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The State of California - State and Consumer Services Agency

LEGAL AFFAIRS
400 R Street, Suite 3090
Sacramento, CA 95814-6200

ELECTRONIC SIGNATURE CONTRACTS
IN CONSUMER INTERNET TRANSACTIONS

November 2000

When you purchase a product or service over the Internet, it's not possible to use your handwritten signature to communicate and record your decision to purchase the product or service, or your agreement to the seller's proposed terms of sale. A substitute for a handwritten signature and a paper record of the terms of sale is needed in order to enter into binding contracts over the Internet.

Congress has responded by adopting uniform nationwide rules on electronic commerce, commonly called the federal E-Sign Act, short for Electronic Signatures in Global and National Commerce Act. #1 The E-Sign Act provides, in brief, that electronic signatures and electronic records used in transactions in interstate and foreign commerce will not be denied validity simply because they are in electronic form.

Electronic commerce also is the subject of other California statutes. For instance, California was the first state to adopt a statute authorizing use of electronic signatures and electronic notices and other records. #2 Other California statutes cover particular kinds of electronically-formed contracts. #3 (But see 7 below, on the E-Sign Act's preemption of conflicting state law.)

1) Core Principles of the E-Sign Act

Under the federal E-Sign Act, "electronic signature" means "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." #4

The E-Sign Act does not require anyone to use electronic signatures or electronic records. #5 Nor does it affect the content or timing of any consumer disclosure or other record required by law to be provided or made available to consumers. #6 With one exception, the E-Sign Act makes no change in the laws on the formation, interpretation, and cancellation of contracts, #7 or the laws that govern consumer transactions.

The exception is that, in a transaction covered by the E-Sign Act, you and a seller can now agree to substitute an "electronic signature" for a handwritten signature, and any "electronic record" for a written notice, disclosure or other paper record. In effect, you and a seller can agree that the "statute of frauds" -- the law that requires a handwritten signature and a paper record in certain transactions -- and similar laws will no longer apply to qualifying electronic transactions with that seller, and that "electronic records" instead of paper disclosures, notices and records will suffice. #8

The E-Sign Act allows you and a seller to agree that a faxed signature, a click of a mouse on the "I accept" box on the seller's website, and even a voice telephone communication, will substitute for your handwritten signature, and will satisfy any state or federal law that requires a handwritten signature or a paper record. Since "electronic signature" is defined to include any electronic sound, symbol or process, and even a human voice spoken over the telephone #9, any of these can be an "electronic signature" under the new federal law. All this law does is to allow you and a business to agree to substitute any one or more of these methods for a writing and/or personal signature otherwise required by some other federal or state law. #10

As with all of the powers that contract law gives you, it's important that you exercise this power carefully and guard against abuses. The Internet, when properly used, can make some transactions possibly more convenient (save you time, if all goes well), and perhaps also less expensive to the seller and you. In general, no one should ever consent to an electronic signature or an electronic notice, disclosure or record unless he or she understands and agrees to the new procedures, and is willing to accept the risks as well as the benefits. A consumer also needs the computer hardware, software, technical sophistication and sustained personal interest to use the new procedures successfully. A consumer who agrees to use electronic processes rather than traditional communications to plan and carry out transactions may no longer be able to let days go by without checking his or her computer. If your minor child has a computer, or has access to your computer, you probably have numerous added responsibilities. #11

Under traditional contract law, certain contracts are legally invalid and unenforceable unless the contract, or some note or memorandum of the contract, is in writing and is personally signed by the party to be charged. #11 While the general rule is that oral contracts are enforceable #12 some kinds of contracts must be in writing. The rule that requires tangible written documentation of certain transactions is called the "statute of frauds." Since the early part of the 20th century, legislatures have adopted numerous laws -- many responding to abuses of consumers -- that require contracts to be in writing and signed by the parties The central purpose of the statute of frauds was and is to limit the opportunity for parties to fabricate proof of an oral agreement when there really was no agreement. #14

The E-Sign Act's delegation of power to you to dispense with the statute of frauds and similar statutes potentially covers all types of transactions that occur in interstate and foreign commerce, except for transactions that are specifically excepted by the federal act. The scope of the federal act includes disclosures, notices, statements and the like, so that if you and the other party agree, the entire transaction can be entered into and also carried out electronically.

You also can probably use your electronic signature to communicate your decision to rescind (cancel) an electronic contract if the situation is one in which you have a legal right to do so under some other federal or state law, and you and the other party have agreed to substitute electronic communications for written ones in the transactions that you and the other party enter into. #15 (On when a contract is voidable under California law, see Legal Guide K-1, Consumer Contract Formation and Cancellation.)

The major exceptions to the abandonment of the traditional requirement of a handwritten signature and paper record are in the areas of wills, adoption, divorce, family law, termination of utility service, cancellation of health benefits, residential eviction notices, product recalls, and court proceedings. #16 Remember, however, that in a consumer transaction to which the E-Sign Act applies, an electronic signature or record can never substitute for a real signature or paper record unless you and the other party specifically agree to the substitution. #17 The E-Sign Act's requirements for such an agreement are discussed at 2 and 3 below.

2) Your Specific Consent is Always Required

Rather than being prescriptive or limiting, the federal E-Sign Act is enabling legislation. Its principal function is to do away with the statute of frauds, discussed in 1, above. It does this by conditionally authorizing the parties to a transaction to agree to substitute an electronic signature and electronic records in place of a handwritten signature and written records. #18

However, the act overrides the signature and writing requirements of other laws only if the consumer has given his or her consent (a) to enter into a particular plan or contract to conduct transactions electronically, (b) to use an electronic signature and electronic records in place of a handwritten signature and paper record required by some other law, and, (c) to enter into a particular transaction electronically. #19

The E-Sign Act does not provide legal standards for determining whether a consumer or other party has actually agreed to substitute an electronic signature for a personal signature. Nor does it provide standards for determining whether a contract to use a particular method of consummating transactions electronically was formed. Nor does it provide standards for determining whether air electronic signature was "executed or adopted ... with the intent to sign." #20

All of these forms of consent are the subject of preexisting, carefully defined, and often very consumer-protective state law. This means that the traditional rules on the formation of contracts apply in determining whether the parties have agreed to conduct transactions electronically, substitute an electronic signature and electronic records for a handwritten signature and paper records, and enter into a particular transaction electronically. #21 (California law is discussed in Legal Guide K-1, Consumer Contract Formation and Cancellation.)

The E-Sign Act leaves no doubt that the specific consent of a consumer is always needed. It states that it "does not ... require any person to agree to use or accept electronic records or electronic signatures ...." #22 It then relies on state law to determine whether or not the consumer has actually consented to enter into electronic transactions, to use an electronic signature and electronic records (including possibly notices, disclosures, etc.) in place of a handwritten signature and paper records, and to execute or adopt an electronic signature in a particular transaction. If a seller does business in California or knows that you are a resident of this state, California contract law probably applies (although the courts have yet to confirm this). #23

Whether a consumer has consented, and the interpretation of any resulting contract, are therefore determined by traditional contract law -- the same rules that apply to the formation and interpretation of other contracts. It follows also that any electronic signature or contract probably can be rescinded (canceled) on the same grounds (for instance, fraud, or mutual mistake) that apply in other situations.

3) Prerequisites to Agreement to Use Electronic Record

Congress was mindful that in authorizing contracting parties to do away with the statute of frauds in electronic transactions, it might also be opening the door to the very kinds of fraud that the statute of frauds - and the numerous other state and federal statutes that require paper records and handwritten signatures - were intended to curb.

It is doubtless for this reason, as well as a desire to promote the evolution of a civilized and beneficial electronic commerce environment, that Congress adopted prerequisites to both the agreement to use an electronic scheme and the agreement to do away with a statute of frauds and similar statutes. The prerequisites include both consumer disclosures #24 and substantive rules. #25

In expressing the prerequisites, Congress defined the key terms:

• "Consumer" means "an individual who obtains, through a transaction, products or services which are used primarily for personal, family, or household purposes ...." #26
  
  
• An "electronic signature" is "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." #27
  
  
• A "consumer record" is "a contract or other record created, generated, sent, communicated, received, or stored by electronic means." #28 (An electronic manifestation of an offer, or of an acceptance of an offer, ordinarily is an electronic record.)
  
  
• Oral communications or recordings of oral communications are not ordinarily considered "electronic records." #29 (That means that the parties to an electronic transaction cannot agree that a telephone message constitutes a consumer record.)

Following are the prerequisites that must be present in order for an electronic record to satisfy a requirement of federal or state law that information must be provided or made available to a consumer in writing, #30 or that an original contract or other record must be preserved in written form. The prerequisites include both consumer disclosures and substantive standards. #31

a. Consent. An electronic record does not qualify under the E-Sign Act unless "the consumer has affirmatively consented to such use and has not withdrawn such consent." #32 If a consumer "has consented prior to the effective date" of the E-Sign Act that is, October 1, 2000 - no additional consent (or other compliance) is required #33, which means that you can re-consider any past decisions that you have made, and withdraw from a plan if the level of privacy, security or other important feature does not measure up.

b. Explanation. An electronic record does not qualify under the E-Sign Act unless "the consumer, prior to consenting, is provided with a clear and conspicuous statement ---

(i) informing the consumer on (1) any right or option ... to have the record provided or made available on paper or in nonelectronic form, and (II) the right ... to withdraw the consent to have the record provided or made available in electronic form and of any conditions, consequences (which may include termination of the parties' relationship), or fees in the even of such withdrawal; #34

(ii) informing the consumer of whether the consent applies (I) only to the particular transaction which gives rise to the obligation to provide the record, or (II) to identified categories of records that may be provided or made available during the course of the parties' relationship; #35

(iii) describing the procedures the consumer must use to withdraw consent as provided in clause (i) and to update information needed to contact the consumer electronically; #36 and,

(iv) informing the consumer (I) how, after the consent, the consumer may, upon request, obtain a paper copy of an electronic record, and (II) whether any fee will be charged for such copy." #37

c. Suitable hardware and software. An electronic record does not qualify under the E-Sign Act unless the consumer ---

(i) "prior to consenting, is provided with a statement of the hardware and software requirements for access to and retention of the electronic records," #38 and,

(ii) "consents electronically, or confirms his or her consent 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." #39

d. Change in hardware or software requirements. An electronic record also does not satisfy the E-Sign Act's prerequisites ---

(i) if there is a subsequent "change in the hardware or software requirements needed to access or retain electronic records [that] creates a material risk that the consumer will not be able to access or retain a subsequent electronic record that was the subject of the consent,"

(ii) unless "the person providing the electronic record (i) provides the consumer with a statement of (I) the revised hardware and software requirements for access to and retention of the electronic records, and (n) the right to withdraw consent without the imposition of any fees for such withdrawal and without the imposition of any condition or consequences that was not disclosed under [item b(i) above]; and (ii) again complies with [item c above]." #40 (That is, the provider must (a) fully explain the changes, and (b) allow the buyer to withdraw without charge.)

e. Electronic agent. The E-Sign Act allows an agreement with a seller to include an arrangement under which the buyer's "electronic signature" is given by his or her computer, or some other automated means, without his or her personal knowledge, review, or action. #41 An automatic bill payment service in which an amount is withdrawn from your account each month, and changes monthly to reflect your purchases of a product or service without any additional action by you, may exemplify the kind of arrangements that are authorized by the E-Sign Act. Under the E-Sign Act, the only legal prerequisites to this are (a) that you and the seller have met all four requirements described in a, b, c and d above, and (b) that in using your electronic signature you intended to enter into that arrangement. #42 (Other laws will apply to limit or prohibit schemes that abuse consumers, just as in "land" transactions.)

f. Accessibility and accuracy. Finally, the E-Sign Act requires that in a consumer transaction, all electronic records that are required by some other law to be permanently retrievable and reproducible. The act states that if a statute requires a contract or other record to be in writing, "the legal effect, validity, or enforceability of an electronic record of such contract or other record may be denied if such electronic record is not in a form that is capable of being retained and accurately reproduced for later reference by all parties or persons who are entitled to retain the contract or other record." #43

B4) Applicability of the Prerequisites to the Formation of the Underlying Contract

Like sales made by land-based retailers, sales made over the Internet are subject to numerous laws, and they are inevitably accompanied by the agreed terms of sale, including typically price, product features, delivery time, warranty rights, return policies, and perhaps privacy, security and other elements of an electronic relationship.

When an Internet seller sells and ships to a California resident, California law probably governs the formation of the contract of sale, as well as other aspects of the transaction, except insofar as federal law or some other state's law legitimately preempts or supercedes it. #44 Since the California statutes discussed in Legal Guide K-1 are based on common-law rules first codified in New York State in 1872 and then adopted in many other states, those statutes are similar to those in effect in other states.

The text of the E-Sign Act can be interpreted to limit the application of the E-Sign Act's prerequisites to the parties' agreement to substitute an electronic signature and electronic record for a handwritten signature and a paper record, and not to the formation of the agreement to use the electronic system offered by the electronic service provider. While the E-Sign Act is not totally clear on this, there is a strong indication, however, that Congress intended that there can be no contract between an electronic provider and a consumer to engage in enforceable electronic transactions unless the E-Sign Act's prerequisites have been met.

The policy justification for this result rests in Congress' evident desire to support and foster the deployment, use and evolution of electronic commerce. Since consumers in large numbers will engage in electronic commerce only if it proves to be successful and beneficial to them, and since this is a new, complex, rapidly changing and therefore unfamiliar way of life for most people, Congress sought to lay the groundwork for successful results by providing consumers with the basic information they need to know before they decide to engage in electronic commerce with a particular provider, and by establishing certain basic substantive rules that are also needed to assure good results. #45

The legal basis for applying the prerequisites to contract formation rests in Congress' declaration in the E-Sign Act that one of the four prerequisites does not apply to the formation of the underlying contract. The E-Sign Act states that "[t]the legal effectiveness, validity, or enforceability of any contract executed by a consumer shall not be denied solely because of the failure to obtain electronic consent or confirmation of consent by that consumer in accordance with paragraph (I)(C)(ii).") #46 That exclusion would not be needed if the provision (as well as the other prerequisites) did not also apply to the underlying contract.

5) Electronic Process Design and Integrity

When a consumer decides whether to accept an offer to substitute an electronic signature for a personal signature, and to substitute electronic records for written disclosures, notices and other records, he or she makes important decisions that could affect his or her pocketbook significantly.

Prior to the adoption of the E-Sign Act and similar state laws, the basis for electronic commerce was mutual trust, the effect of which was to give each party power to defend against abuse by simply not performing. Now that the force of law is clearly given to electronic contracts that comply with the E-Sign Act and state contract law, each party to a contract is potentially more vulnerable to abuse by the other, as well as to the consequences of system failure and abuse by third parties. #47

Since the E-Sign Act does not include performance standards -- such as protections regarding message integrity (accuracy in transmission), confidentiality (information privacy) and authentication (identity of sender) -- the evaluation of a proposed electronic process by a consumer (or merchant) might and probably should extend to each of these, and to countless others as well. #48 Following are some of the features that a consumer (or merchant) may desire:

a. Authentication. If a business firm that engages in electronic commerce desires to legally bind you (instead of simply entering into and carrying out non-legally-enforceable contracts based on trust), your electronic signature alone may not provide it with the desired level of assurance. #49 In fact, someone else may have placed the order in your name, which is common in this day and age of "identity theft." (See Legal Guide P-3, Credit Identity Theft: Tips to Avoid and Resolve Problems.) If you agree to enter into electronic transactions with a seller, the E-Sign Act provides no protection against the chance that someone else will "forge" your electronic signature, risking losses or at least major inconvenience to everyone.

b. Message integrity. The same principles apply also to authentication apply also to message integrity. In evaluating competing electronic systems for purchasing goods or services or other uses, a consumer or business should consider the competing systems' safeguards against changes in the content of a message after it leaves one party's computer (or other instrument) and before it reaches the other party's computer (or other instrument). #50 It is for the purpose of assuring the accuracy and completeness of electronic communications that the computer and software industries are developing so-called "digital signature" systems. These guarantee that no change in the content of a communication can occur, which will help protect both you and a business with which you are dealing. (This use of "digital signature" is different from the meaning of "electronic signature," which includes no guarantee of message integrity.)

c. Confidentiality and privacy. In conducting electronic transactions, almost all users expect some level of privacy. #51 If you have no concern about what an electronic service provider does with the information you provide -- your and your family's purchasing decisions, personal qualities, family history, interests, hobbies, habits, credit card numbers, bank account numbers, driver's license numbers, addresses, telephone numbers and e-mail addresses, and so on -- privacy protection might be of no concern to you. If you are concerned about how your personal information will be used and disseminated by an electronic service provider, by a corporate owner or subsidiary of the provider, and by other companies to which the provider may sell your personal profile, or to which the provider itself may be sold, you probably should locate and read the provider's privacy policy statement (every legitimate merchant displays one on its website), and say "no" if the privacy protections promised by the system do not measure up to your own personal privacy standards. #52

d. Trust. Since electronic systems are imperfect, and, therefore, are constantly evolving and improving, trust by each party of the other is important -- no less important here than it is in face-to-face dealings. Trust is "what is required before a party will act in reliance on electronic messages in real time, and enter into commercial transactions, ship products, extend credit, transfer funds, change the party's position, or otherwise enter into binding legal commitments with significant economic consequences." #53 The presence of a large measure of trust, coupled with a willingness to accept some risks, has enabled electronic commerce to develop.

The result is that today, instead of trying to understand, investigate and judge the adequacy of every feature of a provider's electronic system, most consumers rely on the provider's reputation for competency and inter integrity. This is also how most people select and engage in business with "brick-and-mortar" business fines, who earn the public's trust and brand loyalty from repeated transactions that turn out well. While such trust is sometimes misplaced, there is no way to function in the world without it. The real issue is whether a particular electronic service provider justifies your trust.

Even though a provider is so new that it has no reputation, it may be both competent and honest, as indeed most businesses are. A good way to find out if a business operating electronically is competent and honest is to enter into smaller transactions first, or check with others who have used the new process repeatedly and successfully. If things go well in many small transactions, or have repeatedly gone well for others in your situation, you will have some basis on which to enter into larger and more important transactions, as you do in the non-electronic world.

Since established business firms sometimes violate important consumer values (such as privacy) and also sometimes fail, it is important to protect against the risk of these by (a) learning a lot about the subject matter (both electronic commerce and what tasks you want to accomplish by its use), (b) always being a bit skeptical, and (c) always adopting appropriate protective measures. For instance, if you are not assured of the provider's integrity and solvency, you can limit yourself initially to small transactions, and also pay by credit card, so that if the provider is not able to meet its commitments to you, you will have limited your losses. (See Legal Guide CR-7, How to Withhold Payment on a Credit Card, and Legal Guide CR-8, How to Correct a Credit Card Billing Error.)

6) Role of Consumers in Achieving Protection

While the laws that California has adopted to protect consumers probably apply to most Internet transactions in which a retailer sells and ships to a California resident, #54 compliance by out-of-state and foreign retailers is likely to be far less than 100%. That means that you will be less assured that you will have the protections and benefits that you ordinarily have when you do business with a retailer that is physically present in California -- such as a display of the retailer's return policies. #55 This means that you probably will need to play a much larger role in protecting yourself on the Internet.

In view of the anonymity, novelty and complexity of the Internet, as well as the increasing proliferation of hackers and fraud artists, the risks of both willful abuse and system failure are also factors that you should take into account in evaluating and entering into an electronic purchasing plan. Since electronic commerce system design and integrity is not addressed by the E-Sign Act, and is addressed only marginally by other laws, the level of protection against abuses and system failures in Internet transactions depends almost entirely on the level of protection that (a) providers voluntarily provide and (b) users like you demand. Translated into practical terms, it is important for you to say "no" to an electronic system that does not measure up to your own standards of excellence.

The fact that a protective feature is not required by the E-Sign Act or other law does not mean that it is not important. In many situations, you will want some protections that will only be provided if you think about them and insist on them. If it's important to you, for instance, that your personal information not be shared with others, or that your electronic messages arrive as they are sent, or that a retailer not be misled into believing that a fake message is yours, it's important that you evaluate competing systems and, where appropriate, make it known that you will require such things as "encryption for confidentiality, a digital signature for message integrity and a digital certificate or other feature for assurance as to the identity of the author of the message." #56 Like "land" transactions, Internet transactions entail formation of contracts that you have a hand in making, or at least approving or disapproving. Like "land" transactions, there are countless factors -- beginning with price, product quality, warranty service, delivery time and return rights -- that invite a conscious and informed decision.

Whenever you are not satisfied with the quality of service that is offered by a particular provider, therefore, it's important that you say "no." Since protections that people desire are increasingly inexpensive to develop and deploy, and since the electronic commerce marketplace is highly competitive and therefore sensitive to user expectations, concerns, values and desires, all that is required is that enough users be aware of their desirability, and then refuse to do business with a company unless the desired features are provided. It is not being needlessly careful or unrealistic, in other words, for you to say "no" to a proposed plan or transaction that does not provide a feature, such as a promise not to share your personal information with a third party, even an affiliate, that's important to you. Only in that way will marketplace forces influence the design of emerging systems positively, as they ought to. #57

The requirement that an electronic signature must be "executed or adopted ... with the intent to sign" #58 assumes, perhaps erroneously, that a "click of a mouse" is a means of communication - a form of speech. Another view is that "the commands you type into a computer are of a kind of speech that doesn't so much communicate as make things happen, directly and ineluctably, the same way as pulling a trigger does. ##59 By insisting on rigorous hardware, software, disclosure and consent standards in the E-Sign Act as conditions that must be met before an electronic contract is legally enforceable, Congress has sought to help equip consumers to act wisely in exercising their newly-won and exceedingly potent powers.

7) Applicability of Conflicting Statutes

In adopting the E-Sign Act, Congress has sought to help promote electronic commerce by creating a uniform set of rules on which state and federal writing, signature, and paper records requirements can be satisfied by an "electronic signature" and electronic record. #60 Since the purpose of the E-Sign Act is to override federal and state statutes that interfere with electronic commerce, the act permits the signature and writing requirements of numerous federal and state statutes and regulations to be satisfied by an electronic signature and record. #61

At the same time, the E-Sign Act allows states to adopt and enforce statutes that are "consistent" with its provisions. #62 For instance, California's Electronic Commerce Act #63 requires providers of " electronic commercial services" that are subject to its provisions to give consumers an initial and annual disclosure of the provider's charges, complaint resolution procedures, and other information. Since this statute merely supplements and does not conflict with the E-Sign Act disclosures, its requirements probably are not preempted by the E-Sign Act.

California has also adopted a version of a proposed uniform state law which is called the "Uniform Electronic Transactions Act" (UETA). The California version of UETA is referred to as "Cal-ETA." #64 Cal-ETA differs from UETA in ways that are both consistent with the federal E-Sign Act (and are therefore not preempted by it) and also inconsistent with the federal E-Sign Act (and are therefore preempted by it). Since Cal-ETA excludes from its coverage most kinds of consumer transactions, #65 the federal E-Sign Act applies to most kinds of consumer transactions (and therefore allows use of electronic signatures and electronic disclosures and contracts if the E-Sign Act's prerequisites are met). Key elements of Cal-ETA that are not preempted include its provisions on authentication #66 and message integrity. #67 Cal-ETA also includes a mix of record retention provisions that, individually, either supplement and contradict the E-Sign Act. #68

The federal E-Sign Act declares that a state which adopts the official text of the Uniform Electronic Transactions Act (UETA), may decide that even the inconsistent provisions of UETA will apply instead of the federal rules. #69 Since California has not adopted UETA's official text, this displacement of the federal E-Sign Act does not apply. Since neither UETA nor Cal-ETA include provisions analogous to the consumer consent and education provisions of the E-Sign Act, and since UETA's protective provisions can be waived by the parties, the E-Sign Act's consent and education provisions would not apply if (a) the official text of UETA were adopted in California and (b) the Legislature expressed an intent that UETA displace the E-Sign Act.

Some of the inconsistent provisions of Cal-ETA can apply to an electronic transaction today -- if it is (a) within Cal-ETA's scope of applicability, and (b) not covered by the federal E-Sign Act. Non-uniform parts of Cal-ETA also apply if they are consistent with the E-Sign Act. Since the E-Sign Act only covers transactions in or affecting interstate or foreign commerce, electronic transactions that are purely "local" are not covered by the E-Sign Act, and therefore may be covered by Cal-ETA. Because of the design of the Internet, all Internet usage is multi-state; hence, all Internet transactions are covered by the E-Sign Act.

The presence of multiple federal and state statutes, and of preemptive provisions that do not always apply, increases the complexity of the law and makes it difficult to summarize it for either lawyers or non-lawyers. The various rules are summarized here to identify issues that may affect the standards that apply to an electronic transaction.

Prepared by:
Richard A. Elbrecht
Supervising Attorney
Legal Services Unit
November 6, 2000

NOTICE: We attempt to make our Legal Guides accurate as of the date of publication, but they are only guidelines and not definitive statements of the law. Questions about the law's application to particular cases should be directed to a specialist.

[This document will be available on the Internet. See the Department of Consumer Affairs homepage at www.dca.ca.gov.J

This document may be copied if all of the following conditions are met: the meaning of the copied text is not changed; credit is given to the Department of Consumer Affairs; and all copies are distributed free of charge.

G:U.S\Guides\K-11(11-00).wpd

ENDNOTES

1. Public Law 106-229 (S. 761), signed July 3, 2000, effective October 1, 2000.

2. Civil Code §§ 1633.1-1633.17 (Stats. 1999 ch. 428, SB 820).

3. See, for instance, Civil Code § 1624(b).

4. E-Sign Act, § 106(5).

5. E-Sign Act, § 101(b)(2).

6. E-Sign Act, § 101(c)(2)(A).

7. E-Sign Act, § 101(b)(1).

8. E-Sign Act, § 101(a), (c).

9. E-Sign Act, § 106(5).

10. E-Sign Act, § 101(c)(1).

11. Websites targeted to children are subject to the federal Children's Online Privacy Protection Act; for information, see www.ftc.gov/kindzprivacy.

12. Civil Code § 1624(a); other writing requirements are found at Civil Code §§ 683, 1135, 1698, 2309; Code of Civil Procedure §§ 360, 1280, 1974; Commercial Code §§ 2201, 19203; Probate Code § 9604..

13. Commercial Code § 2201 and Official Comments; see also 1 Witkin, Sum of Cal. Law (9th ed. 1987) Contracts, §§ 261-331.

14. Juran v. Epstein (1994) 23 Ca1.App.4th 907 [28 Cal.Rptr.2d 558].

15. E-Sign Act, § 101(b)(1); see also Civil Code § 1633.16.

16. E-Sign Act, § 103(a), (b).

17. E-Sign Act, § 101(c)(1).

18. E-Sign Act, § 101; see also Civil Code §§ 1633.7, 1633.8 and 1633.13. .

19. E-Sign Act, § 101(b), (c).

20. E-Sign Act, § 106(5).

21. Smedinghoff, Thomas J., and Ruth Hill Bro, "Moving With Change: Electronic Signature Legislation As a Vehicle for Advancing E-Commerce," 17 John Marshall Journal of Computer and Information Law 723, 754.

22. E-Sign Act, § 101(b)(2).

23. People v. Fairfax Family Fund, Inc. (1965) 235 Cal.App.2d 881, 885, 47 Cal.Rptr. 812, 815; see also Nedlloyd Lines BV v. Superior Court (1992) 3 Ca1 4th 459, 464-465, 11 Cal.Rptr. 330, 333, and Allstate Ins. Co. v. Hague (1981) 449 US 302, 322.

24. E-Sign Act, § 101(c)(1).

25. E-Sign Act § 101(c)(2)(3).

26. E-Sign Act, § 106(1).

27. E-Sign Act, § 106(5).

28. E-Sign Act, § 106(4).

29. E-Sign Act, § 101(c)(6).

30. E-Sign Act, § 1O1(c)(1).

31. E-Sign Act, § 101(d)(3).

32. E-Sign Act, § 101(c)(1)(A).

33. E-Sign Act, § 101(c)(5).

34. E-Sign Act, § 101(c)(1)(B)(i).

35. E-Sign Act,§§ 101(c)(1)(B)(ii).

36. E-Sign Act, § 101(c)(1)(B)(iii).

37. E-Sign Act, § 101(c)(1)(B)(iv).

38. E-Sign Act, § 101(c)(1)(C)(i).

39. E-Sign Act, § 101(c)(1)(C)(ii).

40. E-Sign Act, § 101(c)(1)(D).

41. E-Sign Act, § § 101(h), 106(3); see also Civil Code § 1633.14..

42. E-Sign Act, § § 101(b), 106(5).

43. E-Sign Act, § 10 1(e).

44. People v. Fairfax Family Fund, Inc. (1965) 235 Cal.App.2d 881, 885, 47 Cal.Rptr. 812, 815; see also Nedlloyd Lines BV v. Superior Court (1992) 3 Cal 4th 459, 464-465, 11 Cal.Rptr. 330, 333, and Allstate Ins. Co. v. Hague (1981) 449 US 302, 322.

45. Congress may have noted the failure of the "976" information technologies due to preventable abuses, and also the role of a strong federal Electronic Funds Transfer Act in creating the context for a successful` nationwide electronic transfer industry.

46. E-Sign Act, § 101(c)(3).

47. See, for example, Bruce Schneider, Secrets and Lies: Digital Security in Networked World (2000), and Richard Power, Tangled Web: Tales of Digital Crime (2000).

48. Roland E. Brandel and Veronica K. McGregor, "The E-Sign Act: A Federal Foundation for E-Commerce," Electronic Banking and Commerce Report (Vol. 5, No. 4, Sept. 2000), p. 5. UCLA Law Professor Jerry Kang, however, argues that "contract" (market-based) standards need to be supplemented by legislatively-established "default" rules that into play when there isn't any real agreement. Kang, Jerry, "Information Privacy in Cyberspace Transactions," 50 Stanford Law Review 1198, 1246-1248, 1265-1273 (1998)

49. Smedinghoff, Thomas J., and Ruth Hill Bro, "Moving With Change: Electronic Signature Legislation As a Vehicle for Advancing E-Commerce," 17 John Marshall Journal of Computer and Information Law 723, 745-46.

50. Smedinghoff, Thomas J., and Ruth Hill Bro, "Moving With Change: Electronic Signature Legislation As a Vehicle for Advancing E-Commerce," 17 John Marshall Journal of Computer and Information Law 723; 746.

51. Information privacy is "an individual's claim to control the terms under which personal information - information identifiable to the individual - is acquired, disclosed and used." Principles for Providing and Using Personal Information, issued by the federal Information Infrastructure Task Force, www.iitf.doc.gov. See, generally, Kang, Jerry, "Information Privacy in Cyberspace Transactions," 50 Stanford Law Review 1198, 1246-1248 (1998).

52. Privacy protection policies, and the mechanisms that might help implement those policies, are discussed in Kang, Jerry, "Information Privacy in Cyberspace Transactions," 50 Stanford Law Review 1198, 1241-1245 (1998); the author notes that encryption, without operational policies that limit how information is acquired, disclosed and used, leaves numerous consumer concerns unanswered.

53. Smedinghoff, Thomas J., and Ruth Hill Bro, "Moving With Change: Electronic Signature Legislation As a Vehicle for Advancing E-Commerce," 17 John Marshall Journal of Computer and Information Law 723, 728.

54. People v. Fairfax Family Fund, Inc. (1965) 235 Ca1.App.2d 881, 885, 47 Ca1.Rptr. 812, 815; see also Nedlloyd Lines BV v. Superior Court (1992) 3 Cal.4th 459, 464-465, 11 Cal.Rptr. 330, 333, and Allstate Ins. Co. v. Hague (1981) 449 US 302, 322.

55. Civil Code § 1723.

56. Roland E. Brandel and Veronica K. McGregor, "The E-Sign Act: A Federal Foundation for E-Commerce," Electronic Banking and Commerce Report (Vol. 5, No. 4, Sept. 2000), p. 5.

57. The role of informed consumer demand in translating consumer values into industry practices is addressed by Professor David G. Post in "Code, Law and Liberty in Cyberspace," 52 Stanford Law Review 1439 (2000); see also Bibas, Steven A., "A Contractual Approach to Data Privacy," 17 Harvard Journal of Law & Public Policy 591, 604-05 (1994). On the other hand, the competitive pressures that make providers sensitive to consumer values also force them to capitalize upon the information they gain from consumers in ways that many consumers would not knowingly approve. This point is made by Kang, Jerry, "Information Privacy in Cyberspace Transactions," 50 Stanford Law Review 1198, 1238 (1998).

58. E-Sign Act, § 106(5).

59. Julian Dibbell, "A Rape in Cyberspace," Village Voice (Dec. 21, 1993), quoted by Lawrence Lessig, "Cyberspace and Privacy: A New Legal Paradigm," 52 Stanford Law Review 987, 988 (2000).

60. E-Sign Act, § 102(a).

61. E-Sign Act, § 102, 103.

62. E-Sign Act, § 102(a)(2)(A).

63. Civil Code § 1789-1789.8.

64. Civil Code §§ 1633.1-1633.16 (Stats. 1999, ch. 428, SB 820).

65. Civil Code § 1633.3(c); but see § 1633.3(f).

66. Civil Code §§ 1633.9 and 1933.11.

67. Civil Code § 1633.12.

68. Civil Code § 1633.12.

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