ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT

On June 30, 2000, President Clinton signed into law the Electronic Signatures in Global and National Commerce Act. The Act applies to most industries, including the insurance industry generally, and title insurance in particular. This update will discuss Title I and Title II of the Act.

Generally effective October 1, 2000, Title I provides that any transactional record or signature will be legally binding if the parties to the transaction agree to use or accept such an electronic record or signature. With certain exceptions, the Act prohibits any court or other State or Federal governmental entity from refusing to recognize an electronically drafted or signed record or contract. For instance, a contract between two parties drafted completely in "cyberspace" and signed by the parties electronically will have the same validity as a contract written on paper and signed by a pen, as long as each party to the contract agrees to be so bound. The Act does not, however, require a non-governmental party to use or accept an electronic signature, record or contract without the party's consent.

A signature or record can even be notarized, acknowledged, verified, or made under oath electronically. The electronic signature of the person who is authorized to perform these acts (e.g. the notary public), as well as all other required information, is attached to the signature or record, or sent in a way that it is "logically associated" with the signature or record.

Also, the Act provides that where a law or regulation requires that a contract or transactional record be retained, the requirement will be met by retaining certain information from the contract or record in electronic form. The electronic record must accurately reflect the information set forth in the contract or record, must be accessible to all who have a legal right to access it, and must be capable of being accurately reproduced, such as by printing or transmission.

In addition, the Act provides that in cases where a law or regulation requires that information be provided to a consumer in writing, such written information may be provided electronically. In order for the electronic record to satisfy the "in writing" requirement, however, the consumer must affirmatively consent to receive the information in electronic form. The consent must itself be given or confirmed electronically, "in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent."

The consumer's consent is itself valid only when given after the consumer has been provided with a clear statement informing her of any right to receive the information in paper and her right to withdraw her consent subject only to those consequences outlined in the statement.

The Act includes a preemption clause, leaving considerable leeway for states to enact additional, more specific legislation. As long as the state's addition constitutes an enactment or adoption of the Uniform Electronic Transactions Act or "specifies the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records," it is permissible for the addition to preempt the Act and modify, limit or supercede the provisions of Section 101 (the provisions that validate the legality of electronic signatures). However, any state-implemented procedures must be consistent with the guidelines and limitations of the Act, and the state rules must specifically refer to the E-Signature Act if adopted subsequent to its enactment. Further, the state requirements cannot require or confer greater legal status or effect to any application of specific technology or technical specifications for the performing of functions of electronic commerce. This allows the utmost amount of freedom to the contracting parties to determine the terms and methods of their electronic communications. This freedom is reiterated several times throughout the Act.

Opponents of the E-Signature Act voiced concern about the power of the Act to override the important protections and standards that state and Federal law presently provide. Addressing that concern, the Act gives deference to existing state and Federal regulatory filing and access rules that require that records be filed with such agencies in accordance with specific standards or formats. Section 104 provides that the Act does not limit or supercede any already established requirements that have been instituted by a Federal or state regulatory agency or self-regulatory agency, as long as they are consistent with the Act. However, the Act does not grant any new authority to these agencies to issue in the future any additional standards regarding electronic commerce. Nor does the Act permit these agencies to adopt any new regulations that conflict with the E-Signature Act. The language reiterates that specific methods of carrying out electronic commerce cannot be required or favored by these regulating bodies.

Notwithstanding the general prohibition on regulating the particular technologies that can or cannot be used, state or Federal regulatory agencies may specify performance standards to assure accuracy, as well as record integrity and accessibility, even to the extent of specifying technological methods if the requirement serves a governmental interest and the requirement is substantially related to the achievement of that objective. However, the agency cannot require the use of a particular type of software or hardware in order to comply with Section 101(d). The Act also does not grant the authority for an agency to impose regulations requiring a record to be in a tangible or printed form. The recently enacted Government Paperwork Elimination Act (GPEA) is still in full force and the E-signature Act does nothing to relieve any Federal agency of its obligations under the GPEA.

Section 103 lists the specific exceptions to the applicability of the Act. The Act does not apply to, among others, official court documents; wills, codicils, or testamentary trusts; adoption, divorce, or other matters of family law; and notices of default, acceleration, repossession, foreclosure, or eviction, or the right to cure a primary residence.

Effective September 28, 2000, Title II of the Act deals with "transferable records." Most significant for real estate practitioners is a provision that any record or note that relates to a loan secured by real property is a "transferable record." A person is deemed to have control of such a "transferable record" if the system employed "reliably establishes that person as the person to which the transferable record was issued or transferred." This requirement is satisfied if a single, unique, authoritative copy of the record exists which is communicated to and maintained by the person asserting control, identifies that person as being in control, and states whether such control resulted from the record being issued, or transferred. All other copies must be identified as not authoritative, and any revisions of the authoritative copy must be identifiable as either authorized by the person controlling it, or not authorized.

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