There is no denying the extraordinary impact technology has made upon today's businesses. In 2002, revenue from e-commerce conducted through an online marketplace is estimated to be $465.5 billion. Connecticut businesses are no different. In response, the Connecticut General Assembly recently voted to adopt the Uniform Electronic Transactions Act (CUETA) and on May 23, 2002, Governor Rowland signed the Act which will take effect October 1, 2002. It will govern all electronic transactions after that date except those specifically excluded in Section 3 of the Act. It defines a transaction to include business conduct regarding not only commercial, but also consumer, charitable, and governmental affairs. The goal of the Act is to validate the use of electronic transactions by giving electronic signatures and records the same legal effect as paper. This enactment comes two years to the day after the effective date of the Congressional Electronic Signatures in Global and National Commerce Act, or "E-Sign." E-Sign also validates the use of electronic signatures and records in commerce and states that electronic transactions shall not be denied legal effect or enforceability simply because they are electronic.
CUETA was drafted at the request of the Judiciary Committee of the Connecticut General Assembly. The committee asked the Connecticut Law Revisions Commission to study electronic commerce in Connecticut and make recommendations for any necessary remedial legislation to permit and encourage electronic commerce in Connecticut. In response to the request, the commission formed a drafting committee consisting of individuals in both the public and private sectors who are knowledgeable about electronic technology to undertake the study. The committee drafted CUETA to provide a framework for electronic commerce in Connecticut. The legislation is a modified version of the Uniform Electronic Transactions Act, a model act, drafted by the National Conference of Commissioners of Uniform State Laws in 1999. The UETA is more comprehensive than E-Sign. It offers a broader legal foundation for e-commerce by removing "barriers" presently perceived by businesses such as the legal validity of contracts entered into online as opposed to those entered into by signing on the dotted line.
Paperless Transactions
As e-commerce is inherently paperless, businesses may be wary of conducting business solely by electronic means, especially in situations where the law requires a writing to evidence an agreement or other transaction. Despite the efficiency of transacting business electronically, Connecticut businesses may be reluctant to go forward with purely electronic transactions without first reducing the transaction to a piece of paper for purposes of verification or without first memorializing it by a handwritten signature. CUETA effectively removes this impediment to e-commerce in three important ways. First, an electronic record or signature will not be denied legal effect, or be deemed unenforceable, just because it is electronic. Secondly, a contract will not be denied legal effect, or be deemed unenforceable, simply because an electronic record was used in its formation. Lastly, Connecticut laws that require that a record be in writing, or that require a signature, are satisfied by the use of electronic records or signatures.
While CUETA gives electronic transactions equal force and effect as traditional paper transactions, it does not change the laws presently governing Connecticut businesses. It has the limited procedural objective of allowing Connecticut businesses to feel secure about their choice to conduct business electronically rather than by paper. One important thing to keep in mind, however, is that the choice to conduct business electronically remains just that–a choice. CUETA will only apply to those transactions where all parties involved have agreed to transact business electronically. Connecticut businesses are not forced to transact business electronically, nor may they force others to do so and thus be governed by CUETA. Whether a party has agreed to take part in an electronic transaction will be determined by the surrounding circumstances, including the parties' conduct. Additionally, parties that have agreed to conduct business electronically are free to vary, waive, or disclaim most provisions of CUETA, unless its provisions specifically state otherwise. Finally, CUETA does not apply to all transactions between parties. For example:
It does not apply to transactions governed by the Uniform Commercial Code, with the exception of Article 2 governing the sale of goods.
It also does not apply to wills, codicils, or other testamentary trusts, areas of family law such as divorce, or notices and termination of such things as utility services, foreclosure, repossession, eviction, default, health or life insurance benefits, the recall of a product, or the handling of hazardous materials.
Electronic Records
So what is an electronic record and signature? CUETA's definition of an electronic record includes records created, generated, sent, or stored by electronic means such as facsimiles, email, telexes, and Internet messaging. Likewise, an electronic signature may be any sound, symbol, or process logically associated with a record which is executed by a person with the intent to sign the record. After October 1, 2002, a Connecticut business is free to enter into agreements with vendors (or other parties) simply by communicating and assenting to contract terms through e-mail. Business owners can then feel much more secure that the agreement will be enforceable (provided the parties to the agreement have agreed to transact electronically). This will not only save a business valuable time, but will also reduce some costs, such as postage.
CUETA also serves to eliminate the need for businesses to store various paper records as required by existing law. For example, with the enactment of CUETA, electronic records now satisfy legal requirements for the maintenance of originals, checks (provided that both the front and back are recorded), and records kept for evidentiary or audit purposes. All that is required is that the electronic record accurately reflects the record when first generated and that it remains accessible for later reference. This means less paperwork for businesses to file (or potentially misplace). It also reduces copying costs and helps reduce the need to maintain costly archive and storage facilities.
In fact, CUETA even dispenses with the need for a human to enter into a contract in order for it to be valid and enforceable. CUETA allows contracts to be entered into on behalf of principals by the action of purely electronic agents. In other words, a contract may be formed even when no individual is aware of the agent's actions or has reviewed the resulting terms or agreement. Although this may sound a bit extreme, an electronic agent is simply a computer program implemented by a principal to transact business automatically in electronic form. A familiar illustration of an electronic agent at work is when a consumer purchases an item off the Internet from a particular web site. When the order is placed, an acknowledgment is typically automatically sent to let the purchaser know his order has been received, and to solicit additional information such as contact and payment information. CUETA provides that such automatic acts of electronic agents will bind the principal to that contract, even if no human is there to personally acknowledge the transaction.
Transmission Security
Despite its many attributes, technology is not foolproof. What happens if an error occurs in an electronic transmission or an electronic record does not read as it should? How does one know if the person behind the electronic signature is truly the person with whom you are attempting to transact business? CUETA offers guidance in these situations. For example, if an error occurs in the transmission of an electronic record between the parties, and those parties have agreed to use a security procedure to detect changes or errors, the party that conformed to that security procedure may avoid the effect of the error if the nonconforming party would have detected the error had it conformed to the security measure. If an error occurs in an automated transaction, a party may avoid the effect of that error if the electronic agent did not provide an error correction process, gives prompt notice of the error, has not received or used any of the benefit, and takes reasonable steps to return or destroy any consideration received. Other errors that may occur in electronic transmissions will be governed by existing Connecticut laws governing mistakes and the parties' contract. Additionally, CUETA states that a record or signature is attributable to a person if it was the "act" of that person. This may be established in any manner, such as the efficacy of a security procedure. It may include any relevant evidence such as showing that a particular technology or password was used which helps identify who is attached to the signature. Whether a signature was the act of a particular person will be determined by considering the surrounding circumstances.
One last important point regarding CUETA is the concept of the transferable record (first introduced by E-Sign). CUETA allows for the transfer of negotiable instruments and other documents, such as bills of lading and warehouse receipts, to be transferred electronically. However, this is limited to those notes or documents that the issuer has expressly agreed are transferable. CUETA also provides for the determination of who has control over, or is the holder of, the transferable record.
CUETA provides more legal certainty for e-commerce by treating electronic technologies as paper. The Act will support the development of technological systems and electronic businesses in Connecticut. It purports to affect only the writing and signature requirements by specifying that an electronic record or signature satisfies our laws that now require a written record. All other legal determinations, however, will be governed by existing Connecticut law. Connecticut businesses may now enter the arena of e-commerce with less trepidation as to whether its transactions will be legally enforceable, provided that the parties involved agree to transact business electronically. With the importance of technology in this electronic age, the possibilities for growth and expansion of Connecticut businesses are endless.
This article was originally published in the August/September 2002 issue of the Connecticut Lawyer, Volume 13, No. 1. It is reprinted here with permission.