atLaw
Theodore J. Folkman
617 226-3451
Associate
Areas of Concentration
Business Litigation
Office
The Massachusetts legislature enacted the Uniform Electronic Transaction Act (“UETA”) in late 2003. From a lawyer’s perspective, the central provisions of the Act (and the E-SIGN Act, its federal analogue) are much ado about nothing. The Act makes it clear that contracts and signatures are not unenforceable merely because they are in electronic form. But the law has never required that most contracts be written down, let alone written down on paper rather than stored electronically. And for those contracts that were required to be signed and in writing (notably, contracts for the sale of goods and real estate contracts), the courts were groping towards the conclusion that an electronic writing and an electronic signature would satisfy the requirement. Still, the Act will give businesses more peace of mind concerning the enforceability of their electronic transactions. More and more contracts and other transactions will likely be conducted electronically, particularly as the technology involved in ensuring the security and authenticity of electronic signatures and in determining “possession” of notes and other negotiable documents in electronic form improves.
There are some dangers lurking in UETA that should be of concern to every business that wants to do business electronically or that communicates by e-mail. Today, much negotiation that used to be conducted in person or by telephone is handled via e-mail. E-mail, in its informality and its immediacy, is more akin in some ways to speaking than to writing. The parties to most substantial transactions usually share an understanding that their bargain does not become an enforceable contract until they have committed it to paper. But to the extent that UETA makes e-mail communications the equivalent of a traditional writing, a business must be concerned that if it becomes involved in a dispute, the other party may use its e-mails against it as evidence of a contract.
The drafters of the Act clearly had this danger in mind. The Act only applies where both parties to a transaction have agreed to conduct the transaction by electronic means. But the drafters chose not to require an explicit agreement to conduct business electronically. Instead, the Act provides that such an agreement “is determined from the context and surrounding circumstances, including the parties’ conduct.” This is fertile ground for litigation.
There are several ways to handle this danger. A business about to begin contractual negotiations with another party might simply write an e-mail or a letter to the other party stating: “While we anticipate communicating with you by e-mail or other electronic means during these negotiations, we do not intend to be bound to any agreement with you until you and we have agreed to all of the terms of the agreement, committed them to a paper writing, and signed them.” Such a disclaimer also has the benefit of preventing, or at least discouraging, claims of an “agreement to agree” that could arise even in the non-electronic context. Of course, this solution may not be appropriate in complex negotiations where the parties contemplate binding themselves to broad terms of a deal while they work out the details. Parties in such a situation who want to avoid the danger of implied consent under UETA or E-SIGN should consult with counsel to craft an appropriate disclaimer.
A business might also include a disclaimer at the bottom of all of its e-mails, similar to the confidentiality statement many businesses already include, stating: “The fact that this communication is in electronic form does not constitute our consent to conduct transactions by electronic means or to use or accept electronic records or electronic signatures for purposes of the Uniform Electronic Transactions Act, the E-SIGN Act, or any similar law.” Of course, boilerplate language such as this is likely to be less persuasive than more specific statements, but it may well be enough to protect the sender.
A second danger lurking in UETA is the danger of disagreements concerning whether an electronic record such as an e-mail has been “signed.” UETA defines an electronic signature as “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.” In the traditional world of paper, there is little room for doubt about a signer’s intent. Even if a signer’s typewritten name appears on a contract, it is understood that he has not signed the contract until he has actually signed his own name, usually in ink. But the situation in the electronic world is not nearly so clear. The drafters of UETA have suggested that “a name as part of an e-mail” is an electronic signature “if the requisite intention is present.” Again, fertile grounds for litigation. Of course, in addition to the difficulty of determining a signer’s intent, there is also the possibility of forged electronic signatures. It may be easier to forge an electronic signature (for example, by using another person’s computer to send e-mail that appears to come from him or her) than a traditional signature. Businesses can do much to avoid this problem by adopting secure digital signature technologies such as public key cryptography and what cryptographers call “strong” passwords. They should also consider communicating to parties with which they have electronic dealings their intention that only such a secure digital signature will constitute an electronic signature for purposes of UETA or E-SIGN.
None of these solutions is foolproof, especially because parties that start a relationship with one understanding can modify their understanding as the relationship develops. In other words, no disclaimer of an intention to be bound is likely to be ironclad. Moreover, firms doing business electronically must be concerned with the other complex provisions of UETA and E-SIGN, governing such matters as electronic record retention, consumer electronic transaction requirements, electronic notarization, and handling of electronic promissory notes. Still, having UETA’s dangers in mind at the outset of a relationship can help a business to head off disputes down the road.
