The Law of Electronic Contracts in the United States

The growth of electronic commerce has proportionally increased the use of electronic contracts as a faster and innovative way to carry out business. Between 1998 and 2002 most countries adapted their domestic commercial legislation to recognize electronic contracts and signatures as legally valid instruments. Still some less-developed countries are accomplishing this task. Even so, despite the inexorable expansion of e-commerce and the promulgation of laws protecting e-commerce contracts, many businesses and Internet users do not know precisely what law applies to their e-commerce contracts. The following laws constitute the basic legal framework of electronic contracts in the United States. In addition to these specific laws, there are some international laws that may well apply to electronic contracts if the contractual parties decide to abide by them. This article does not address the explicit international laws applicable to electronic contracts.




There are two broad categories of electronic contracts. First, those contracts that trade with physical goods or services. Second, those contracts that trade with electronic materials (software, images, e-delivered texts, etc). In addition to the basic commerce/contractual rules, each contract within any of these two categories may be subject to other set of specific regulatory policy. For instance, contracts on tobacco products, liquor, and firearms are subject to further and strict government regulations; and contracts on Internet telecommunication services and internet service providers may also be subject to domestic telecommunication laws and regulations. The following set of laws only refer to the basic contractual rules any electronic contract must follow to be binding on and enforceable by the parties.


United States basic contractual rules are found in the Uniformed Commercial Code (U.C.C.) and state judicial opinions published by the Restatement of Contracts. The U.C.C. is a set of uniformed commercial rules that have been adopted by most states. U.C.C. Article 2 refers to the sale of goods and Article 2A refers to the lease of goods including computer equipment. Thus, the U.C.C. applies to electronic contracts for the sale of goods. The U.C.C. does not apply to the online sale of services. Application of U.C.C. to the sale of electronic materials is definitely a complex issue that must be reviewed in a case by case basis. Important issues to be considered are if the licensing includes some type of service, the scope of the service, and the state where the contract is performed. The Restatement of Contracts may be an important tool here. For instance, if the state laws consider licensing of a product a sale of goods when incidental service is involved, then the U.C.C. rules would apply to that specific online licensing contract. In sum, the U.C.C. clearly applies to the online sale of goods; and it may also apply to the sale of certain electronic materials depending on the jurisdiction, the type of 'electronic material,' and the amount of service that this sale entails.




The Uniform Electronic Transactions Act (UETA) is another important U.S. legislation applicable to electronic contracts. UETA uniformed rules were proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1999. 46 U.S. states, the District of Columbia, and the U.S. Virgin Islands have incorporated UETA rules within their state rules. UETA, as expressly defined in Articles 3 and 4, only applies to transactions related to business, commercial, and government matters; and to transactions conducted by electronic means.


The U.C. Electronic Signatures in Global and National Commerce Act (E-Sign Act) has been totally in effect since 2001. The Act recognizes the validity of contracts entered electronically, and where electronic signatures have been incorporated. The main purpose of this Act was to bestow on electronic contracts, the same authority as its paper-base counterpart. It is important to note that the E-Sign Act is not considered the U.S. electronic signature law. The E-Sign Act broadly defines electronic signatures as any mark or sound. Thus, any mark, image, symbol, or sound may constitute an e-signature for purposes of electronic contracts. The E-Sign Act expressly excludes its application to the following transactions:

wills, codicils, or testamentary trusts


family law matters like adoptions, divorce


the Uniform Commercial Code, except written waivers to discharge a claim or right
arising out of alleged breaches (§ 1-107); writing required for sale of personal
Property in excess of $ 5,000 (§ 1-206); and Articles 2 (Sales) and 2A (Leasing)

court orders or official court documents (briefs, pleadings, motions)
Notices cancelling a utility service

Notices related to residential mortgages and leases
Notices under a credit or rental agreement securing a primary residence

cancellation of health or life insurance or benefits
notices of product recalls or failures that may endanger health or safety
hazardous materials documents.


Finally, the Uniform Computer Information Transaction Act (UCITA) is a relevant U.S. set of proposed model rules applicable to the formation of electronic contracts, especially to those e-contracts on electronic materials, or "computer information transactions" as the Act calls them. UCITA has not been adopted by many states and several of the states that have adopted UCITA have included multiple amendments to the original UCITA text. Thus, when dealing with licensing or transfer of computer software within the United States, it is important to check whether UCITA"s rules have been adopted by the state legislator of the jurisdiction at hand.






U.S. rules applicable to the formation of electronic contracts for the sale of goods are pretty straight forward; as clear as the U.C.C. traditional rules and supporting case law. Instead, the rules on electronic contracts for the sale of services and electronic materials seem not so obvious for the average folks. They require a further analysis of the particular facts of each case and the jurisdiction involved[1].





References:
[1]http://www.ibls.com/internet_law_news_portal_view.aspx?id=1913&s=latestnews