|
ARTICLE:
Contracts in Cyberspace
by JOHN
V. LITTLE
General. With the rapid emergence of cyberspace[1],
contracts in Virginia are no longer either written or oral,
but are sometimes electronic. An important issue in electronic
contract transactions is whether electronic signatures and
records will satisfy the laws which require a written and
signed agreement in some instances. In Virginia (and elsewhere),
the law relating to the formation of online contracts is still
largely unsettled. The 2000 Virginia General Assembly, however,
adopted the Uniform Electronic Transactions Act (UETA)[2]
which establishes the legal equivalence of electronic records
and signatures with paper writings and manually signed signatures.
Designed to promote the use of electronic commerce, UETA repeals
existing Virginia electronic signature laws and is effective
July 1, 2000. On March 14, 2000, Virginia also became the
first state to adopt the Uniform Computer Information Transactions
Act (UCITA) with a delayed effective date of July 1, 2001.[3]
Other proposed uniform statutory initiatives are underway
so that the law is beginning to reflect the realities of electronic
commerce.
10.402. Virginia Electronic Signature Statute (Repealed
Effective July 1, 2000). In 1997 Virginia adopted a statute
to give legal effectiveness to electronic signatures [4] meeting
certain criteria. Section 59.1-467 of the Virginia Code defines
an electronic signature as "any electronic identifier intended
by the person making, executing or adopting it to authenticate
or validate a record."[5] A "record" is defined as "information
that is (i) inscribed on a tangible medium, or (ii) stored
in an electronic or other medium and retrievable in a perceivable
form."[6] This definition contemplates that an electronic
signature does not necessarily have to be on paper, but may
be in some visible electronic form.
Section 59.1-468A of the Virginia Code provides that whenever
Virginia law requires a signature, e.g., the Statute of Frauds,
an electronic signature with specified authentication attributes
will satisfy that legal requirement.[7] In determining the
validity and authenticity of an electronic signature, a court
may consider, among other things, whether the electronic signature
is (i) unique to the signer, (ii) capable of verification,
(iii) under the signer's sole control, (iv) linked to the
record in such a manner that it can be determined if any data
contained in the record was changed subsequent to the electronic
signature being fixed to the record, and (v) created by a
method appropriately reliable for the purpose for which the
electronic signature was used.[8] These electronic signature
statutes are repealed effective July 1, 2000 and replaced
by the more uniform provisions of UETA.
10.403. The Writing Requirement.In 1999, the
Virginia General Assembly amended Section 1-13.32 of the Virginia
Code to expand the definitions of "written," "writing," "writings,"
and "in writing" to include electronic representations of
words, letters, symbols, numbers, or figures. In fact, so
long as the electronic representation is retrievable in
perceivable form, it is a writing even if an electronic signature
is not affixed. Va. Code Ann. §1-13.32. This statute was
amended (but not repealed) to include a prospective reference
to electronic signatures permitted by UETA.
10.404. Uniform Electronic Transactions Act (Effective
July 1, 2000). Virginia has adopted the Uniform Electronic
Transactions Act (UETA) effective July 1, 2000.[9] As of
April 10, 2000, Virginia is one of eight states to have enacted
UETA.[10] The purpose of UETA is to establish the legal equivalence
of electronic records and signatures with paper writings and
manually signed signatures.[11] With the enactment of UETA,
the Virginia General Assembly also repealed the existing electronic
signature statutes (Va. Code Ann. §59.1-467, 59.1-468 and
59.1-469) effective July 1, 2000. UETA will apply to any
electronic record or electronic signature created or used
in a transaction on or after July 1, 2000.[12] Presumably,
the prior existing electronic signature statutes will continue
to apply to transactions that occurred prior to that date.
UETA applies to all electronic transactions that are not
otherwise covered by the Uniform Commercial Code or UCITA
where the parties have agreed to conduct a transaction by
electronic means.[13] Generally, UETA recognizes the legal
effect and enforceability of electronic records, electronic
signatures and electronic contracts.[14] UETA defines an
"electronic record" as "a record created, generated, sent,
communicated, received or stored by electronic means."[15]
An "electronic signature" is "an electronic sound, symbol,
or process attached to or logically associated with a record
and executed or adopted by a person with the intent to sign
the record."[16] In determining the validity and authenticity
of an electronic signature, UETA provides that a court may
consider the same factors or criteria previously provided
for in Va. Code §59.1-468, i.e., whether the electronic signature
is (i) unique to the signer, (ii) capable of verification,
(iii) under the signer's sole control, (iv) linked to the
record in such a manner that it can be determined if any data
contained in the record was changed subsequent to the electronic
signature being affixed to the record, and (v) created by
a method appropriately reliable for the purpose for which
the electronic signature was used.[17]
UETA establishes other basic electronic contract principles.
Under UETA, electronic delivery occurs when an electronic
record in a form capable of being processed by the recipient's
information processing system enters that system and from
which the recipient is able to retrieve the electronic record.[18]
UETA introduces the concept of "transferable records" -- negotiable
notes under Article 3A and documents under Article 7 of the
Uniform Commercial Code that are in electronic form.[19]
Finally, UETA recognizes the formation of contracts by electronic
agents so that the contracting persons or entities are bound
by a transaction that may be conducted automatically by a
computer.[20]
10.405. The Statute of Frauds. The purpose
of these statutes is to facilitate the formation of an electronic
contract so that it is not made unenforceable by any statute
that requires a signed writing. For example, Section 8.2-201(1)
of the Virginia Code requires that any contract for the sale
of goods for a price of more than $500 requires a signed writing.
Similarly, the Virginia Statute of Frauds requires contracts
that are not to be performed within a year to be evidenced
by a signed writing in order to be enforceable.[21] The Virginia
statutes provides that an electronic signature that authenticates
an electronic record will satisfy any traditional legal signature
and writing requirements.
These statutes, unlike the legislation of some other states,
are technology neutral and do not require the use of a specific
technology for electronic authentication. The factors listed
in the prior existing electronic signature statute and UETA
both take a flexible approach by recognizing it is not possible
to define or technologically foresee all criteria or security
procedures that may be sufficiently reliable for attribution
of an electronic signature to a party. Instead, using the
new concept of a "secure electronic signature," Virginia has
adopted a more general definition of electronic signature
using criteria for trustworthiness (i.e. integrity, authenticity,
confidentiality, nonrepudiation, and reliability) in order
to establish authentication standards.[22] The Virginia statutes
use permissive criteria that a court may consider when
determining the validity of an electronic signature.[23]
The heightened concern about the reliability of electronic
messages, however, is because of the ability to change words
without detection, after receipt but before the electronic
message is printed. Unlike telegram, telex and facsimile
transmissions which are also sent electronically, electronic
messages are not automatically printed in a format
identical to that transmitted.[24] UETA gives some examples
of security procedures for verifying electronic signatures
that may satisfy its requirements (and those of its predecessors
statute, Va. Code Ann. §59.1-468B), including a procedure
that requires the use of algorithms or other codes, identifying
words or numbers, encryption, callback, or other acknowledgment
procedures.[25]
An open issue is whether a typed e-mail signature or an e-mail
header showing the sender's name would also be considered
sufficiently reliable to be a signature. At least one Virginia
court has ruled that a series of signed facsimile transmissions
will satisfy the Statute of Frauds.[26] Accordingly, the
same logic should apply to a series of e-mail messages if
those messages otherwise satisfy the requirements of the electronic
signature statute. The question of what is appropriately
reliable may ultimately depend on the nature of the transaction
- what may be considered reliable for a $500 transaction
may not be for a $500,000 transaction. In short, Virginia's
prior existing electronic signature statute and UETA largely
leave the determination of the question of what constitutes
appropriate attribution to custom, trade usage, course of
dealing, the agreement of the parties and the courts. As
of April 1, 2000, however, there are no reported cases in
Virginia that interpret the existing statutes or otherwise
address issues regarding the formation of electronic contracts.
10.406 Click-Wrap Contracts. Another interesting
issue that awaits determination by Virginia courts with respect
to electronic contracts is whether a "click-wrap" contract
is enforceable.[27] Unlike controversial "shrinkwrap licenses"
where the act of acceptance is the simply the unwrapping of
the software, this type of contract should be more generally
recognized by the courts because a party shows assent in a
more affirmative manner by pointing and clicking its acceptance.[28]
Still, electronic commerce is way ahead of the law in this
area.
10.407. Uniform Computer Information Transaction Act (Effective
July 1, 2001). A proposed new Article 2B of the Uniform
Commercial Code would have added a new article to address
software licensing and the formation of electronic contracts.
In April, 1999 the American Law Institute (ALI) and the National
Conference of Commissioners on Uniform State Laws (NCCUSL),
however, announced the legal rules for these computer information
transactions would not be promulgated as part of the UCC because
" . . . this area does not presently allow the sort of codification
that is represented by the Uniform Commercial Code."[29]
Instead, the NCCUSL has taken over this project as a uniform
law - the Uniform Computer Information Transaction Act (UCITA).
Adopted at its July, 1999 meeting, the NCCUSL began presenting
it to state legislatures for enactment in 2000.[30]
On March 14, 2000, Virginia became the first state to enact
UCITA. The statute, however, has a delayed effective date
of July 1, 2001, and requires the Joint Commission on Technology
and Science to appoint a subcommittee to study its impact
on Virginia businesses and consumers and to report to the
Virginia General Assembly before December 1, 2000.
When it becomes law in Virginia, this contract law statute
will codify what the legal rules will be for electronic contracts
in computer information transactions. For example, UCITA
deals with the question of when an online click is adequate
to establish a contract. UCITA uses the concept of "manifesting
assent" to describe how parties may make an electronic contract.
Under UCITA, a party "manifests assent" to a contract when
the party has an opportunity to review the contract before
the party assents to it, and then either authenticates the
contract to accept it or engages in conduct from which the
other party will infer that the party agrees to the contract.[31]
UCITA not only provides that a party be given a clear opportunity
to review an online contract before clicking assent, but also
suggests that the extra step of confirming the initial indication
of assent should be used in order to create a valid online
contract.[32] UCITA also provides rules for contracts in
computer information relating to warranties[33], substantial
performance[34], mass market licenses[35], shrinkwrap licenses[36],
self-help repossession (including electronic methods)[37],
duration[38] and transferability[39] of a license and choice
of law.[40]
10.408. Proposed Revisions to Article 2 of the Uniform
Commercial Code. Finally, changes are also being proposed
to Article 2 of the Uniform Commercial Code to make it more
compatible with electronic contracts. For example, the UCC's
version of the Statute of Frauds would use the term "record,"
rather than "writing".[41]edu/bll/ulc/ucc2/ucc299am.htm>
A "record" would be defined as "information that is inscribed
on a tangible medium, or that is stored in an electronic or
other medium and is retrievable in perceivable form."[42]
Definitions for "electronic agent", "electronic message",
and "electronic event" would also appear in Article 2 for
the first time.[43] In May, 1999, Revised Article 2 was approved
by the American Law Institute (ALI), but because the NCCUSL
took no action at its 1999 annual meeting, a new drafting
committee was appointed in August, 1999 to reconcile remaining
differences.[44]
[1] Cyberspace is a term first used by William Gibson, a
science fiction writer, who described it as "a consensual
hallucination experienced by billions of legitimate operators."
Julia Gladstone, Survey of the Law of Cyberspace: Introduction,
53 Bus. Law. 217, 218 (quoting William Gibson, Neuromancer
51 (1984)).
[2] Va. Code Ann. §59.1-501 through 59.1-520 (effective July
1, 2000).
[3] Va. Code Ann. §59.1-501.1 through 59.1-509.2 (effective
July 1, 2001).
[4] Generally, an "electronic signature" is any form of mark
intended to be a signature, a "digital signature" is a term
of art that refers to scrambling data in order to provide
security and authentication, and a "digitized signature" refers
to an electronic image of a signature. Daniel J. Greenwood
and Ray A. Campbell, Electronic Commerce Legislation: From
Written on Paper and Signed in Ink to Electronic Records and
Online Authentication, 53 Bus. Law. 307, 310 (quoting Microsoft
Press Computer Dictionary 145 (3d. ed. 1997)).
[5] Va. Code Ann. §59.1-467. In 1995, Utah was the first
state to enact digital or electronic signature legislation.
As of September, 1999, 42 states have enacted similar legislation.
Of these, 29 states have enacted laws for limited transactions
with government or selected private sector transactions.
Thirteen states (including Virginia) have adopted laws that
are general in scope with applicability to all public and
private communications. See, Internet Law & Policy
Forum, Update: Survey of State Electronic & Digital Signature
Legislative Initiatives (September 24, 1999), <http://www.ilpf.org/digsig/update.htm>
[6] Va. Code Ann. §59.1-467.
[7] Va. Code Ann. §59.1-468A.
[8] Va. Code Ann. §59.1-468B.
[9] Va. Code Ann. §59.1-501 through 59.1-520 (effective July
1, 2000).
[10 ]In 2000, UETA was also introduced as legislation in
seventeen other states. See A Few Facts About the
Uniform Electronic Transactions Act <http:www.nccusl.org/uniformact_factsheets/uniformacts-fs-ueta.htm>.
[11] Id.
[12] Va. Code Ann. §59.1-504 (effective July 1, 2000).
[13] Va. Code Ann. §§59.1-503, -505 (effective July 1, 2000).
[14] Va. Code Ann. §59.1-507 (effective July 1, 2000).
[15] Va. Code Ann. §59.1-502(7) (effective July 1, 2000).
[16] Va. Code Ann. §59.1-502(8) (effective July 1, 2000).
[17] Compare Va. Code Ann. §59.1-513 (effective July
1, 2000) and Va. Code 59.1-468 (repealed effective July 1,
2000).
[18] Va. Code Ann. §59.1-515 (effective July 1, 2000).
[19] Va. Code Ann. §59.1-516 (effective July 1, 2000).
[20] Va. Code Ann. §59.1-514 (effective July 1, 2000).
[21] Va. Code Ann. §11-2(8).
[22] See John P. Morgan, Electronic Authentication
Standards & Development (May 20, 1999) <http://www.perkinscoie.com/webrelease/electronic.htm>
[23] See Internet Law & Policy Forum, Survey of
State Electronic & Digital Signature Legislative Initiatives
(September 24, 1999) <http.ilpf.org/digsig/digrep.htm>
[24] See Paul R. Katz and Aron Schwartz, Electronic
Documents and Digital Signaturing: Changing the Way Business
is Conducted and Contracts Are Formed (June 15, 1999) <>
[25] See Va. Code Ann. §59.1-502 (14) (effective July 1,
2000).
[26] See Questor Realty, Inc. v. Rucker Realtors 25 Va. Cir.
118 (1991).
[27] A "click-wrap" contract is one in which the user must
affirmatively indicate assent to the terms of a contract by
a mouse click. See Marilyn C. Maloney, Intellectual Property
in Cyberspace, 53 Business Lawyer, 225, 241 at n. 87.
[28] See Cendali and Weinstein, Personal Jurisdiction and
the Internet, PLI Second Annual Internet Institute (1998),
at page 981.
[29] NCCUSL to Promulgate Freestanding Uniform Computer Information
Transactions Act (April 7, 1999) <http://www.nccusl.org./pressrel/2brel.html>.
[30]See< Uniform Computer Information Transactions
Act (Annual Meeting Draft 1999) <http://www.law.upenn.edu/bll/ulc/ucita
99.htm>
[31] Va. Code Ann. §59.1-501.12 (effective July 1, 2001).
[32] Va. Code Ann. §59.1-501.12 (d) (effective July 1, 2001).
[33] Va. Code Ann. §59.1-504.1 through - 504.9 (effective
July 1, 2001).
[34] Va. Code Ann. §59.1-506.1 (effective July 1, 2001).
[35] Va. Code Ann. §59.1-502.9 (effective July 1, 2001).
[36] Va. Code Ann. §59.1-501.12 (effective July 1, 2001).
[37] Va. Code Ann. §59.1-508.15 and - 508.16 (effective
July 1, 2001).
[38] Va. Code Ann. §59.1-503.8 (effective July 1, 2001).
[39] Va. Code Ann. §59.1-505.1 through - 505.11 (effective
July 1, 2001).
[40] Va. Code Ann. §§59.1-501.9 (effective July 1, 2001).
For a summary of issues related to UCITA see, generally,
Carlyle C. Ring, Jr. and Raymond T. Nimmer, Series of Papers
on UCITA Issues <http://www.nccusl.org/pressrel/UCITAQA.htm
>
[41] UCC §2-201 (Annual Meeting Draft 1999) <http://www.law.upenn.
[42 ]Id., §2-102 (33).
[43] Id., §1-102 (17), (18), and (19).
[44] ALI and NCCUSL Announce New Drafting Committee for UCC
Articles 2 and 2A (August 18, 1999) <http://www.nccusl.org/pressrel/ucc2a2.htm>
|
Email
