Functional Equivalent of Electronic Signatures and Notices – Excerpt from 29-page legal analysis by Locke Lord Bissell and Liddell LLP (with the full analysis is available from RPost).
A core principle of the state-based Uniform Electronic Transaction Act (UETA) is that “the medium in which a record, signature, or contract is created, presented or retained does not affect its legal significance.” Specifically, pursuant to Section 7 of UETA, a “record or signature may not be denied legal effect or enforceability solely because it is in electronic form.” Under UETA, if a law requires a record to be in writing, an electronic record satisfies that law. Therefore, if a sender needs to deliver a document to a third party, the sender may rely on a document delivered electronically (unless such reliance or delivery is specifically prohibited by an applicable law other than UETA as described in the following paragraph).
UETA also recognizes that otherwise applicable law may impose additional requirements that must still be satisfied even if the record is sent electronically. Under Section 8 of UETA, if the “parties have agreed to conduct a transaction by electronic means and a law requires a person to provide, send, or deliver information in writing to another person, the requirement is satisfied if the information is provided, sent, or delivered, as the case may be, in an electronic record capable of retention by the recipient at the time of receipt.” An electronic record is not capable of retention by the recipient if the sender or its information processing system prevents or inhibits the recipient’s ability to store or print the electronic record. Accordingly, if a notice or record is sent electronically, a law requiring the delivery of that information in writing will only be satisfied if the recipient can print or store such electronic record.
Furthermore, if another law other than UETA requires a record to be posted or displayed in a certain manner, to be sent, communicated or transmitted by a specific method or to contain information formatted in a certain manner, the electronic record must satisfy those requirements by being in the requisite format or sent in the designated manner. For example, if a document must contain 20-point bold type, the electronic record must also contain such type. In this regard, RPost’s use of HTML, PDF and Digital Seal® technologies to preserve original formats and its use of common formats in its Registered Receipt™ and Authentication Receipt™ can be helpful in meeting the requirements of such laws other than UETA. If the law requires that the notice be delivered by overnight carrier, the notice must be delivered in such manner.
Parties to a transaction governed by UETA may not as a rule vary the requirements of Section 8 of UETA by agreement, but may agree to electronic delivery if a requirement of law other than UETA requires the sender to “send, communicate, or transmit a record by [first-class mail, postage prepaid][regular United States mail],” if such law permits such an agreement.
Therefore, under UETA, electronic signatures and electronic notices can serve as functional equivalents to “wet ink” signatures, certified mail, registered mail, facsimiles and similar types of notices that are traditionally delivered in paper unless an applicable law other than UETA prohibits such use.
Except as noted otherwise, the analysis under the Electronic Signatures in Global and National Commerce Act (ESIGN, the federal statute) and of UETA, which all but four (4) states have adopted, are essentially the same. To the extent that states that have adopted electronic signature laws inconsistent with UETA (or no electronic signature laws), such state laws are preempted by ESIGN’s broad preemption provisions. For those states that have enacted a version of UETA, that state’s enactment will govern, except as otherwise noted in ESIGN. As discussed in detail below, one of the most significant areas where ESIGN continues to apply even in those states that have enacted a pristine version of UETA is in the area of consumer disclosures. It is ESIGN that requires special steps to be taken to provide certain consumer disclosures exclusively via electronic means.
ESIGN similarly recognizes that an electronic signature can be as legally effective as a signature applied in wet ink on paper. ESIGN does not give electronic signatures a special status in the law. Rather, ESIGN states that a signature may not be denied legal effect solely because it is in electronic form. The foundational provision of ESIGN acknowledging electronic signatures provides:
(a) In General.–Notwithstanding any statute, regulation, or other rule of law (other than this title and title II), with respect to any transaction in or affecting interstate or foreign commerce-
(1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.
ESIGN, like UETA, gives equal recognition to electronic signatures and electronic records, with the few exceptions mentioned below. The general permissibility of use of electronic signatures and records is, however, limited by ESIGN Section 103, which does not permit the use of electronic notices in the following circumstances:
any notice of cancellation or termination of utility services (including heat, water and power);
notice of default, acceleration, repossession, forfeiture, or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual; notice of the cancellation or termination of health insurance or benefits (excluding annuities); notice of recall of a product, or material failure of a product, that risks endangering health or safety; or any document required to accompany any transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials.
Furthermore, Section 101 of ESIGN, which permits the use of electronic records or signatures, will not apply to a contract or other record if its governed by law relating to the creation and execution of wills, codicils or testamentary trust, certain areas of family law and the Uniform Commercial Code other than Sections 1-107 and 1-206 and Articles 2 and 2A.
ESIGN provides that Consumer Disclosures may be delivered exclusively electronically, provided, however, that the recipient of the Consumer Disclosure is first provided, and agrees, to the ESIGN Consent. Whether a particular transaction requires a Consumer Disclosure, and how the ESIGN Consent is delivered in connection with the required Consumer Disclosure, are determined on a transaction-by-transaction basis.
ESIGN, but not UETA, prescribes special rules for the delivery through electronic means of a Consumer Disclosure required to be made in writing under another federal or state law in a transaction. An example of a Consumer Disclosure required in the context of the sale of a life insurance policy is a life insurance replacement notice that an insurance company or agent must deliver to a consumer before selling a new life insurance policy. ESIGN’s Consumer Disclosure provision states that:
If a statute, regulation, or other rule of law requires that information relating to a transaction or transactions in or affecting interstate or foreign commerce be provided or made available to a consumer in writing, the use of an electronic record to provide or make available (whichever is required) such information satisfies the requirement that such information be in writing if–
(A) the consumer has affirmatively consented to such use and has not withdrawn such consent;
(B) the consumer, prior to consenting, is provided with a clear and conspicuous statement–
- informing the consumer of (I) any right or option of the consumer to have the record provided or made available on paper or in non-electronic form, and (II) the right of the consumer to withdraw the consent to have the record provided or made available in an electronic form and of any conditions, consequences (which may include termination of the parties’ relationship), or fees in the event of such withdrawal;
- informing the consumer of whether the consent applies (I) only to the particular transaction which gave rise to the obligation to provide the record, or (II) to identified categories of records that may be provided or made available during the course of the parties’ relationship;
- describing the procedures the consumer must use to withdraw consent as provided in clause (i) and to update information needed to contact the consumer electronically; and
- informing the consumer (I) how, after the consent, the consumer may, upon request, obtain a paper copy of an electronic record, and (II) whether any fee will be charged for such copy;
(C) the consumer–
- prior to consenting, is provided with a statement of the hardware and software requirements for access to and retention of the electronic records; and
- consents electronically, or confirms his or her consent electronically, in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent; and
(D) after the consent of a consumer in accordance with subparagraph (A), if a change in the hardware or software requirements needed to access or retain electronic records creates a material risk that the consumer will not be able to access or retain a subsequent electronic record that was the subject of the consent, the person providing the electronic record–
- provides the consumer with a statement of (I) the revised hardware and software requirements for access to and retention of the electronic records, and (II) the right to withdraw consent without the imposition of any fees for such withdrawal and without the imposition of any condition or consequence that was not disclosed under subparagraph (B)(i); and
- again complies with subparagraph (C).
Consumer’s Consent to Electronic Delivery- How. The recipient’s affirmative consent to the Consumer Disclosure must exhibit the recipient’s ability to access the Consumer Disclosures in the form they will be provided. For example, if the required disclosures (the replacement notice for example) were to be posted at a secure web site accessible only after the recipient is given a unique access code, ESIGN requires that the recipient be given that unique access code during the Consumer Disclosure process and then confirm that the unique access code in fact allowed the recipient to access the secure site where such required disclosures will be posted. If how the recipient consents to receive disclosures electronically does not demonstrate that the recipient actually accessed that secure web site, then the Consumer Disclosure is likely to be ineffective and therefore the basis for providing the required disclosures exclusively by electronic means fails. If the statutorily required Consumer Disclosures (such as the replacement notice) were to be provided by e-mail in an html format (to permit more graphics and various font sizes to emphasize provisions as may be required by the disclosure laws), then the Consumer Disclosure should be e-mailed to the recipient using an html formatted notice, in a manner that reasonably allows the sender to validate or the recipient to confirm receipt. Likewise, if the recipient is going to be provided the required disclosures only in a PDF format as attachments to an e-mail, the Consumer Disclosure would be required to prompt the recipient to confirm that he or she was able to receive, open and save the PDF documents.
Failure to Comply with the ESIGN Consumer Disclosure Requirements. Failure to comply with the ESIGN Consumer Disclosure requirements does not render void or voidable the underlying transaction (the application for insurance or the insurance policy ultimately issued). ESIGN provides:
(3) Effect of failure to obtain electronic consent or confirmation of consent.–The legal effectiveness, validity, or enforceability of any contract executed by a consumer shall not be denied solely because of the failure to obtain electronic consent or confirmation of consent by that consumer in accordance with paragraph (1)(C)(ii).
Failure to comply with the ESIGN Consumer Disclosure requirements could, however, subject the sender to regulatory sanctions for failing to provide the required disclosures (such as the replacement notice) in accordance with applicable law. There may also be civil remedies available to recipients if the disclosures are deemed to have not been given effectively.
We believe that the Consumer Disclosure requirements of ESIGN likely survive the reverse preemption by UETA of ESIGN in the forty-six (46) states in which UETA applies.
Only a limited subset of documents sent as e-mails or their attachments are Consumer Disclosures subject to the ESIGN disclosure requirements above. Moreover, we understand that many of RPost’s clients obtain consumer consent to the form of electronic delivery prior to using Registered E-mail™ services to deliver disclosures under ESIGN.
Therefore, under ESIGN, RMail®, RSign®, and Registered Email™ electronic signatures and electronic notices can serve as functional equivalents to “wet ink” signatures, certified mail, registered mail, facsimiles and similar types of notices that are traditionally delivered in paper unless a law other than ESIGN prohibits such use or if otherwise excluded from the scope of ESIGN, and subject to the consumer disclosure requirement of ESIGN.