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Winter 2005-04 Electronic signatures laws

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Number 58
Winter 2005

Electronic signatures laws

Because by their very nature electronic contracts and other "documents" cannot be physically signed, the concept of "electronic signatures" has developed and found its way into the law books.

Uniform Electronic Transactions Act

Throughout the United States, a majority of states adopted some form of legislation governing the use of electronic signatures, most of which permit their use only under certain circumstances and only if certain prescribed technologies are used in the process. Puerto Rico was no different, with its adoption in August 7, 1998, of the Digital Signatures Act. Even though these statutes were designed to facilitate the use of modern technology in business transactions, the potential disadvantages for interstate contracting parties was readily apparent, especially where each party's respective state did not acknowledge the other's specified technology platforms.

To combat these problems, in 1999 the National Conference of Commissioners on Uniform State Laws recommended the Uniform Electronic Transactions Act ("UETA") for enactment by all states. UETA was designed as model legislation to complement existing digital signature laws at the state level, while at the same time providing a clear framework for validating and effectuating electronic records and signatures in e-commerce.

Federal legislation

On June 30, 2000, the United States Congress enacted the Electronic Signatures in Global and National Commerce Act, popularly referred to as the federal "E-Sign" legislation. Essentially, this federal statute was designed to bridge the gap between business transactions and on-line technology. It broadly validates the use of electronic records and signatures in transactions in interstate and foreign commerce, while preempting virtually all state statutes and regulations that require traditional paper documents and traditional signatures for transactions in interstate commerce.

The federal E-Sign law was promoted as a temporary measure, designed to create a uniform national legal infrastructure for electronic commerce until such time as the states had a chance to consider and enact the UETA.

Although E-Sign preempts state law, it was carefully drafted to co-exist peacefully and partner with UETA. In fact, Section 102 of E-Sign expressly recognizes the existence of UETA and acknowledges that individual states, through the enactment of UETA, can modify, limit or supersede the provisions of E-Sign without fear of federal preemption, unless such enactment is clearly inconsistent with the federal legislation. Basically, states have the following alternatives:

a state law may modify, limit, or supersede the provisions of E-Sign with respect to state law only if the law either constitutes an adoption of the official version of the UETA, or

the law otherwise specifies alternative procedures or requirements for the use and acceptance of electronic records and signatures, provided that such alternative procedures or requirements are consistent with the provisions of the federal E-Sign and do not require specific technologies.

Therefore, federal preemption does not apply to UETA, or a similar law with alternative procedures or requirements for the use and acceptance of electronic records and signatures.

Puerto Rico

On September 16, 2004, Puerto Rico enacted the Electronic Signatures Act (the "PR E-Sign") that gives electronic signatures the same legal standing as a handwritten signature on paper. With the enactment of the PR E-Sign, Puerto Rico opted to follow the second alternative provided by the federal E-Sign, that is, to adopt a non-UETA law that specifies alternative procedures or requirements for the use and acceptance of electronic records and signatures.

As stated above, prior to the adoption of the PR E-Sign, Puerto Rico had adopted the Digital Signatures Act, which had permitted the use of electronic signatures only if certain prescribed technologies were used in the process. Since the federal E-Sign prohibits that states adopt non-UETA laws that prescribe specific technologies, the PR E-Sign repealed the Digital Signatures Act.

Following are key provisions of the PR E-Sign that are consistent with the federal E-Sign:

Legal effect

Electronic signatures ("e-signatures") are defined as a compilation of records in electronic form, attached to other records or functionally associated to them by a person with the intent to sign the record. E-signatures have the same legal status as paper signatures. Moreover, the proof value of a document is not affected by the fact that it has attached to or is logically associated with an e-signature. Therefore, evidence may not be excluded from a proceeding solely because it is in electronic form.

Technology neutral

The PR E-Sign is technology neutral. E-signatures are valid notwithstanding the technology used to generate them. As a result, businesses and individuals have the flexibility to choose whatever form of communication they desire.

Does not apply to all transactions

PR E-Sign does not cover all legal documents and transactions; some documents will still have to be produced on paper with handwritten signatures. The categories of exempt laws and transactions are:

laws governing the creation and execution of wills, inventories of a descendant's estate and the functions of executors;

family law;

documents required to be executed in connection with court proceedings;

notices of cancellation or termination of utility services;

notices of default, acceleration, repossession, foreclosure, or eviction, or the right to cure, under a lease agreement over the primary residence of a debtor;

notices of default, acceleration, repossession, foreclosure, or eviction, or the right to cure, under a debt secured by the primary residence of a debtor;

notices of cancellation of an insurance policy or the benefits of a life or health insurance policy;

notices of the recall of a product, or material failure of a product that risks endangering health or safety;

any document required to accompany any transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials;

documents under the Commercial Transactions Act.

Consumer consent

Businesses must obtain consumers' express consents to receive warnings by electronic form when they otherwise have the right to receive written warnings. The business must also provide the consumer with a statement of the hardware and software requirements for access to and retention of the electronic records.

Other key provisions

Although the PR E-Sign has several provisions that are consistent with the federal E-Sign, there are some that require additional procedures and requirements for the validity of e-signatures, that are missing from the federal E-Sign. Among the most notable are the following:

Requirements

In order to be valid, an e-signature must comply with the following requirements:

identify a natural or juridical person, also known as signatory;

be created with records that the signatory maintains under its exclusive control;

authenticate the signatory as the author of any message, document or transaction generated or transmitted by electronic means, to which the e-signature is attached;

be susceptible of detection of any alteration of the e-signature made after the moment of signing.

Moreover, every e-signature must correspond to an effective certificate issued by a "Certifying Authority," whose records have been verified by a "Registry Authority."

E-signature certificate

An "e-signature certificate" is defined as a message of records generated by a Certifying Authority, which confirms the relationship between the signatory and the records of the creation of the e-signature. Such certificate must contain the following minimum information:

indicate that the certificate is issued as such;

identify the certifying authority;

identify the signatory;

in the event of representation, indicate the document that verifies the powers of the signatory to act in such representative capacity;

indicate the records of the verification of the signature that correspond to the records of creation of the signature that are under the control of the signatory or person authorized for their keeping;

indicate the beginning and end of the effective period of the certificate and

  • state the limits of use of the certificate (if any) and limits of value for the transactions for which the certificate may be used.

Certifying Authority and Registry Authority

The "Certifying Authority" is a person that is authorized to produce, issue, cancel or revoke certificates of e-signatures. The "Registry Authority" is a person that is authorized to solicit, receive and verify that the personal records of any person that requests the issuance, cancellation or revocation of a certificate of e-signature.

The Certifying Authority and the Registry Authority must also comply with various requirements and obligations, including obtaining a license to act as such.

Committee of Infrastructure of Electronic Signatures

The PR E-Sign also establishes the Committee of Infrastructure of Electronic Signatures, a committee ascribed to the Puerto Rico Justice Department. This committee is generally in charge of supervising, regulating, organizing and controlling the infrastructure necessary to institute the use of e-signatures in Puerto Rico. The committee is also in charge of issuing the licenses required for the Certifying Authorities and Registry Authorities.

√ Note:

It is evident that Puerto Rico adopted a law different from the UETA. Nevertheless, the PR E-Sign complies with the federal statute inasmuch as it specifies alternative procedures or requirements for the use and acceptance of electronic records and signatures, which procedures or requirements do not require specific technologies.

However, it also contains a large number of requirements and procedures not present in either the federal E-Sign or UETA. An example is the e-signature certificates that must be issued by licensed Certifying Authorities. Not only can these be considered to be preempted by the federal E-Sign, but also affect the general purpose of the federal E-Sign and UETA. ◙


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