The Uniform Electronic Transactions Act UETA was originally drafted by the National Conference of Commissioners of Uniform State Law (Uniform Law Commissioners) in 1999. Like the Uniform Commercial Code (UCC), the UETA is a “model code” that is not the law in any state until each state legislature adopts it as part of their state code. Each legislature is free to modify the model code. However, the UETA has been adopted in its entirety by most states and the federal government.[1]
Also like the UCC, one objective of the UETA was to promote interstate commerce by creating one set of commercial rules that would be almost identical in all fifty states. This gives consumers and business people confidence buying and selling goods across the country.
Historically, all records were in hard copy, created with ink and paper. The only copies were the originals. This changed with carbon copies and copying machines. Technological advances in the last few decades have resulted in the creation and storage of documents in electronic form. Business people needed to know whether an electronic copy was an enforceable “writing.” The UETA addresses the enforceability of electronic documents and facilitates the electronic storage or retention of documents.
Enforceability of Electronic Signatures.
The UETA does NOT dictate that electronic documents are enforceable. It establishes, to the greatest extent possible, that an electronic signature is equivalent to a manual signature.[2] The purpose is to overcome unwarranted biases against electronic methods of signing and authenticating records. If another law requires a contract to be in writing or requires a signature to make a writing enforceable, an electronic record or signature will satisfy that law. A record or signature may not be excluded from evidence solely because it is in an electronic form.[3]
Hard copy original documents are not always enforceable. Manual signatures can be forged. Agents signing hard copy documents may lack authority. A contract may lack “consideration” or may otherwise be legally unenforceable. You can have these same issues with electronic documents. The purpose of the UETA is that we will NOT have these issues MORE with electronic documents than original hard copy documents.
A contract, credit agreement, guaranty, or joint check agreement containing an electronic signature is legally enforceable, provided the parties have consented to using electronic means of doing business and the document satisfies all other applicable legal requirements outside the UETA. To enforce documents, you may need to prove that the buyer consented to the use of an electronic transaction, that the electronic signature was "the act" of the buyer and that you have an accurate copy of what was agreed to.
An electronic signature may be accomplished by a wide variety of acts, as long there is an intention to sign and the signature is attributable to the signatory. It is advisable to use a more involved system for electronic signatures, to make it clearer who signed and that they intended a signature and legal enforceability. Many internet websites have only a “checkbox” that refers to adjoining verbiage with contract terms. This is perfectly “enforceable,” until the customer claims that they did not intend to enter into an agreement or did not intend to agree to these terms.
The objective is to make intentions clear. Under the UETA, the parties must "agree to conduct transactions by electronic means."[4] There is no set procedure for determining whether the parties agreed. It is determined from the context and circumstances surrounding the transaction. It is preferable for this reason to have a customer separately agree early in the process that they wish to enter into an electronic transaction.
The UETA states that "an electronic record or electronic signature is attributable to a person if it is the act of the person.” The act of the person may be shown in any manner, including the security procedure applied to determine the person providing the signature. The effect of an electronic record or electronic signature is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption.[5]
It is generally advisable to use an involved electronic procedure that requires the buyer to separately ask for an electronic transaction and to identify the person signing. Rather than requiring a customer to only check a box, it is advisable to require the customer to identify themselves by filling in their name and additional contact and identifying information. Passwords and security codes chosen by the customer are helpful for the same reasons. Doc-u-sign and similar products have a customer create their own signature to identify themselves. A unique signature created by the customer with a computer mouse may be a good option. You should retain any transmittals sent to you for electronic documents to help identify the source. It is also advisable to require the customer fill in their signature repeatedly, evidencing their understanding of each page.
It is also important to have an incorruptible electronic storage system that retains data exactly as your customer saw it and executed it, so that you have a single authoritative copy that is unique, identifiable and unalterable. This will give a court confidence that the customer agreed to an electronic transaction and the terms of that agreement.
Are all types of electronic documents enforceable?
There is limited court case law in any state on the UETA. The official comments to the UETA discuss agreements to buy and sell goods, but not agreements to lend money. However, there is no reason to think a credit agreement, guarantee, promissory note, and joint check agreement would not be covered by the UETA.
Because the official comments to the UETA do discuss agreements to buy and sell goods, purchase orders or other sales contracts are almost certainly covered by the UETA and electronic signatures are enforceable. Most state UETA statutes apply to their Uniform Commercial Code Article 2 on the Sale of Goods. A purchase order containing an electronic signature is legally enforceable. A credit agreement containing an electronic signature is legally enforceable. A guarantee containing an electronic signature is legally enforceable.
The UETA seems to provide for the enforceability of “transferable records,” which can include promissory notes, but there is limited case law interpreting this section. Case law in some states has decided that a promissory note, defined on the face of the note as a transferable record, and generated and signed electronically would be enforceable.[6] A note generated electronically, in accordance with the UETA requirements, and containing an electronic signature is legally enforceable as a transferable record. Most state UETA statutes do not apply to their Uniform Commercial Code Article 3 on Negotiable Instruments. However, the UETA does recognize "Transferable Records" which, when executed in accordance with the law's requirements, function very similarly to paper notes under the Commercial Code.
Uniform Commercial Code Security Agreements and Financing Statements on the other hand are most certainly excluded by the UETA and electronic signatures may not be enforceable.
Most state UETA statutes do not apply to their Uniform Commercial Code Article 9 on Secured Transactions. A security agreement containing an electronic signature is likely not legally enforceable and a financing statement without an original signature is probably not recordable.
Retention of Electronic Documents.
The UETA states that a law requiring a record to be retained is satisfied by retaining an electronic record of the information that accurately reflects the information in the record after it was first generated in its final form as an electronic record or otherwise; and remains accessible for later reference.[7] Any legal requirement to maintain a record is satisfied by the retention of an electronic record that accurately reflects the information set forth in the record at the time it was first generated in its final form and remains accessible for later reference.[8] Satisfying these requirements satisfies any law requiring retention of a record for evidentiary, audit, or similar purposes.
It is also an important objective to make sure records are clear. Each page that was viewed and signed by the insured should be stored, so that it can later be viewed in the same manner and sequence as was viewed by the customer.[9] Each document should be stored in a manner that shows how it was generated in its final form and showing that the electronic record is in the same form as the original, void of alteration.
The UETA allows outsourcing of document storage stating, "A person may satisfy [requirements] by using the services of another person if the requirements . . . are satisfied otherwise."[10] Outsourced servicers could be employed not only to retain the documents, but to operate and service the website portal document reviewing and signing.
The issue of how long you should retain documents is, in large part, an issue of best business practices and is a legal question only to a limited extent. A business will want to determine how long to retain documents based on a variety of factors. Some documents should be retained for as long as you do business with the customer and thereafter for as long as either you, your customer or any taxing authority may want to bring legal action. How long do you plan to do business with this customer? How long would a customer expect to be able to obtain records of past transactions from you? These are not legal questions.
The UETA (Uniform Electronic Transaction Act) basically says that an electronic record is always just as good as a paper record. This means that for all your records you have the choice of keeping the hard copy or scanning it in. The problem with scanning documents in and saving electronic copies is that it is labor intensive to do the scanning and somebody has to save it and label it in a rational manner that will allow you to find it years from now. You can also run out of space on your computer hard drive. You may have to pay extra for cloud storage. But that is generally better than paying rent on floor space that is full of boxes that are harder to search through.
Documents must be retained in accordance with various state and federal document retention laws. To some extent this varies according to your type and the size of your business. Much of this is beyond the scope of this outline. Once you have spent the time and money to electronically store all company records, it is tempting to simply keep them permanently. However, this policy can increase your costs for storage and can increase the risk you will need to produce large volumes of documents in the event of litigation. This can increase your litigation costs and can even increase your risk of unfavorable court judgments.
The length of time you need to retain documents also depends on the type of document.
The Statute of Limitations period for legal action by you, your customer, your employees, any taxing authority or other government regulators is a legal question. You certainly want to retain documents for as long as you are at risk of legal action.
Some types of contract documents should be retained for as long as you do business with that customer, and thereafter for the Statute of Limitations for enforcement of those written documents. This would include Credit Agreements, Nondisclosure, Non-compete and other agreements that remain relevant as long as you do business with this customer. For legal purposes, we would recommend retaining these documents for at least ten (10) years after you stop doing business with a customer. The Statute of Limitations in Virginia to enforce a default on a written contract is 5 years. However, in Louisiana it is ten (10) years. However, in some states you could face a negligence or products liability claim against you two years from when the injury is discovered, which may be later. You may need your contractual limitations of liability terms at that time to defend the case.
Some contract documents are “transaction specific,” such as proposals, quotes, purchase orders, delivery tickets, etc. The same Statute of Limitations would apply, but instead of retaining these documents for ten (10) years after you stop doing business with a customer, you only need to retain these documents for at least ten (10) years after you complete that particular transaction with the customer.
The U.S. Internal Revenue Service can claim taxes due for 3 years from the tax due date, 6 years from the tax due date if substantial errors are discovered.[11] The Statute of Limitations for various state taxing authority will vary from state to state. Ten (10) years from the filing date is again probably a good rule of thumb.
State and federal statutes require retention of personnel, employment and other human resource documents. These types of records should be retained for as long as an employee is employed and six (6) years after the employee leaves. As discussed below, this is an example of a record your company may NOT want to keep beyond the statutory requirements.
Some documents may require longer retention. Trade Secrets and other intellectual property should be kept for as long as the Company wants to own the intellectual property or trade secret. Minutes of corporate shareholder, board of director or officer meetings, committee meetings should be kept as long as the corporation is in existence. Support materials should be kept for ten (10) years.
Real estate owners or developers and other asset managers should keep all “Asset Files” until ten years after that asset is sold. This includes the settlement file from when you bought the property, title insurance policies, title search, construction plats and plans and the settlement file for at least ten years after the asset is sold. Keep all leases on the property until ten years after they expire and the tenant moves out. Keep all bank financing records on the property until ten years after the loan is paid off. All companies should keep corporate documents about the creation of whatever LLC or other limited liability entity owns the property, the operating (partnership) agreement, resolutions, meeting minutes, etc. until ten years after you sell the property.
You and your record retention policy must keep in mind that any requirement to retain documents includes all types of electronic documents. The most obvious examples are all emails and text messages, but also includes graphics, spreadsheets, audio and video recordings. This also includes data on handheld devices, cellphones fax machines and voicemail. It may be difficult to save some of these types of data, but you need to either have a firm policy prohibiting the use of certain devices for work or a firm workable policy of retaining all records on those devices.
Document Retention Policy.
Your Company must have a written record retention policy, describing what types of documents must be retained, how they are retained and for how long. This is to some extent communicative, to make sure employees are clear on and will follow the policy. However, as discussed above, there are some documents you want to affirmatively get rid of after statutory requirements or your need for the documents expires. In the event of litigation or regulatory action, an established written record retention policy that you adhered to will defend an allegation that you destroyed documents in order to hide them from the litigants or governmental authorities. For this reason, your managers and all employees must be clear that they must strictly adhere to the written record retention policy.
The written record retention policy should identify what documents should be retained, how and in what form they should be retained, and who is in charge of retaining the documents. The policy should also establish and describe the means or physical facility to store paper and electronic documents and make clear that they easily recoverable when needed. The policy should also describe how documents should be destroyed at the time required.
Corporate records include all records produced by an employee, whether paper or electronic. This includes emails, contracts, quotes, proposals, agreements correspondence, whether paper, emails, texts. Corporate records also includes calendar or appointment books.
Once the policy is established, management should make sure that documents are, in fact, destroyed good faith in accordance with the policy. Audits of the policy should be conducted regularly to insure that all employees are complying with the policy.
Litigation Hold Policy.
As discussed above, some federal and state statutes require you to retain certain documents for certain periods of time. However, your written record retention policy must also include a litigation hold policy. Your Company has a common law obligation to preserve evidence (documents) if there is “reasonable anticipation” of a legal dispute.[12] The test for “reasonable anticipation of litigation” varies by jurisdiction, but reasonable anticipation of litigation arises when a party knows there is a credible threat that it will become involved in litigation.[13] Common examples creating an obligation to preserve evidence include receipt of a demand letter, formal complaint, records subpoena, or the occurrence of an event that typically results in litigation. However, less formal events can create a “reasonable anticipation of litigation,” including an employee simply insisting that they will sue for perceived discrimination or other complaint. Any type of investigation by your Company that may result in litigation would include an obligation to retain relevant documents.
Your written record retention policy must make it clear that NO documents should be destroyed, regardless what your written record retention policy says if there is reasonable anticipation of litigation. Legal counsel should generally be employed to help make this determination and issue the litigation hold. However, all employees should have the obligation to intensify and inform management of any event that indicates the possibility of litigation. A litigation hold should be in writing and transmitted to all employees who may have custody or may handle documents to be held.
We hope this newsletter is helpful to you in understanding some of the recent events, concepts and issues involved in construction law. It is important to understand, however, that this law firm is not providing you legal or professional advice in supplying you this newsletter. We have generalized and simplified many legal concepts, so that the explanations are short, uncluttered and easily understandable. You should consult this firm or another attorney in dealing with any specific problem.
[1] The full text of the final Model Act may be accessed online at: http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf
[2] See the ‘Prefatory Note’ of the Model Act at http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf at page 1.
[3] See D.C. Code § 28-4906; Md. COMMERCIAL LAW Code Ann. § 21-106; 73 P.S. § 2260.303; Va. Code Ann. § 59.1-485. Also see, http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf at Section 7, p. 26.
[4] See D.C. Code § 28-4904(b); Md. COMMERCIAL LAW Code Ann. § 21-104(b)(1); 73 P.S. § 2260.301(b); S.C. Code Ann. § 26-6-50(B); Va. Code Ann. § 59.1-483(b). Also see, http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf at Section 5(b), p. 21.
[5] See D.C. Code § 28-4908(b); Md. COMMERCIAL LAW Code Ann. § 21-108(b); 73 P.S. § 2260.305(b); S.C. Code Ann. § 26-6-90; Va. Code Ann. § 59.1-487(b). Also see, http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf at Section 9(b), p. 31.
[6] Rivera v. Wells Fargo Bank, N.A., 189 So. 3d 323 (Fla. Dist. Ct. App. 4th Dist. 2016).
[7] See D.C. Code § 28-4911; Md. COMMERCIAL LAW Code Ann. § 21-111; 73 P.S. § 2260.308; S.C. Code Ann. § 26-6-120; Va. Code Ann. § 59.1-490. Also see, http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf at Section 12, p. 38.
[8] See D.C. Code § 28-4911(a); Md. COMMERCIAL LAW Code Ann. § 21-111(a); 73 P.S. § 2260.308(a); S.C. Code Ann. § 26-6-120(A); Va. Code Ann. § 59.1-490(a). Also see, http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf at Section 12(a), p. 38
[9] Traynum v. Scavens, 416 S.C. 197, 786 S.E.2d 115 (2016).
[10] See D.C. Code § 28-4911(c); Md. COMMERCIAL LAW Code Ann. § 21-111(c); 73 P.S. § 2260.308(c); S.C. Code Ann. § 26-6-120(c); Va. Code Ann. § 59.1-490(c). Also see, http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf at Section 12(c), p. 38
[11] See 26 USCS § 6501(a) and (e). See the I.R.S. website for information on statute of limitations with respect to audits at: https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits.
[12] Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598, 612-613 n. 7 (S.D. Tex. 2010).
[13] Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003).