by John A. Niemoeller¹

In the 2003 legislative session last spring, the Missouri legislature enacted House Bill 254, which created the Uniform Electronic Transactions Act (UETA) in Missouri² and repealed the old Missouri Digital Signatures Act.³ Governor Holden signed the bill on June 9, 2003, and it became effective on August 28, 2003.⁴ UETA is a short piece of uniform legislation that brings Missouri's laws in line with federal law and the laws of about 80% of the states. Simply stated, UETA gives electronic records and signatures the same legal status as paper records and signatures. In retail sales, UETA conforms Missouri intra-state Internet practice to what already is occurring on an interstate basis. Perhaps more importantly, UETA could allow businesses in Missouri to make substantial cost-saving changes in record retention policies. Moreover, UETA will allow state and local governmental units in Missouri the opportunity to modernize how they do their jobs and deliver their services to the public. The purpose of this article is to summarize the major provisions of UETA for the general practitioner.

I. Historical Background⁵

In 1998 the Missouri legislature enacted the Missouri Digital Signatures Act (DSA). The DSA was a "digital signature," "digital certificate" law. It granted legal validity to documents that were digitally signed using "certificates." Certificates are encryption packets embedded in the document being signed. The signer uses a "private key" to embed the certificate, and then sends the document. The receiver of the signed document has a "public key" which verifies that the document indeed was signed and was not altered. Certificates are issued by certificate authorities - private companies that, in effect, guarantee the signature, somewhat like a notary.

In July 1999, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved UETA. The purpose of UETA was simple: to put electronic records and signatures on exactly the same legal footing as paper documents and ink-and-paper signatures. UETA leaves the reliability of electronic records and electronic signatures to the discretion of the parties involved, just as the reliability of paper documents and ink-and-paper signatures is left to their discretion under the common law. UETA thus was much broader and more flexible than the DSA.

In June 2000, Congress embraced the principles of UETA by enacting the Electronic Signatures in Global and National Commerce Act⁷ (E-Sign). E-Sign, like UETA, established that signatures consensually given in electronic form had the same legal validity as ink-and-paper signatures in interstate commerce. E-Sign preempted inconsistent state laws to the extent they affected interstate commerce, and encouraged states to adopt UETA, which generally is not subject to preemption.⁸ An immediate effect of E-Sign was to call into question the viability of non-UETA state laws, such as Missouri's DSA.⁹

II. Basic Provisions of UETA

UETA provides that "[a] record or signature shall not be denied legal effect or enforceability solely because it is in electronic form."¹⁰ This is the heart of the act. UETA contains several important corollary provisions:

• "A contract shall not be denied legal effect or enforceability solely because it is in electronic record was used in its formation."

• "If a law requires a record to be in writing, an electronic record satisfies the law."

• "If a law requires a signature, an electronic signature satisfies the law."¹¹

In short, UETA simply says that the legal status of a record (including signatures) is not diminished if the record is created or retained in electronic form.

UETA provides that an "electronic signature" is any "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."¹² That same definition could be used for ink-and-paper signatures, with only a few substitutions - an ink-and-paper signature is a mark or symbol placed upon or attached to a paper document by a person with the intent to sign the document. The UETA definition is intuitively obvious to ordinary people because it is directly analogous to ink-and-paper signatures. There are differences, of course, but they are not likely to confuse the average person. For example, under UETA, clicking the "I Agree" button on a vendor's website is "signing" the "record" to which the button relates, and most people understand that process in those terms.

III. Exceptions

UETA by its terms does not apply to any of the following:

• Any transaction to the extent it is governed by "[a] law governing the creation and execution of wills, codicils, or testamentary trusts."¹³

• Any transaction to the extent it is governed by "[t]he uniform commercial code other than sections 400.1-107, 400.1-206, 400.2-101 to 400.2-725, and 400.2A-101 to 400.2A-532, RSMo."¹⁴

IV. Consumer Protection And Similar Laws

UETA does not preempt or supercede any law which "requires a record to be posted or displayed in a [particular] manner, to be sent, communicated, or transmitted [in] a specified" manner, or which requires the record "to contain information that is formatted in a [specific] manner."¹⁵ This exception was added to address consumer protection concerns. Consequently, care must be taken if, for example, a business client wants to deal with a retail customer electronically and any consumer protection law (such as a truth-in-lending law) applies to the transaction.

V. No Electronic Mandate

UETA does not require anyone to sign documents electronically or to make, use, or store records in electronic form.¹⁶ In a contractual setting, all parties must agree that an electronic format is acceptable; otherwise, there is no agreement and no contract.¹⁷ Further, UETA provides that the signed record must be capable of being retained by the parties, and renders a record unenforceable by any party who inhibits the other party's ability to store or print the record.¹⁸

VI. Forgery Risks

UETA does not override any laws or principles regarding forgery. A forged electronic signature is no more valid than a forged ink-and-paper one. An altered electronic contract is no more enforceable than an altered paper one. The legal system (especially the courts) will need to develop practices for establishing and accepting the reliability of electronic records and signatures submitted as evidence, just as it did for hard copies, carbon copies, photocopies, and faxes in years past. UETA does not solve those problems.

As a result of UETA's breadth and minimal restrictions, contractual parties have extraordinary freedom to conduct electronic business in whatever fashion they wish. If they do not believe that forgery is a substantial threat, they can take minimal or even no security measures (and run the risk of non-enforceability if forgery in fact occurs). If they agree that forgery is a substantial concern, they can use passwords, encryption protocols (such as digital certificates), or other means to reduce their risk as they see fit. They have similar flexibility in deciding how to store electronic records and protect them from unauthorized alterations.

VII. Record Retention

UETA provides that "if [another] law requires that a record be retained, the requirement is satisfied by retaining an electronic record of the information contained in the record" if the electronic record (a) "[a]ccurately reflects the information set forth in the record" to be retained, and (b) "[r]emains accessible for later reference."¹⁹ UETA contains several corollaries and limitations to that general rule, the most notable of which are:

• "If a law requires a record to be presented or retained in its original form, . . . that law is satisfied by an electronic record retained in accordance with" the general rule.²⁰

• "If a law requires retention of a check, that requirement is satisfied by retention of an electronic record of the information on the front and back of the check in accordance with" the general rule.²¹

• An electronic record complying with the general rule "satisfies a law requiring a person to retain a record for evidentiary, audit or like purposes, unless the law [is] enacted after August 28, 2003, and specifically prohibits the use of an electronic record for such . . . purpose.²²

• UETA does not prevent "a governmental agency of [Missouri] from specifying additional requirements for the retention of records subject to the agency's jurisdiction."²³

VIII. Automated Transactions

In the modern age contracts can be made and fulfilled without human beings. A computer at a retail store can order more widgets from the warehouse. The warehouse computer can accept the retailer's order, and can in turn order more widgets from the manufacturer. Robots remove boxes of widgets from huge shelves, label them for shipment, and place them on loading docks for pick up by courier service, all controlled by computers without human oversight. It is possible to question whether a meeting of any minds occurs when computer programs or other electronic agents of parties initiate, accept, and control the entire transaction, from inception to delivery, without any involvement by living, breathing people. However, modern commerce depends increasingly on complex just-in-time inventory systems and other highly or entirely automated processes; doubts about enforceability simply are not acceptable.

UETA contains special rules for automated transactions and other situations where electronic agents interact with people or each other:

• "A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements."²⁴

• "A contract may be formed by the interaction of an electronic agent and an individual . . . including by an interaction in which the individual performs actions that the individual is free to refuse to perform and which the individual knows or has reason to know will cause the electronic agent to complete the transaction or performance."²⁵

"[T]he terms of a contract" created by electronic agents, or by electronic agents and individuals, pursuant to UETA "are determined by the substantive law applicable" to such contract.²⁶

IX. Mistakes & Errors

UETA has a few special provisions to deal with transmission errors, unauthorized changes, and other similar situations:

• "If the parties have agreed to use a security procedure to detect changes or errors and one party has conformed to that procedure, but the other party has not, and the nonconforming party would have detected the error" using the procedure, then "the conforming party may avoid the effect of the changed or erroneous record."²⁷

• "In an automated transaction"²⁸ between an individual and the electronic agent of another party, "the individual may avoid the effect of an electronic record that resulted from an error made by the individual . . . if the electronic agent did not provide an opportunity for the prevention or correction of the error and, at the time the individual learns of the error, the individual" does three things: (1) "[p]romptly notifies the other party of the error;" (2) "[t]akes reasonable steps . . . to return" or "destroy the consideration received," according to the other party's instructions; and (3) "[h]as not used or received any benefit or value from the consideration received from the other [party]."²⁹

• If neither of the foregoing two rules applies, a "change or error has the effect provided in other law" (i.e., whatever non-UETA law governs in the situation).³⁰

The last two of the foregoing special rules may not be varied by agreement of the parties.

X. Notarization, Oaths, Etc.

Not surprisingly, UETA provides that "[i]f a law requires a signature or record to be notarized, acknowledged, verified, or made under oath, the requirement is satisfied if the electronic signature of the person authorized to perform those acts, together with all other information required [by applicable law,] . . . is attached to or logically associated with the signature or record."³¹

XI. UCC Notes & Documents

UETA creates a new concept of "transferable record," which is defined to mean an electronic record that would be a note³² or a document³³ if it were in writing, and the "issuer of the electronic record expressly has agreed it is a transferable record."³⁴ Under UETA, any person having "control of a transferable record" is the holder of the record under the UCC³⁵ and has the same rights and defenses as a holder of an equivalent record under the UCC, including (if applicable) the rights and defenses of a holder in due course, a holder to which a negotiable document has been negotiated, or a purchaser. Delivery, possession, and endorsement are not required to obtain or exercise any of the rights afforded by UETA.³⁶

Under UETA, "[a] person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred."³⁷ That general rule is deemed satisfied as to a transferable record if the record is created, stored, and assigned in such a manner that all of the following are true:

(1) A single authoritative copy of the transferable record exists which is unique, identifiable, and [unalterable] except as provided in subdivisions (4), (5), and (6)" . . .

(2) The authoritative copy identifies the person asserting control as . . . [t]he person to which the record was issued . . . or the person to which the . . . record was most recently transferred.

(3) The authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;

(4) Copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control;

(5) Each copy of the authoritative copy . . . is readily identifiable as a copy that is not the authoritative copy; and

(6) Any revision of the authoritative copy is readily identifiable as authorized or unauthorized.³⁸

XII. State Agencies

UETA's flexibility applies to Missouri state agencies and local governmental units. For example, if the Missouri Department of Revenue wants to develop a process for the electronic filing of corporate tax returns using the Internet or telephone system, UETA will not impede that effort. Similarly, the Missouri Secretary of State could permit the electronic filing of corporate charters (for example) using procedures very different from the Department of Revenue's procedures for corporate tax returns. Other agencies may choose to retain paper-based record systems. As with the private sector, no state agency is compelled by UETA to adopt electronic systems or procedures.

XIII. Practical Impact

UETA is not likely to have a substantial impact on ordinary electronic commerce in Missouri for the simple reason that vendors already are conducting business without it. In the commercial arena, UETA is an example of the law catching up to what everyone already is doing. What UETA will do is provide a simple legal framework to support high-cost, high-risk transactions that could be conducted electronically in the future but are not commonly done that way now. For example, local banks may be more comfortable allowing take-downs under commercial credit arrangements to be triggered solely by e-mail and documented entirely on a CD-ROM now that Missouri has adopted UETA. Small banks, in particular, may be more able to conduct commercial business electronically because their small size and small geographic market often allows them to adjust their systems more rapidly than large nationwide institutions.

Another positive effect in Missouri is likely to be how UETA allows state and local governmental agencies to do their jobs more efficiently and with a minimum of extra oversight. As was mentioned above, disparate things like tax returns, hunting licenses, and corporate charters may not benefit equally from being recorded, signed, or delivered in electronic form, and the risks of using electronic formats may be quite different in each case. UETA allows those functions to be addressed independently, without adding a new layer of red tape to the process.

XIV. Conclusion

UETA is not a panacea, but it does solve several problems. It is consistent with what most people actually are doing and expect. It is consistent with the federal E-Sign law and the law in most of the states. It will allow businesses and state agencies to modernize without fear that electronic efficiency might result in legal invalidity.

Footnotes

¹ John A. Niemoeller is a partner in the corporate, securities, banking/finance, venture capital, and executive compensation practice areas of The Stolar Partnership. He received his J.D. degree from Harvard Law School in 1982, and his B.S.B.A. degree from the Olin School of Business at Washington University in 1979. He is a past chairperson of the Business Law Committee of The Missouri Bar, and testified before Missouri House and Senate committees concerning UETA in 2001, 2002, and 2003.

² Sections 432.200 to 432.295, RSMo Supp. 2003.

³ Sections 28.600 to 28.681, RSMo Supp. 2003.

⁴ Section 432.215, RSMo Supp. 2003.

⁵ A more complete background of the DSA, UETA, and E-sign appears in John A. Niemoeller, Electronic Transactions in Missouri, 59 J. Mo Bar, 30 (2003).

⁶ Id.

⁷ Pub. L. No. 106-229, 114 Stat. 464 (2000).

⁸ 15 U.S.C. 7002 (2002).

⁹ Many articles have been written on pre-emption. Among others: Patricia Brumfield Fry, A Preliminary Analysis of Federal and State Electronic Commerce Laws (July 7, 2000), and Federal Preemption and Electronic Commerce, Uniform Law Commissioners at http://www.nccusl/whatsnew-articles3.asp. Professor Fry is a professor of law at the University of Missouri-Columbia School of Law, and was chair of NCCUSL's UETA Drafting Committee.

¹⁰ Section 432.230, RSMo Supp. 2003.

¹¹ Id.

¹² Section 432.205(8), RSMo Supp. 2003.

¹³ Section 432.210.2(1), RSMo Supp. 2003.

¹⁴ Section 432.210.2(2), RSMo Supp. 2003.

¹⁵ Section 432.235.2, RSMo Supp. 2003.

¹⁶ Section 432.220, RSMo Supp. 2003.

¹⁷ Id.

¹⁸ Section 432.235.1 and .3, RSMo Supp. 2003.

¹⁹ Section 432.255.1, RSMo Supp. 2003.

²⁰ Section 432.255.4, RSMo Supp. 2003.

²¹ Section 432.255.5, RSMo Supp. 2003.

²² Section 432.255.6, RSMo Supp. 2003.

²³ Section 432.255.7, RSMo Supp. 2003.

²⁴ Section 432.265(1), RSMo Supp. 2003.

²⁵ Section 432.265(2), RSMo Supp. 2003.

²⁶ Section 432.265(3), RSMo Supp. 2003.

²⁷ Section 432.245(1), RSMo Supp. 2003.

²⁸ See "Automated Transactions" above for additional information about computers making contracts.

²⁹ Section 432.245(2), RSMo Supp. 2003.

³⁰ Section 432.245(3), RSMo Supp. 2003. In this case, "other law" could include the common law of contracts or mistake.

³¹ Section 432.250, RSMo Supp. 2003.

³² Under §§ 400.3-101 to 400.3-605, RSMo 2000.

³³ Under §§ 400.7-101 to 400.7-604, RSMo 2000.

³⁴ Section 432.275.1, RSMo Supp. 2003.

³⁵ See § 400.1-201(20), RSMo 2000.

³⁶ Section 432.275.4, RSMo Supp. 2003.