercial and governmental transactions. The approach now being taken is to delineate with specificity, in the next section, those transactions and types of transactions which will be excluded.

In order to identify the specific transactions and transaction types to be excluded, a Task Force comprised of a number of observers and the Chair and Reporter for the Committee was formed under the leadership of R. David Whittaker. This Task Force was charged with reviewing selected statutory compilations (Massachusetts and Illinois being two states where significant work had already been started) to determine the types of transactions requiring writings and manual signatures which should be excluded from the coverage of this Act.

4. The Task Force Report was completed at the end of September and has been circulated to the Drafting Committee. Section 104 sets forth specific exclusions and limitations to the coverage of this Act based on the Task Force Report.

SECTION 104. EXCLUDED TRANSACTIONS SCOPE - EXCLUSIONS AND LIMITATIONS.

(a) This [Act] does not apply to: the following transactions:

(1) Transactions governed by the Uniform Commercial Code as enacted in this state, except to the extent provided in Section 405;

(1) Rules of law governing the creation and execution of wills and codicils;

(2) Rules of law governing the creation and execution of personal trusts created and executed in connection with wills and codicils;

(3) A rule of law which expressly provides for the method and manner under which electronic records and electronic signatures may be used in satisfaction of the rule;

(4) [Other transactions identified by ETA Task Force on excluded transactions]; and

(5) Transactions specifically excluded by any governmental agency pursuant to under Part 5 of this [Act].

(b) In a statute, rule or regulation containing a rule of law described in subparagraph (a)(3), any express requirement elsewhere in that statute, rule or regulation that a record be in writing shall not be affected by this [Act] if the court determines that application of this [Act] would be contrary to the purpose of the requirement.

(c) Except as otherwise specifically provided in Subsection (d), this Act does not apply to a provision in a rule of law relating to a specific mode of delivery or display of information.

(d) If a rule of law requires a person to provide information in writing to another person that requirement is satisfied if the information is

(1) provided in an electronic record which is under the control of the person to which it is provided; and

(2) capable of retention for subsequent reference.

(e) A transaction subject to this [Act] is also subject to other applicable substantive rules of law, which substantive rules of law must be construed whenever reasonable as consistent with this [Act]. If such a construction is unreasonable the substantive rule of law governs. :

(1) [the Uniform Commercial Code]; and

(2) [OTHER].

(c) The provisions of this [Act] and a rule of law referenced in subsection (b) must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable a rule of law referenced in subsection (b) governs.

(b) This [Act] does not apply to any transaction which is subject to legislation enacted after the effective date of this [Act] which expressly provides that this [Act] shall not apply.

Source: New

Committee Vote: To delete "repugnancy" language, and provide that Act will apply except for specific exclusions. Committee 4 Yes - 1 No Observers 14 Yes - 1 No (with a number of abstentions)

Reporter's Note to this Draft: This section reflects the Committee's position that, unless excluded, this Act will apply to all electronic records and signatures used in any transaction. Subsection (a) sets forth specific areas of law/transaction types to which this Act will not apply. This listing was developed from the Report of the Task Force formed at the January, 1998 meeting to identify candidates for exclusion.

The most difficult area identified by the Task Force relates to the UCC revisions and other statutes where the use of electronic media was a conscious part of the drafting process. Subsection (b) is an attempt to deal with this problem. Subsection (b) can be viewed as a limited "repugnancy" provision. That is, in a statute which has specific provisions on electronic media, when the statute elsewhere provides for a writing, this Act will not apply upon an affirmative finding by the court that application of this Act would be contrary to the purpose of that writing requirement.

In the March, 1998 Draft, the Uniform Commercial Code had been included in subsection (a) as excluded from the operation of this Act. The reporter was directed to revise the section to allow the application of this Act to the Uniform Commercial Code except where the two acts conflict, in which case the UCC would apply. This approach is in accord with the charge from the Scope and Program Committee to draft a statute consistent, and not in conflict, with the UCC. This draft accomplishes this direction in a broader way consistent with the view of the Committee to allow underlying substantive law the greatest applicability possible.

SECTION 105. VARIATION BY AGREEMENT.

(ae) This [Act] does not require that records or signatures be generated, stored, sent, received, or otherwise processed or used by electronic means or in electronic form.

(ba) Except as otherwise provided in subsections (bc) and (dc), as between parties involved in generating, storing, sending, receiving, or otherwise processing or using electronic records or electronic signatures, the provisions of this [Act] may be varied by agreement.

(cb) The determination of commercial reasonableness in Section 109 may not be varied by agreement.

(dc) The effect of requiring an commercially unreasonable security procedure stated in Section 110 may not be varied by agreement.

[(ed) The presence in certain provisions of this [Act] of the words "unless otherwise agreed", or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under subsection (a).]

Source: UCC Section 1-102(3); Illinois Model Section 103.

Reporter's Note to this Draft. Former subsection (e) has been moved to the beginning of this Section because of its fundamental nature. Subsection (a) now makes clear that no person is required by this Act to use electronic media. This fundamental policy had been missed by some observers and commentators when it was at the end of this section.

Subsection (a) makes clear that this Act is intended to permit the use of electronic media, but does not require any person to use electronic media. For example, if Chrysler Corp. were to issue a recall of automobiles via its internet website, it would not be able to rely on this Act to validate that notice in the case of a person who never logged on to the website, or indeed, had no ability to do so. The provisions in Sections 201(c) and 301(c) permitting a person to establish reasonable forms for electronic records and signatures assumes a pre-existing relationship between parties to a transaction, in which one party places reasonable limits on the records and signatures, electronic or otherwise, which will be acceptable to it.

The only provisions of the Act which may not be disclaimed by agreement are those establishing the method and manner of determining the reasonableness of a security procedure, and determining the effect of an imposed agreement to be bound by the results of an unreasonable security procedure. Comments raised at the Annual Meeting regarding the need for organizational procedures in the nature of systems rules to be variable by agreement have been addressed in Section 109.

Reporter's Note:

1. Given the principal purpose of this Act to validate and effectuate the use of electronic media, it is important to preserve the ability of the parties to establish their own requirements concerning the method of generating, storing and communicating with each other. This Act affects substantive rules of contract law in very limited ways (See especially Part 4), by giving effect to actions done electronically. Even in those cases, the parties remain free to alter the timing and effect of their communications.

2. Subsection (e) has been bracketed for the Drafting Committee's consideration at its Fall meeting in light of the Style Committee's recommendation that the subsection be deleted.

SECTION 106. APPLICATION AND CONSTRUCTION. This [Act] must be liberally construed [liberally] and applied consistently with commercially reasonable practices under the circumstances and to promote its purposes and policies.

Source: UCC Section 1-102

Reporter's Note to this Draft. The idea that the Act should be construed "liberally" has been bracketed in light of comments at the Annual Meeting encouraging the deletion of this word.

Reporter's Note:

The following commentary, derived from the Illinois Electronic Commerce Security Act Section 102, has been moved from the text of Section 103 in the August Draft.

The purposes and policies of this Act are

a) to facilitate and promote commerce and governmental transactions by validating and authorizing the use of electronic records and electronic signatures;

b) to eliminate barriers to electronic commerce and governmental transactions resulting from uncertainties relating to writing and signature requirements;

c) to simplify, clarify and modernize the law governing commerce and governmental transactions through the use of electronic means;

d) to permit the continued expansion of commercial and governmental electronic practices through custom, usage and agreement of the parties;

e) to promote uniformity of the law among the states (and worldwide) relating to the use of electronic and similar technological means of effecting and performing commercial and governmental transactions;

f) to promote public confidence in the validity, integrity and reliability of electronic commerce and governmental transactions; and

g) to promote the development of the legal and business infrastructure necessary to implement electronic commerce and governmental transactions.

[SECTION 107. MANIFESTING ASSENT. In a transaction governed by this [Act], the following rules apply:

(a1) A person, acting in person, by its agent or through its electronic device, or electronic agent device manifests assent to a record or term if, acting with knowledge of, or after having an opportunity to review, the record or term it intentionally engages in conduct it knows or has reason to know will cause the other party to infer assent.:

(1A) signs the record or term; or

(2B) engages in affirmative conduct or operations that the record clearly provides, or the circumstances, including the terms of the record, clearly indicate, will constitute acceptance, and the person or electronic agent device had an opportunity to decline to engage in the conduct or operations.

(b2) Unless the substantive rules of law governing the transaction provide otherwise, mere retention of information or a record without objection is not a manifestation of assent.

(c3) If assent to a particular term is required by the substantive rules of law governing the transaction, a person, acting in person, by its agent or through its electronic device, or electronic agent device does not manifest assent to the term unless there was an opportunity to review the term and the manifestation of assent relates specifically to the term.

(d4) A manifestation of assent may be proved in any manner, including showing that a procedure existed by which a person, acting in person, by its agent or through its electronic device or an electronic agent device must have engaged in conduct or operations that manifested assent to the record or term in order to proceed further in the transaction.]

Source: Article 2B.

Reporter's Note to this Draft. This section remains under discussion by the Committee. It was criticized at the Annual Meeting for departing from established contract law. This draft has been revised to track the provisions of Section 19(2) of the Restatement 2d of Contracts which provides:

(2) The conduct of a party is not effective as a manifestation of assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.

In addition, the concern that an electronic device may manifest assent in its own right has been addressed by making clear that a person manifests assent, either in person, by a human agent or through an electronic device.

Reporter's Note: At the January, 1998 meeting express reference to manifestation of assent was removed from the substantive provisions of this Act where it had appeared. The section has been retained for further discussion in light of comment at the January meeting that it may be appropriate to retain the section as a procedural provision. The idea is to retain the concept in a way which indicates "how," in an electronic environment, parties may show manifestation of assent to a record or term. In light of the Committee's desire to leave the determination of what amounts to agreement to other, substantive law, it seems appropriate to establish a method outlining the manner in which parties can establish the "manifestation of mutual assent" referenced in Restatement 2d Contracts Section 3.

This section, together with the following section on "opportunity to review," provides a framework for the manner in which parties may establish agreement to a record or term when that agreement is undertaken electronically. Because of the nature of electronic media, it may well be the case that a party does not deal with a human being on the other side of a transaction.

In an electronic environment where computers are often pre-programmed and operate without human review of the operations in any particular, discreet transaction, it is not always the case that two humans have reached a "bargain in fact," i.e., a "meeting of the minds." Rather, the agreement is often the result of one party or its electronic device manifesting assent to terms or records presented to it on a "take it or leave it (i.e., exit)" basis, similar to the presentation of a standard form document in the paper environment.

The situations where parties participate in detailed negotiations leading to the formation of an integrated contract setting forth all the terms to which both parties have agreed are largely limited to transactions involving large amounts. Even outside the electronic environment, the use of pre-printed standard forms has supplanted detailed negotiations in many small amount transactions. Accordingly the concept of manifesting assent to a record or terms of a record has supplemented the notion of actual agreement in determining that to which the parties have agreed to be bound (See Restatement (Second) Contracts Section 211, UCC Section 2-207).

Even in an electronic environment it remains possible to negotiate to agreement. In such a case, if parties engage in e-mail correspondence which results in a classic offer and acceptance of the terms (and only the terms) set forth in the correspondence, the electronic signatures appended to the e-mail messages serve to authenticate the records and result in contract formation.

Contrasted with such a negotiated electronic contract is the situation where one calls up a provider on the Internet. The person determines to purchase the goods or services offered and is walked through a series of displayed buttons requesting the purchaser to agree to certain terms and conditions in order to obtain the goods and services. With each click on screen, the purchaser is indicating assent to that term in order to obtain the desired results. So long as the action of clicking in each case relates to a discreet term, or follows the full presentation of all terms, the actions of the purchaser can be said to clearly indicate assent to the terms available for review. As with the exchange of standard paper forms, there is no requirement that the terms be read before the on screen click occurs, so long as they were available to be read. Indeed, in such a scenario the problem of additional and conflicting terms which have so confused courts in the battle of the forms is not present.

A provision dealing with manifesting assent is particularly useful in the electronic environment where the real possibility of a contract being formed by two machines exists. The concept remains applicable in determining when a signature occurs and what the terms of an agreement are when contracts or signatures result from the operations of electronic devices, either between electronic devices or when interacting with a human.

[ SECTION 108. OPPORTUNITY TO REVIEW. A person or electronic agent device has an opportunity to review a record or term only if it the record or term is made available in a manner that:

(a1) would call it to the attention of a reasonable person and permit review; or

(b2) in the case of an electronic agent device, would enable a reasonably configured electronic agent device to react to it.]

Source: Article 2B.

Reporter's Note: See Reporter's Note to Section 107, Manifesting Assent, supra.

SECTION 109. DETERMINATION OF COMMERCIALLY REASONABLE SECURITY PROCEDURE.

(a) The commercial reasonableness of a security procedure is determined as a matter of law in light of the purposes of the procedure and the circumstances at the time the parties agreed to or adopted the procedure including the nature of the transaction, sophistication of the parties, volume of similar transactions engaged in by either or both of the parties, availability of alternatives offered to but rejected by a party, cost of alternative procedures, and procedures in general use for similar transactions.

(b) A security procedure established by law or regulation is commercially reasonable for the purposes for which it was established.

[(a) The commercial reasonableness of a security procedure is determined by the court as a matter of law.]

(b) In making a determination about determining the commercial reasonableness of a security procedure, the following rules apply:

(1) A security procedure established by law or regulation is commercially reasonable for the purposes for which it was established.

(2) A security procedure established by an organization for use in transactions among its members, or between other persons and the organization or its members is reasonable for the purposes for which it was established.

(32) Except as otherwise provided in subsection (b)paragraphs (1) and (2), commercial reasonableness is determined in light of the purposes of the procedure and the commercial circumstances at the time the parties agreed to or adopted the procedure, including the nature of the transaction, sophistication of the parties, volume of similar transactions engaged in by either or both of the parties, availability of alternatives offered to but rejected by a party, cost of alternative procedures, and procedures in general use for similar transactions.

(43) A commercially reasonable security procedure may require the use of any security devices measures that are reasonable under the circumstances.

Source: New

Reporter's Notes to this Draft. Subsection (a) has been bracketed for discussion in light of criticism of this provision at the Annual Meeting. Further, it would appear even more problematic considering that this draft has deleted the concept of commercial reasonableness in response to comments that the breadth of this Act goes beyond purely commercial transactions, and that the standard is now one of simple reasonableness.

New subparagraph (b)(2) is intended to address security procedures adopted as part of systems rules, to assure that the reasonableness of these procedures would not be subject to subsequent review as to reasonableness.

Reporter's Note: This section separates the issue of the reasonableness of a security procedure from the issue of the effect of an unreasonable security procedure in the next section. This permits exclusion of the terms of this section from the general rule under this draft that the terms of this Act may be varied by agreement (Section 105).

SECTION 110. EFFECT OF REQUIRING A COMMERCIALLY UNREASONABLE SECURITY PROCEDURE.

(a) If a person (the "requiring party") imposes requires, as a condition of entering into a transaction with another person, a requirement that the parties expressly agree to be bound by the results of use a security procedure which that is not commercially reasonable, the following rules apply:

(1) (A) If the other party reasonably relies to its detriment on an electronic record or electronic signature purporting to be that of the requiring party and;

(B) application of the security procedure verified

(i) the source of the electronic record or electronic signature; or

(ii) the integrity of the informational content of the electronic record,

the requiring party is estopped to may not deny the source, or informational integrity of the informational content, of the electronic record or authenticity of the electronic signature to which the security procedure was applied. ; and

(2) If the requiring party receives an electronic record or electronic signature purporting to be that of the other party, the requiring party will not be entitled to the benefit of any presumption which may arise under Sections 202, 203 or 302.

(2) If the requiring party relies on an electronic record or electronic signature purporting to be that of the other party, the other party retains the right to deny the source of the electronic record or electronic signature, or the integrity of the informational content of the electronic record.

(b) A person does not require impose a security procedure under subsection (a) if it makes commercially reasonable alternative security procedures available to the other person, together with information which enables the other person to make an informed selection from among the offered procedures.

(a) Subject to subsection (b) and Section 202, as between parties to a security procedure, a party that requires use of a security procedure that is not commercially reasonable is responsible for losses caused by reasonable reliance on the procedure in a transaction for which the procedure was required.

(b) The responsibility of the party that requires use of the commercially unreasonable security procedure is limited to losses in the nature of reliance and restitution. The party's responsibility does not allow a double recovery for the same loss and does not extend to:

(1) loss of expected benefit, including consequential damages;

(2) losses that could have been prevented by the exercise of reasonable care by the other party; or

(3) a loss, the risk of which was assumed by the other party.

(c) A person does not require a procedure under subsection (a) if it makes commercially reasonable alternative procedures available to the other person.

Source: New

Reporter's Note to this Draft. This provision addresses a very narrow range of transactions. This section only applies where the parties expressly agree to be bound by the results of the procedure. If one party requires the use of a particular procedure, whether reasonable or not, but the parties do not also expressly agree to be bound by the results of the procedure, this section is not applicable, and the proponent of the electronic record or signature will be required to establish the validity of the record/signature. In order to establish the validity, the proponent will need to show the efficacy of the security procedure.

If a vendor offers a procedure on its website, and the vendor receives an order purportedly originating with me, I remain entitled to challenge the vendor's claim that the order was my record/signature. The vendor's success in establishing that the record/signature is binding on me will derive from its ability to convince a trier of fact that its procedure was effective in establishing as more likely than not that the record/signature was mine. If, in addition, the vendor requires me to expressly agree to be bound by the results of the security procedure, that agreement would preclude me from challenging the claim that the record/signature was mine. This section preserves my ability to defend against the vendor's claim notwithstanding the agreement, if the security procedure is unreasonable.

Similarly, if the imposing party is the originator of the record, and I have detrimentally relied on the record because of the required security procedure, this section precludes the imposing party from asserting its defense to my claim which would otherwise be available.

Reporter's Note:

General Policy: This section is intended to impose liability and create strong disincentives for the imposition of security procedures which are not reasonable. This section is intended to apply only in the case where the requiring party is in a position to, and in fact does, require express agreement to the results of unreasonable security procedures. As noted in subsection (b), if the parties negotiate or jointly select a procedure, or have reasonable alternatives and sufficient knowledge about the alternatives which allows for an informed selection, this section would have no application. In such a case, or indeed in cases where no security procedure is used, resulting losses are allocated in accordance with the applicable substantive law outside this Act.

Structure.

The language in subsection (a) is intended to make clear that there must be knowledge on the part of the party upon whom the procedure is imposed that the imposer mandates the particular procedure. An imposition falling within this section requires agreement by both parties, with knowledge of the procedure, to be bound by the results of the procedure. Mere adoption of a procedure by using the procedure, without an express agreement to be bound by the results of the procedure would not trigger application of this section. In such a case, the offeror of the procedure would retain the burden to establish the record or signature, which would be very difficult in the absence of a sound security procedure. Finally, if the imposing party offers alternatives and information regarding the alternatives, there would actually be no imposition, and this section would not apply (Subsection(b)).

Where a person requires, as a condition of doing business, an express agreement to be bound to the results of a security procedure which cannot be shown to be reasonable, an imposition has occurred and losses resulting from the other party's detrimental reliance will be borne by the requiring person under this section. While preventing an imposing party from any benefits resulting from reliance on an unreasonable procedure, this section leaves to the underlying substantive law applicable to the particular transaction the actual determination of the type, amount and extent of recoverable losses. The following illustrations suggest the manner of the operation of this section.

The easy cases - The requiring party is the recipient of the record:

Illustration 1. General Motors requires all franchisees to agree that any order received electronically and bearing only the franchisee's E-mail address as an identifier shall be attributable to, and binding upon, the franchisee identified. Since the franchisees are required by GM to do business in this way and agree to be so bound, this procedure would be an "imposed" procedure under this section.

Illustration 2. Same facts as Illustration 1. Through no fault of franchisee, bad guy sends an electronic record, showing franchisee's E-mail as the identifier, ordering $100,000 of merchandise from GM to be shipped to the bad guy. The procedure would not be reasonable. If the underlying agreement as to the procedure were controlling, the franchisee would bear the loss, since the electronic record would be attributable to the franchisee. Since this is an imposed, unreasonable procedure, the franchisee retains the right to deny that it sent the electronic record. Since GM would likely not be able to prove otherwise, the $100,000 loss arising directly from the transaction would be suffered by GM .

Illustration 3. Same facts as Illustration 2. If the bad guy is an employee of the franchisee the result, in this case, should be no different. The procedure is so open that the franchisee would have to somehow "lock up" all its computers to deny the employee the ability to send an order on behalf of the franchisee. Unless GM could establish attribution in fact under Section 202 GM would bear the loss.

Illustration 4. Franchisee places a $100,000 order with GM. A bad guy hacks into GM's computer and learns of the order and the timing and method of shipment. The bad guy intercepts the shipment and steals it. While GM may be liable for negligence in the custody of its order records, this section is not applicable. Although there was an unreasonable procedure, the loss in this case was not caused by the laxity of the procedure. If GM is able to prove that the order came from the franchisee the loss would be determined under Article 2 or general contract principles.

The more difficult cases - The requiring party is the sender of the record:

Illustration 5. GM requires all of its suppliers to do business using only GM's e-mail address as the identifier. Bad guy sends an e-mail showing GM's address as the identifier ordering $50,000 of parts. Supplier reasonably relies on the e-mail and ships the goods. Bad guy intervenes and takes the goods. In Supplier's claim for payment, GM will not be allowed to deny that it sent the order. Without the ability to deny that the order was from GM, supplier may hold GM liable as though the contract had been formed, upon proof of supplier's performance, etc, under the substantive law of sales.

Illustration 6. Same procedure as in Illustration 5. GM actually sends order and supplier ships. As in Illustration 4, Bad guy learns of the shipment and intervenes and steals the shipment. Here the only question is risk of loss under applicable sales and contract law.

Illustration 7. In this case, GM has not required, as a condition of doing business, the use of any particular procedure. However, over a period of time, GM has placed and supplier has accepted purchase orders over open e-mail. Bad Guy sends a purchase order, purporting to be from GM, over open e-mail, and the supplier accepts and ships. This section does not apply. There has been no imposition by GM. Supplier is left to prove that the e-mail did come from GM, and upon failure to so prove, will bear any loss.

In a consumer context the general result will be that a vendor receiving an order will bear the risk that the order did not come from the purported sender. If a reasonable security procedure is used by the vendor, the consumer would likely adopt the procedure in order to complete the transaction and the vendor would be able to prove the efficacy of the security procedure in order to establish consumer was the source of the order and should be bound. If the security procedure was unreasonable, the vendor would likely be unable to establish consumer as the source of the record and would bear the loss. If in addition to adopting the procedure, the consumer was required to agree to be bound to the results of the unreasonable procedure, this section would preserve the consumer's ability to challenge the vendor's claims. The following are somewhat atypical illustrations:

Illustration 8. Buyer writes e-mail to internet vendor indicating that the only way it will place an order is through use of a particular security procedure. The vendor writes back agreeing to the procedure. The procedure proves unreasonable. In this case the buyer has imposed the procedure and will not be permitted to deny the source or content of the electronic record. The result will be that the vendor may be able to enforce the terms of the record received upon proof of its content and the vendor's compliance with other requirements under sales or contract law.

Illustration 9. Buyer logs on to an internet vendor. In placing the order it uses an unreasonable security procedure. Vendor has not agreed to the procedure but does adopt it by processing the order. This section does not apply. The parties are left to deny or prove up the resulting contract.

As indicated by the illustrations, the question of the extent of damage recovery by any party is left entirely to other law. The effect of an unreasonable procedure that is imposed by one party is simply to preclude or preserve rights of denial depending on the party imposing the procedure. The transaction is then proven or denied by other means and the resulting liability determined pursuant to other substantive law.

In the event that a transaction is accomplished without any security procedure, this Act, while validating the electronic records and signatures implemented in transactions falling within the Scope of this Act, does not address whether such records and signatures are otherwise legally binding or effective.

PART 2

ELECTRONIC RECORDS

SECTION 201. LEGAL RECOGNITION OF ELECTRONIC RECORDS.

(a) A record may not be denied legal effect, validity, or enforceability solely because it is an electronic record.

(b) If a rule of law requires a record to be in writing, or provides consequences if it is not, an electronic record satisfies the requirement that rule.

(c) In any transaction, a person may establish reasonable requirements regarding the type of records acceptable to it.

Source: Sections 201 and 202 from UETA August Draft; Uncitral Model Articles 5 and 6; Illinois Model Sections 201 and 202.

Reporter's Note:

1. Part 2 deals with those provisions relating to the validity, effect, and use of electronic records, Part 3 contains those sections dealing with the validity and effect of electronic signatures, and Part 4 reflects general contract provisions, and provisions dealing with the effect of both electronic records and electronic signatures. Under different provisions of substantive law the legal effect and enforceability of an electronic record may be separate from the issue of whether the record contains a signature. For example, where notice must be given as part of a contractual obligation, the effectiveness of the notice will turn on whether the party provided the notice regardless of whether the notice was signed. An electronic record attributed to a party under Section 202 would suffice in that case, notwithstanding that it may not contain a signature.

2. Subsection (a) establishes the fundamental premise of this Act: That the form in which a record is generated, presented, communicated or stored may not be the only reason to deny the record legal recognition. On the other hand, subsection (a) should not be interpreted as establishing the legal effectiveness, validity or enforceability of any given record. Where a rule of law requires that the record contain minimum substantive content, the legal effect, validity or enforceability will depend on whether the record meets the substantive requirements. However, the fact that the information is set forth in an electronic, as opposed to paper record, is irrelevant.

3. Sections 201(a), 301(a) and 401(c), each provide for the non-discrimination against electronic media in the context of records, signatures and contract formation, respectively. Though some questions have been raised regarding the redundancy of these sections, they have been retained for clarity and certainty in assuring the validation and effectuation of electronic resords and signatures.

4. Subsection (b) is a particularized application of Subsection (a). Its purpose is to validate and effectuate electronic records as the equivalent of writings, subject to all of the rules applicable to the efficacy of a writing, except as such other rules are modified by the more specific provisions of this Act.

Illustration 1: A sends the following e-mail to B: "I hereby offer to buy widgets from you, delivery next Tuesday. /s/ A." B responds with the following e-mail: "I accept your offer to buy widgets for delivery next Tuesday. /s/ B." The e-mails may not be denied effect solely because they are electronic. In addition, the e-mails do qualify as records under the Statute of Frauds. However, because there is no quantity stated in either record, the parties' agreement would be unenforceable under existing UCC Section 2-201(1).

Illustration 2: A sends the following e-mail to B: "I hereby offer to buy 100 widgets for $1000, delivery next Tuesday. /s/ A." B responds with the following e-mail: "I accept your offer to purchase 100 widgets for $1000, delivery next Tuesday. /s/ B." In this case the analysis is the same as in Illustration 1 except that here the records otherwise satisfy the requirements of UCC Section 2-201(1). The transaction may not be denied legal effect solely because there is not a pen and ink "writing."

The purpose of the Section is to validate electronic records in the face of legal requirements for paper writings. Where no legal requirement of a writing is implicated, electronic records are subject to the same proof issues as any other evidence.

5. Subsection (c) is a particularized application of Section 105, to make clear that parties retain control in determining the types of records to be used and accepted in any given transaction. For example, in the Chrysler recall hypothetical referred to in Note 2 to Section 105, although Chrysler cannot unilaterally require recall notices to be effective under this Act, it may indicate the method of recall in a purchase agreement with a customer. If the customer objects, the customer would have the right to establish reasonable requirements for such notices.

SECTION 202. ATTRIBUTION OF ELECTRONIC RECORD TO PERSON A PARTY.

(a) An electronic record is attributable to a person if:

(1) it was in fact the action of that the person, a person authorized by it, or the person's electronic agent device;

(2) the other another person, in good faith and acting in compliance conformity with a commercially reasonable security procedure for identifying the person to which the electronic record is sought to be attributed, reasonably concluded that it was the act of the other person, a person authorized by it, or the person's electronic agent device.

(b) Attribution of an electronic record to a person under subsection (a)(2) has the effect provided for by law, regulation or an the agreement regarding the security procedure. and, in the absence of terms about such effect, creates a presumption that the electronic record was that of the person to which it is attributed.

[(c) Even if an electronic record is not attributable to a person under subsection (a), a person ("responsible person") is liable for losses in the nature of reliance, if the losses occur because :

(1) the responsible person failed to exercise reasonable care;

(2) the other person ("relying person") reasonably relied on the belief that the responsible person was the source of the electronic record;

(3) that reliance resulted from acts of a third person that obtained access numbers, codes, computer programs, or the like, from a source under the control of the responsible person; and

(4) the use of the access numbers, codes, computer programs or the like created the appearance that the electronic record came from the responsible person.]

(a) An electronic record is attributable to a person if the electronic record resulted from the action of the person, acting in person, by its agent, or by its electronic device. Attribution may be proven in any manner, including by showing the efficacy of any security procedure applied to determine the person to whom the electronic record was attributable.

(b) Attribution of an electronic record to a person under subsection (a) has the effect provided for by law, regulation, or agreement regarding the security procedure.

Source: New - Alternative 1 originally derived from Article 2B.

Reporter's Note to this Draft. Alternative 1 is the provision as appeared in the Annual Meeting Draft. It is the result of the Committee's votes in April to remove presumptions in this Section. Subsection (a)2) is problematic since that subsection may have the effect of creating a conclusive presumption.

Alternative 2 is a revision which retains the idea of attribution, including attribution to a person acting through an agent or electronic device. It also indicates that the use of a security procedure will be an important aspect in establishing attribution. However, it does not set forth any rule of attribution under particular circumstances.

Reporter's Note: Alternative 1 sets forth rules establishing the circumstances under which a party will be bound by (be attributable for) an electronic record sent to another party.

Subsection (a)(1) relies on general agency law, including the use of electronic devices, to bind the sender. Subsection (a)(2) deals with attribution where security procedures are involved and properly implemented. Under subsection (a)(2) an electronic record will be attributed to the sender if the recipient complied, in good faith, with a commercially reasonable security procedure which confirmed the source of the electronic record. The legal effect and consequence of such attribution is left to other law or agreement under subsection (b).

SECTION 203. DETECTION OF CHANGES AND ERRORS. If the parties act in compliance conformity with a commercially reasonable security procedure[, established by law, regulation, or agreement,] to detect changes or errors in the informational content of an electronic record, between the parties, the following rules apply:

(a) An electronic record that the security procedure shows to have been unaltered since a specified point in time is presumed to have been unaltered since that time.

(b) An electronic record created or sent in accordance with the security procedure is presumed to have the informational content intended by the person creating or sending it as to portions of the informational content to which the security procedure applies.

(1c) If the a sender complied with has conformed to the security procedure, but the other party did has not, and the nonconforming party change or error would have been detected the change or error had the other that party also conformed complied with the security procedure, the sender is not bound by the change or error.

(2d) If the other party notifies the sender in a manner required by the security procedure that which describes the informational content of the record as received, the sender shall review the notification and report in a reasonable manner any change or error detected by it in a commercially reasonable manner. Failure so to so review and report any change or error binds the sender to the informational content of the record as received.

Source: New - Originally derived from Article 2B.

Reporter's Note to this Draft. No change from the Annual Meeting Draft has been made except the qualification that a security procedure must be established by law or agreement. This provision has been bracketed for removal from the definition of security procedure, and so is bracketed for inclusion here if necessary. No change has been made because the method of establishing informational integrity under this section relies on actions within the control of the parties.

Reporter's Note:

Like Section 202, this section allocates the risk of errors and changes in transmission to the party that could have best detected the error or change through the proper application and use of a security procedure. Again, since the parties will have agreed or adopted the security procedure, allocation of risk to the party that should have discovered the error, should not pose undue hardship or unfair surprise on the party bearing the loss.

SECTION 204. INADVERTENT ERROR. (a) In this section, "inadvertent error" means an error by an individual made in dealing with an electronic agent device of the another person party when if the electronic agent device of the other person party did not allow for the correction of the error.

(b) In an automated transaction involving an individual, the individual is not responsible for an electronic record that the individual did not intend but that which was caused by an inadvertent error if, on learning of the other person's party's reliance on the erroneous electronic record, the individual:

(1) in good faith promptly notifies the other person party of the error and that the individual did not intend the electronic record received by the other person party;

(2) takes reasonable steps, including steps that conform to the other person's party's reasonable instructions, to return to the other person party or, if instructed by the other person destroy the consideration received, if any, as a result of the erroneous electronic record; and

(3) has not used or received the benefit or value of the consideration, if any, received from the other person party.

Source: UETA Section 203(c-e)(Nov. 1997 Draft) - Originally derived from Article 2B Draft.

Reporter's Notes: Section 2B-117(c) of the November 1,1997 draft of Article 2B created a new, rather elaborate defense for consumers when errors occur. As currently drafted the defense relates to errors occurring because of system failures. Whether 2B-118 addresses human error (as in the single stroke error of concern to a number of observers at the September Meeting) could be clearer, although the recent draft and Illustration 2 to that section, suggest that what is termed "inadvertent error" here is covered. Because the allocation of losses under this draft turns on the use of security procedures and their commercial reasonableness and places the loss on the party choosing to rely on electronic records and electronic signatures, the distinction between consumers and merchants, and sophisticated and unsophisticated parties has been eliminated. Rather the burden is placed on the person consciously desiring the benefits of electronic media to assure that the level of security necessary exists.

However, this section attempts to address the issue of human error in the context of an automated transaction. The reason for attempting to address this issue is that inadvertent errors, such as a single keystroke error, do occur, and are difficult, if not impossible to retrieve, given the speed of electronic communications. However, the definition of "inadvertent error" would allow a vendor to provide an opportunity for the individual to confirm the information to be sent, in order to avoid the operation of this provision. By providing an opportunity to an individual to review and confirm the information initially sent, the other party can eliminate the possibility of the individual defending on the grounds of inadvertent error since the electronic device, through confirmation, allowed for correction of the error.

SECTION 205. ORIGINALS: ACCURACY OF INFORMATION.

(a) If a rule of law [or a commercial practice] requires a record to be presented or retained in its original form, or provides consequences if the record is not presented or retained in its original form, that requirement is met by an electronic record if [the electronic record is shown to reflect accurately] [there exists a reliable assurance as to the integrity of] the information set forth in the electronic record from the time after it was first generated in its final form, as an electronic record or otherwise.

(b) The integrity and accuracy of the information in an electronic record are determined by whether the information has remained complete and unaltered, apart from the addition of any endorsement and any change that arises arising in the normal course of communication, storage, and display. The standard of reliability required must be assessed in the light of the purpose for which the information was generated and in the light of all the relevant circumstances.

Source: Former Section 205 (UETA Aug. Draft); Uncitral Model Article 8; Illinois Model Section 204.

Reporter's Note: This section deals with the serviceability of electronic records as originals. As was noted at the May,1997 meeting, the concept of an original electronic document is problematic. For example, as I draft this Act the question may be asked what is the "original" draft. My answer would be that the "original" is either on a disc or my hard drive to which the document has been initially saved. Since I periodically save the draft as I am working, the fact is that at times I save first to disc then to hard drive, and at others vice versa. In such a case the "original" may change from the information on my disc to the information on my hard drive. Indeed, as I understand computer operations, it may be argued that the "original" exists solely in RAM and, in a sense, the original is destroyed when a "copy" is saved to a disc or to the hard drive. In any event, the concern focuses on the integrity of the information, and not with its "originality." Given the recognition of this problem, the title of the section has been expanded to reflect the concern regarding the informational integrity of an electronic record; integrity which is assumed to exist in the case of an original writing.

A second question raised at the May,1997 meeting related to when the law requires an "original." Except in the context of paper tokens such as documents of title and negotiable instruments, most requirements for "originals" derive from commercial practice where the assurance of informational integrity is a concern. The comment to Illinois Model Law Section 204 (derived largely from Uncitral Model Law Summary Paragraph 62) identifies some of these situations as follows:

The requirement that a document be "an original" occurs in a variety of contexts for a variety of reasons. Documents of title and negotiable instruments, for example, typically require the endorsement and presentation of an original. But in many other situations it is essential that documents be transmitted unchanged (i.e., in their "original" form), so that other parties, such as in international commerce, may have confidence in their contents. Examples of such documents that might require an "original" are trade documents such as weight certificates, agricultural certificates, quality/quantity certificates, inspection reports, insurance certificates, etc. Other non-business related documents which also typically require an original form include birth certificates and death certificates. When these documents exist on paper, they are usually only accepted if they are "original" to lessen the chance that they have been altered, which would be difficult to detect in copies.

Since requirements for "originals" are often the result of commercial practice and not an actual rule of law, the section includes the bracketed language regarding requirements derived from commercial practice. As a policy matter it is not at all clear that legislation should override established commercial practice. This provision remains bracketed as a question which must be resolved by the drafting committee.

So long as there exists reliable assurance that the electronic record accurately reproduces the information, this section continues the theme of establishing the functional equivalence of electronic and paper-based records. This is consistent with Fed.R.Evid. 1001(3) and Unif.R.Evid. 1001(3) (1974) which provide:

If data are stored in a computer or similar device, any printout or other output readable by sight, shown to reflect the data accurately, is an "original."

The bracketed alternatives for testing the reliability of the informational content of an electronic record have been retained for the drafting committee's consideration. At the May,1997 meeting concern was expressed that the "reasonable assurance" standard was too vague. The first alternative tracks the language in the rules of evidence and focuses on the accuracy of the information presented. The second alternative is the language appearing in Section 204 of the Illinois Model.

Another issue relates to the use of originals for evidentiary purposes. In this context the concern principally relates to the "best evidence" or "original document" rule. The use of electronic records in evidence is addressed in Section 404 and its notes.

SECTION 206. RETENTION OF ELECTRONIC RECORDS.

(a) If a rule of law requires that certain documents, records, or information be retained, that requirement is met by retaining an electronic records, if:

(1) the information contained in the electronic record remains accessible so as to be usable for subsequent later reference;

(2) the electronic record is retained in the format in which it was generated, stored, sent, or received, or in a format that can be demonstrated to reflect accurately the information as originally generated, stored, sent, or received; and

(3) the information, if any, is retained in a manner that enables the identification of the source of origin and destination of an electronic record and the date and time it was sent or received.

(b) A requirement to retain documents, records, or information in accordance with subsection (a) does not extend to any information the whose sole purpose of which is to enable the record to be sent or received.

(c) A person satisfies may satisfy the requirement referred to in subsection (a) by using the services of any other person, if the conditions set forth in subsection (a) are met.

(d) This section does not preclude any a federal or state agency from specifying additional requirements for the retention of records, either written or electronic, subject to the agency's jurisdiction.

Source: Uncitral Model Article 10; Illinois Model Section 206.

Reporter's Note: At the May,1997 meeting concern was expressed that retained records may become unavailable because the storage technology becomes obsolete and incapable of reproducing the information on the electronic record. Subsection (a)(1) addresses this concern by requiring that the information in the electronic record "remain" accessible, and subsection (a)(2) addresses the need to assure the integrity of the information when the format is updated or changed.

This section would permit parties to convert original written records to electronic records for retention so long as the requirements of subsection (a) are satisfied. Accordingly, in the absence of specific requirements to retain written records, written records may be destroyed once saved as electronic records satisfying the requirements of this section.

SECTION 301. LEGAL RECOGNITION OF ELECTRONIC SIGNATURES.

(a) A signature may not be denied legal effect, validity, or enforceability solely because it is an electronic signature.

(b) If a rule of law requires a signature, or provides consequences in the absence of a signature, that rule the requirement is satisfied with respect to an electronic record if the electronic record includes an electronic signature.

(c) In any transaction, a party may establish reasonable requirements regarding the method and type of signatures acceptable to it.

Source: Uncitral Model Article 7; Illinois Model Section 203(a); Oklahoma Model Section IV.

Reporter's Note:

1. Subsection (a) establishes the fundamental premise of this Act: That the form in which a signature is generated, presented, communicated or stored may not be the only reason to deny the signature legal recognition. On the other hand, subsection (a) should not be interpreted as establishing the legal effectiveness, validity or enforceability of any given signature. Where a rule of law requires that a record be signed with minimum substantive requirements (as with a notarization), the legal effect, validity or enforceability will depend on whether the signature meets the substantive requirements. However, the fact that a signature appears in an electronic, as opposed to paper record, is irrelevant.

2. Subsection (b) is a particularized application of Subsection (a). Its purpose is to validate and effectuate electronic signatures as the equivalent of pen and ink signatures, subject to all of the rules applicable to the efficacy and formality of a signature, except as such other rules are modified by the more specific provisions of this Act.

3. This section merely reiterates for clarity the rule that an electronic record containing an electronic signature satisfies legal requirements. The critical issue in either the signature or electronic signature context is what the signer intended by the execution, attachment or incorporation of the signature into the record. That question, under Section 302, is left to the underlying substantive law.

4. This section is technology neutral - it neither adopts nor prohibits any particular form of electronic signature. However, it only validates electronic signatures for purposes of applicable legal signing requirements and does not address the legal sufficiency, reliability or authenticity of any particular signature. As in the paper world, questions of the signer's intention and authority, as well as questions of fraud, are left to other law. The effect and proof of electronic signatures is addressed in the next Section.

5. As in Subsection 201(c), subsection (c) preserves the right of a party to establish reasonable requirements for the method and type of signatures which will be acceptable. Accordingly, and consistent with Section 105, a party may refuse to accept any electronic signature and of course establish the method and type of electronic signature which is acceptable.

SECTION 302. EFFECT OF ELECTRONIC SIGNATURES: EFFECT AND PROOF.

(a) Except as provided in subsection (b), the effect of an electronic signature shall be determined from the context and surrounding circumstances at the time of its execution or adoption.

(b) As between parties to an agreement, the following rules apply:

(1) An electronic signature shall have the effect provided in the agreement.

(2) An electronic record containing an electronic signature is signed as a matter of law if the electronic signature is verified in conformity with a commercially reasonable security procedure for the purpose of verification of electronic signatures.

(a) Unless the circumstances otherwise indicate that a party intends less than all of the effect, an electronic signature establishes

(1) the signing party's identity;

(2) its adoption and acceptance of a record or a term; and

(3) the integrity of the informational content of the record or term to which the electronic signature is attached or with which it is logically associated.

(b) If an electronic signature is executed or adopted in accordance with a commercially reasonable security procedure for validating electronic signatures, the following rules apply:

(1) the electronic signature is presumed to be authentic and authorized; and

(2) the electronic record to which the electronic signature is attached or with which it is logically associated is presumed to be signed by the person to whom the electronic signature correlates .

(c) An electronic signature not governed by subsection(b) may be proven in any manner, including by showing that a procedure existed by which the person or its electronic agent must have engaged in conduct or operations that signed the record or term in order to proceed further in the processing of the transaction.

(a) An electronic signature may be proven in any manner, including by showing that the electronic signature was signed in conformity with a security procedure for validating electronic signatures, or that a procedure existed by which the person, acting in person, by its agent, or by its electronic device, must have engaged in conduct or operations that signed the record or term in order to proceed further in the processing of the transaction.

(b) The effect of an electronic signature shall be determined from the context and surrounding circumstances at the time of its execution or adoption.

Source: New - Alternative 1 originally derived from Article 2B; Illinois Model Section 203.

Reporter's Note to this Draft. Alternative 1 reflects the provision as it appeared in the Annual Meeting Draft. Alternative 2 is a revision intended to remove the effect of an electronic signature verified by a security procedure. Instead, an electronic signature is proven in any reasonable manner, and it is likely that the efficacy of a security procedure will be critical in this proof. However, the effect of the signature is left to the context.

Reporter's Note:

1. An electronic signature is any identifying symbol or methodology executed or adopted by a person. This Act had included in the definition of signature the attributes normally associated with a pen and ink signature in order to make clear what a signer intends by signing a document, i.e., to identify oneself, adopt the terms of the signed record, and verify the integrity of the informational content of the record which is signed. At the April, 1998 meeting concern was expressed that these attributes were too exclusive because signatures may be used for other purposes as well. Consequently, the effect of the signature is left to agreement or other law.

2. Subsection (b)(2) provides that an electronic record is signed as a matter of law when a security procedure is used. However, this only establishes the fact of signature and not the effect to be given to an electronic signature.

SECTION 303. OPERATIONS OF ELECTRONIC AGENTS DEVICES.

(a) A person party that configures and enables designs, programs, or selects an electronic agent device is bound by operations of the its electronic agent device.

(b) A person party bound by the operations of an electronic device under subsection (a) An electronic record resulting from the operations of an electronic agent device is deemed to have been signed by the party designing, programming, or selecting an electronic record produced by the electronic agent device on its behalf, whether or not the operations result in the attachment or application of an electronic signature to the electronic record.

Source: UETA Section 303 (March, 1998 Draft) - Originally derived from Article 2B.

Reporter's Note:

1. This section extends signing to the electronic device, automated context. Its purpose is to establish that by programming an electronic device, a party assumes responsibility for electronic records and operations "executed" by the program. While the electronic device may or may not execute a symbol representing an electronic signature (i.e., with present human intent to authenticate the electronic record), the party programming the electronic device has indicated its authentication of records and operations produced by the electronic device within the parameters set by the programming. Accordingly, the party should be bound and deemed to have signed the records of the electronic device. gain, the effect of such a signature is left to other law or agreement under Section 302.

SECTION 304. NOTARIZATION AND ACKNOWLEDGMENT.

If a rule of law requires that a signature be notarized or acknowledged, or provides consequences in the absence of a notarization or acknowledgment, the requirement is satisfied with respect to an electronic signature if a security procedure was applied to the electronic signature which establishes by clear and convincing evidence the identity of the person signing the electronic record [and that the electronic record has not been altered since it was electronically signed].

Source: New

Reporter's Note: This provision has been added in response to the Task Force Report. The last clause has been bracketed because there is a question whether notarization and acknowledgment have the purpose of assuring content integrity.

SECTION 401. FORMATION AND VALIDITY.

(ab) In an automated transaction, the following rules apply:

(1) A contract may be formed by the interaction of electronic agents devices even if no individual was aware of or reviewed the electronic device's actions or the resulting terms and agreements. A contract is formed if the interaction results in the electronic agents' devices' engaging in operations that confirm the existence of a contract or indicate agreement, such as by engaging in performing the contract, ordering or instructing performance, accepting performance, or making a record of the existence of a contract.

(2) A contract may be formed by the interaction of an electronic agent device and an individual. A contract is formed by the such interaction if the individual performs actions that the individual knows or reasonably should know will cause the electronic agent device to complete the transaction or performance, or which are clearly indicated to be an as constituting acceptance, regardless of other expressions or actions by the individual to which the individual cannot reasonably expect the electronic agent device to react.

(3) The terms of a contract resulting from an automated transaction include:

(A) terms of the parties' agreement;

(B) terms that the electronic agent device could take into account; and

(C) to the extent not covered by subparagraph (A) or (B), terms provided by law.

(4) A person is bound by the terms and agreements resulting from the operations of its electronic agent even if no individual was aware of or reviewed the electronic agent's actions or the resulting terms and agreements.

(bc) If an electronic record initiated by a party or an electronic agent device evokes an electronic record in response and the electronic records reflect an intent to be bound, a contract is formed :

(1) when the response signifying acceptance is received; or

(2) if the response consists of electronically performing the requested consideration in whole or in part, when the requested consideration, to be performed electronically, is received, unless the originating initiating electronic record prohibited that form of response.

(ca) Unless otherwise agreed, if an electronic record is used in the formation of a contract, the a contract may not be denied legal effect, validity, or enforceability solely because an electronic record was used in its formation for that purpose.

Source: Article 2B Draft Section 2B-204; Uncitral Model Article 11.

Reporter's Note:

1. Subsection (a) addresses those transactions not involving human review by one or both parties and provides rules to expressly validate contract formation when electronic devices are involved. It sets forth the circumstances under which formation will occur in a fully automated transaction and under an automated transaction where one party is an individual.

2. Subsection (a)(2) addresses the circumstance of an individual dealing with an electronic device. This provision differs from the parellel provision of Article 2B-204.

As noted in a number of comments at the January, 1998 meeting, whether one knows that one is dealing with an electronic device should be irrelevant, so long as the individual proceeds with actions it knows or reasonably should know will result in accomplishment of the ends desired. Concerns previously expressed by observers that individuals may not know what contemporaneous statements made by the individual would be given effect because of the possibility of contemporaneous or subsequent human review, have been addressed by limiting those actions of the individual which may result in a contract to those which the individual would reasonably expect to result in a contract. This will provide the party employing an electronic device with an incentive to make clear the parameters of the device's ability to respond. If the party employing the electronic device provides such information, the individual's act of proceeding on the basis of contemporaneous actions or expressions not within the parameters of the device would be unreasonable and such actions and expressions could not be the basis for contract formation.

3. Finally, subsection (b) deals with timing in the formation of a contract by electronic means. Subsection (b)(2) makes clear that acceptance by performance, either in whole or in part, when the performance is electronic, occurs on receipt. When acceptance of an offer by performance occurs other than electronically (e.g. by the shipment of product), acceptance is governed by other rules of law such as the UCC and common law. As to timing of receipt see section 402.

4. Subsection (c) makes clear that the use of electronic records, e.g., offer and acceptance, in the context of contract formation may not be the sole ground for denying validity to the contract. It is another particularized application of the general rules stated in Sections 201(a) and 301(a). At the request of one member of the Drafting Committee, the introductory clause has been added to confirm that the use of electronic records in this context may be avoided by agreement of the parties.

SECTION 402. TIME AND PLACE OF SENDING AND RECEIPT.

(a) Unless otherwise agreed between the sender and the recipient, an electronic record is sent when it enters an information processing system outside the control of the sender or of a person that sent the electronic record on behalf of the sender.

(b) Unless otherwise agreed between the sender and the recipient, an electronic record is received when the electronic record enters an information processing system from which the recipient is able to retrieve electronic records, in a form capable of being processed by that system, and if the recipient uses or has designated that system for the purpose of receiving such an electronic records or information. An electronic record is also received when the recipient learns of its content acquires knowledge of it.

(c) Subsection (b) applies even if the place where the information processing system is located is different from the place where the electronic record is considered to be received under subsection (d).

(d) Unless otherwise agreed between the sender and the recipient, an electronic record is deemed to be sent from where the sender's has its place of business and is deemed to be received where at the recipient's has its place of business. For the purposes of this subsection, the following rules apply:

(1) iIf the sender or recipient has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction or, if there is no underlying transaction, the principal place of business.; and

(2) iIf the sender or the recipient does not have a place of business, the place of business is the recipient's habitual residence.

(e) Subject to Section 403, an electronic record is effective when received, even if no individual is aware of its receipt.

Source: Uncitral Model Article 15.

Reporter's Note:

1. This section provides default rules regarding when an electronic record is sent and when and where an electronic record is received. As with acknowledgments of receipt under Section 403, this section does not address the efficacy of the record that is received. That is, whether a record is unintelligible or unusable by a recipient is a separate issue from whether that record was received.

2. Subsection (b) provides simply that when a record enters the system which the recipient has designated or uses and to which it has access, in a form capable of being processed by that system, it is received. Unless the parties have agreed otherwise, entry into any system to which the recipient has access will suffice. By keying receipt to a system which is accessible by the recipient, the issue of leaving messages with a server or other service is removed. However, the issue of how the sender proves the time of receipt is not resolved by this section. The last sentence provides the ultimate fallback by providing that in all events a record is received when the recipient has knowledge of it.

3. Subsections (c) and (d) provide default rules for determining where a record will be considered to have been received. The focus is on the place of business of the recipient and not the physical location of the information processing system. As noted in paragraph 100 of the commentary to the Uncitral Model Law

It is not uncommon for users of electronic commerce to communicate from one State to another without knowing the location of information systems through which communication is operated. In addition, the location of certain communication systems may change without either of the parties being aware of the change.

Accordingly, where the place of sending or receipt is an issue, the relevant location should be the location of the sender or recipient and not the location of the information processing system.

4. Subsection (e) rejects the mailbox rule and provides that electronic records are effective on receipt. This approach is consistent with Article 4A and, as to electronic records, Article 2B.

SECTION 403. ELECTRONIC ACKNOWLEDGMENT OF RECEIPT.

(a) If the sender of a record requests or agrees with the recipient of the record that receipt of the record must be acknowledged electronically, the following rules apply:

(1) If the sender indicates in the record or otherwise that the record is conditional on receipt of an electronic acknowledgment, the record does not bind the sender until acknowledgment is received, and the record is no longer effective if acknowledgment is not received within a reasonable time after the record was sent.

(2) If the sender does not indicate that the record is conditional on electronic acknowledgment, and does not specify a time for receipt, and electronic acknowledgment is not received within a reasonable time after the record is sent, the sender, upon notifying the other party, may:

(A) treat the record as being no longer effective; or

(B) specify a further reasonable time within which electronic acknowledgment must be received and, if acknowledgment is not received within that time, treat the record as being no longer effective.

(3) If the sender specifies a time for receipt and receipt does not occur within that time, the sender may treat the record as no longer being effective .

(b) Receipt of electronic acknowledgment creates a presumption establishes that the record was received but, in itself, does not establish that the content sent corresponds to the content received.

Source: Uncitral Model Article 14; Article 2B.

Reporter's Note: This section deals with functional acknowledgments as described in the ABA Model Trading Partner Agreement. The purpose of such functional acknowledgments is to confirm receipt, and not necessarily to result in legal consequences flowing from the acknowledgment.

Subsection (a) permits the sender of a record to be the master of its communication by requesting or requiring acknowledgment of receipt. The subsection then sets out default rules for the effect of the original message under different circumstances.

As noted in subsection (b) the only effect of a functional acknowledgment is to establish receipt. The acknowledgment alone does not affect questions regarding the binding effect of the acknowledgment nor the content, accuracy, time of receipt or other issues regarding the legal efficacy of the record or acknowledgment.

SECTION 404. ADMISSIBILITY INTO EVIDENCE.

(a) In any legal proceeding, the rules of evidence may not be applied to deny the admissibility in evidence of an electronic record or electronic signature may not be excluded:

(1) on the sole ground that it is an electronic record or electronic signature; or

(2) on the ground that it is not in its original form or is not an original.

(b) In assessing the evidentiary weight of an electronic record or electronic signature, the trier of fact shall consider the manner in which the electronic record or electronic signature was generated, stored, communicated, or retrieved, the reliability of the manner in which the integrity of the electronic record or electronic signature was maintained, the manner in which its originator was identified or the electronic record was signed, and any other relevant circumstances.

Source: UETA Section 206 (August Draft); Uncitral Model Article 9; Illinois Model Section 205.

Reporter's Note: Like sections 201(a) and 301(a), subsection (a)(1) prevents the nonrecognition of electronic records and signatures solely on the ground of the media in which information is presented. Subsection (a)(2) also precludes inadmissibility on the ground an electronic record is not an original.

Nothing in this section relieves a party from establishing the necessary foundation for the admission of an electronic record. Subsection (b) gives guidance to the trier of fact in according weight to otherwise admissible electronic evidence.

SECTION 405. TRANSFERABLE RECORDS. If the identity of the person entitled to enforce a transferable record can be reliably determined from the record itself or from a method employed for recording, registering, or otherwise evidencing the transfer of interests in such records, the person entitled to enforce the record is deemed to be in possession of the record.

Source: Oklahoma Model Section III.B.2.

Reporter's Note: This section has been retained for discussion by the Drafting Committee on whether such documents should be covered by this Act.

The key to this section is to create a means by which a "holder" may be considered to be in possession of an intangible electronic record. If technological advances result in an ability to identify a single "rightful holder" of a negotiable instrument electronic equivalent, the last hurdle to holder in due course status would be possession, which this section would provide.

SECTION 501. CREATION AND RETENTION OF ELECTRONIC RECORDS AND CONVERSION OF WRITTEN RECORDS BY GOVERNMENTAL AGENCIES.

[Unless expressly prohibited by statute, each] [Each] governmental agency shall determine if, and the extent to which, it will create and retain electronic records instead of written records and convert written records to electronic records. [The [designated state officer] shall adopt rules governing the disposition of written records after conversion to electronic records.]

Source: Massachusetts Electronic Records and Signatures Act Section 3 (Draft - November 4, 1997)

Reporter's Note: See Notes following Section 504.

SECTION 502. RECEIPT AND DISTRIBUTION OF ELECTRONIC RECORDS BY GOVERNMENTAL AGENCIES.

(a) [Except where as expressly prohibited by statute each] [Each] governmental agency shall determine whether if, and the extent to which, it will send and receive electronic records and electronic signatures to and from other persons, and otherwise create, use, store, and rely upon electronic records and electronic signatures.

(b) In any case governed by subsection (a), the governmental agency, by appropriate regulation giving due consideration to security, [may] [shall] specify:

(1) the manner and format in which the electronic records must be created, sent, received, and stored;

(2) if electronic records must be electronically signed, the type of electronic signature required, and the manner and format in which the electronic signature must be affixed to the electronic record, and the identity of, or criteria that must be met by, any third party used by a person filing a document to facilitate the process;

(3) control processes and procedures as appropriate to ensure adequate integrity, security, confidentiality, and auditability of electronic records; and

(4) any other required attributes for electronic records which are currently specified for corresponding non-electronic records, or reasonably necessary under the circumstances.

(c) All regulations adopted by a governmental agency shall must conform to the applicable requirements established by [designated state officer] pursuant to Section 503.

(d) This [Act] does not require any governmental agency to use or permit the use of electronic records or electronic signatures.

Source: Illinois Model Section 801; Florida Electronic Signature Act, Chapter 96-324, Section 7 (1996).

Reporter's Note: See Notes following Section 504.

SECTION 503. [DESIGNATED STATE OFFICER] TO ADOPT STATE STANDARDS. The [designated state officer] may adopt regulations setting forth rules, standards, procedures, and policies for the use of electronic records and electronic signatures by governmental agencies. Where If appropriate, such those regulations shall must specify differing levels of standards from which implementing governmental agencies can may choose in implementing the most appropriate standard for a particular application.

Source: Illinois Model Section 802(a).

Reporter's Note: See Notes following Section 504.

SECTION 504. INTEROPERABILITY. To the extent practicable under the circumstances, regulations adopted by [designated state officer] or a governmental agency relating to the use of electronic records or electronic signatures shall must be drafted in a manner designed to encourage and promote consistency and interoperability with similar requirements adopted by governmental agencies of other States and the federal government.

Source: Illinois Model Section 803.

Reporter's Notes to Part 5. This Part addresses the expanded scope of this Act.

1. Section 501 is derived from former subsection 501(a) and authorizes state agencies to use electronic records and electronic signatures generally for intra-governmental purposes, and to convert written records and manual signatures to electronic records and electronic signatures. By its terms it leaves the decision to use electronic records or convert written records and signatures to the governmental agency. It also authorizes the destruction of written records after conversion to electronic form. In this regard, the bracketed language requires the appropriate state officer to issue regulations governing such conversions.

2. Section 502 covers substantially the same subject as former section 501(b). It has been revised along the model of the pending Illinois legislation and broadly authorizes state agencies to send and receive electronic records and signatures in dealing with non-governmental persons. Again, the provision is permissive and not obligatory (see subsection (d)).

2. Subsection 502(c) requires governmental agencies, in adopting regulations for the use of electronic records and signatures to conform to standards established by the designated state officer under Section 503. The question here is whether the state agencies should be required, or merely permitted, to promulgate such regulations before accepting electronic records?

3. Section 503 authorizes a designated state officer to promulgate standards and regulations for the use of electronic media. The idea in this case is that a central authority should adopt broad standards and regulations which can be tailored consistently by individual governmental agencies to meet the needs of the particular agency. Should the task of promulgating regulations be left with the secretary of state or other central authority?

4. Section 504 requires regulating authorities to take account of consistency in applications and interoperability to the extent practicable when promulgating regulation. This section is critical in addressing the concerns of many at our meetings that inconsistent applications may promote barriers greater than currently exist.

SECTION 601. SEVERABILITY CLAUSE. If any provision of this [Act], or an its application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the this [Act] which that can be given effect without the invalid provision or application, and to this end the provisions of this [Act] are severable.

Source: Article 1 Draft Section 1-106.

SECTION 602. EFFECTIVE DATE. This [Act] takes effect....

Source:

SECTION 603. SAVINGS AND TRANSITIONAL PROVISIONS.

Source: