Joe Morford

Monday, 22 July 2002 09:35

E-contracts

Perhaps your business has enjoyed significant cost savings from participating in an online business-to-business marketplace.

Perhaps your company Web site has become a significant distribution channel, boosting corporate revenue. Perhaps you went online and bought a book for summer vacation.

Chances are, you or your business have done one or more of the above. If not, you will. The Internet and e-commerce are here to stay. Yet, have you ever considered the legal status of the e-contracts you've entered into?

Are they enforceable? Do statutes and laws apply beyond traditional contract law? Does an e-contract comply with the writing requirement of the Statute of Frauds?

This fall, two new laws became effective, marking the first legislative steps toward reducing the uncertainty surrounding e-contracts. These laws will permit businesses to more confidently enter into such agreements and realize the cost savings possible with e-commerce.

UETA

On Sept. 14, sections 1306.01 to 1306.23 of the Ohio Revised Code became effective, enacting in Ohio the Uniform Electronic Transactions Act (UETA).

UETA, drafted and approved in July 1999 by the National Conference of Commissioners on Uniform State Laws, essentially provides that a contract cannot be found unenforceable solely because it is electronic in form. It gives e-contracts the same legal status as traditional written contracts.

UETA also validates electronic signatures so long as they can be identified as belonging to a particular person and representing an affirmative act of that person. Simple examples include a contracting party clicking an "I agree" button or entering a password.

So far, 22 states have adopted the UETA.

E-Sign

On Oct. 1, the Electronic Signatures in Global and National Commerce Act (E-Sign) became law.

E-Sign is the federal government's effort to place e-contracts on equal footing to their written counterparts. E-Sign covers only commercial transactions, such as those for the sale of goods, and is an important first step toward accommodating our legal system to the reality of e-commerce.

While UETA and E-Sign are similar and complimentary, UETA is more comprehensive. For example, UETA covers how to attribute a person's electronic signature to them, how parties can enter into agreements concerning their use of e-contracts, how to determine whether an e-contract has been sent or received, the impact of mistakes made by a party in dealing with an electronic agent, the effect of the failure to use an agreed-to security procedure and the admissibility of electronic records.

E-Sign is silent on these issues.

The impact on e-commerce

UETA and E-Sign are the first steps in attempting to bring uniformity to the enforcement of e-contracts.

The globalization of commerce brought about by the Internet will surely require further legislative action, and an international accord or treaty is not unlikely. While logic dictates that e-contracts be afforded the same protection as traditional written contracts, the international platform of e-commerce requires further effort. E-Sign recognizes this by stating that it is merely an interim solution.

In the meantime, companies should analyze the language contained in their e-contracts to be certain they are affording themselves the full protection of these laws. Parties entering into e-contracts should specifically state in the body of their e-contracts that they expect them to be enforced, and should consider including a choice of law provision selecting as the e-contract's controlling law that of a state, like Ohio, that has enacted UETA.

While more legislative action will surely follow, these first acts are positive steps toward building the certainty, uniformity and confidence required to fuel the international e-commerce engine.

Joe Morford is an attorney at Arter & Hadden LLP and a member of the E-Group. The E-Group is a multidisciplinary group of attorneys which focuses its practice on entrepreneurs, Internet, e-commerce and emerging growth companies. He can be reached at (216) 696-1100.