FR Doc 02-32405

[Federal Register: December 24, 2002 (Volume 67, Number 247)]
[Notices]
[Page 78421-78423]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24de02-50]

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DEPARTMENT OF COMMERCE

National Telecommunications and Information Administration

Docket No. 010222048-2313-07

The State Uniform Commercial Code Exception of the Electronic
Signatures in Global and National Commerce Act

AGENCY: National Telecommunications and Information Administration
(NTIA), U.S. Department of Commerce

ACTION: Request For Comments

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SUMMARY: Section 101 of the Electronic Signatures in Global and
National Commerce Act, Pub. L. No. 106-229, codified at 15 U.S.C.
Sec. Sec. 7001 et seq. (``ESIGN'' or ``the Act''), preserves the legal
effect, validity, and enforceability of signatures and contracts
relating to electronic transactions and electronic signatures used in
the formation of electronic contracts. 15 U.S.C. Sec. 7001(a). Section
103 (a) and (b) of the Act, however, provides that the provisions of
section 101 do not apply to contracts and records governed by statutes
and regulations regarding court documents; probate and domestic law
matters; state commercial law; consumer law covering utility services,
residential property foreclosures and defaults, and insurance benefits;
product recall notices; and hazardous materials documents. Section 103
of the Act also requires the Secretary of Commerce, through the
Assistant Secretary for Communications and Information, to review the
operation of these exceptions to evaluate whether they continue to be
necessary for consumer protection, and to make recommendations to
Congress based on this evaluation. 15 U.S.C. Sec. 7003(c)(1). This
Notice is intended to solicit comments from interested parties for
purposes of this evaluation, specifically on the state uniform
commercial code exception to the ESIGN Act. See 15 U.S.C. Sec.
7003(a)(3). NTIA will publish separate notices requesting comment on
the other exceptions listed in section 103 of the ESIGN Act.\1\
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\1\Comments submitted in response to Federal Register notices
requesting comment on the other exceptions to ESIGN will be
considered as part of the same section 103 evaluation and not as
part of a separate review of the Act. Notices have been published on
the court documents, hazardous materials, product recall, famliy law
documents, housing default, and insurance cancellation notices
exceptions to ESIGN. See 67 Fed.Reg. 56277, 56279, 59828, 61599,
63379, 69201, and 75849.

DATES: Written comments and papers are requested to be submitted on or
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before February 24, 2003.

ADDRESSES: Written comments should be submitted to Josephine Scarlett,
National Telecommunications and Information Administration, 14th Street
and Constitution Ave., N.W., Washington, DC 20230. Paper submissions
should include a three and one-half inch computer diskette in HTML,
ASCII, Word, or WordPerfect format (please specify version). Diskettes
should be labeled with the name and organizational affiliation of the
filer, and the name of the word processing program used to create the
document. In the alternative, comments may be submitted electronically
to the following electronic mail address: esignstudy_ucc@ntia.doc.gov.
Comments submitted via electronic mail also should be submitted in one
or more of the formats specified above.

FOR FURTHER INFORMATION CONTACT: For questions about this request for
comment, contact: Josephine Scarlett, Attorney, Office of the Chief
Counsel, NTIA, 14th Street and Constitution Ave., N.W., Washington, DC
20230, telephone (202) 482-1816 or electronic mail:
jscarlett@ntia.doc.gov. Media inquiries should be directed to the
Office of Public Affairs, National Telecommunications and Information
Administration, at (202) 482-7002.

SUPPLEMENTARY INFORMATION:

Background: Electronic Signatures in Global and National Commerce Act

Congress enacted the Electronic Signatures in Global and National
Commerce Act, Pub. L. No. 106-229, 114 Stat. 464 (2000), to facilitate
the use of electronic records and signatures in interstate and foreign
commerce and to remove uncertainty about the validity of contracts
entered into electronically. Section 101 requires, among other things,
that electronic signatures, contracts, and records be given legal
effect, validity, and enforceability. Sections 103(a) and (b) of the
Act provides that the requirements of section 101 shall not apply to
contracts and records governed by statutes and regulations regarding:
probate and domestic law matters; state commercial law; consumer law
covering utility services, residential default and foreclosure notices,
and insurance benefits cancellation notices; product recall notices;
and hazardous materials documents.
The statutory language providing for an exception to section 101 of
ESIGN for contracts governed by the Uniform Commercial Code as in
effect in any state is found in section 103(a)(3) of the Act:

Sec. 103. [15 U.S.C. 7003] Specific Exceptions.

(a) Excepted Requirements.-- The provisions of section 101 shall
not apply to a contract or other record to the extent it is governed
by--
* * * *
(3) the Uniform Commercial Code, as in effect in any State, other
than sections 1-107 and 1-206 and Articles 2 and 2A.
* * * *
The statutory language requiring the Assistant Secretary for
Communications and Information to submit a report to Congress on the
results of the evaluation of the section 103 exceptions to the ESIGN
Act is found in section 103(c)(1) of the Act as set forth below.

(1) Evaluation required.-- The Secretary of Commerce, acting
through the Assistant Secretary for Communications and Information,
shall review the operation of the exceptions in subsections (a) and (b)
to evaluate, over a period of 3 years, whether such exceptions continue
to be necessary for the protection of consumers. Within 3 years after
the date of enactment of this Act, the Assistant Secretary shall submit
a report to Congress on the results of such evaluation.

Contracts and Records Governed by State Uniform Commercial Code

The ESIGN exception for contracts governed by state uniform
commercial code (UCC) provisions, other than sections 1-107, 1-206,
Articles 2 and 2A, precludes the formation or establishment of these
contracts by electronic means.\2\ Contracts based on the other
provisions of the uniform commercial code are excepted or exempt from
the application of ESIGN's provisions, and therefore, are not legally
valid if executed electronically or

[[Page 78422]]

signed with an electronic signature. This general rule does not apply,
however, to transferable records under Title II of the ESIGN Act. See
15 U.S.C. Sec. 7021(a). For the purposes of Title II, a ``transferable
record'' is an electronic record that would be a note under Article 3
of the uniform commercial code if the electronic record were in
writing; the issuer of the electronic record expressly has agreed is a
transferable record; and relates to a loan secured by real property.
Id. The provisions of Title II, therefore, allow the use of electronic
signatures for transferable records under Article 3 of the uniform
commercial code,\3\ although not included among the ESIGN exceptions in
Title I. See e.g., 15 U.S.C. Sec. 7003(a)(3).
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\2\Section 1-107 allows for waiver or renunciation of a claim or
right after breach without a writing; section 1-206, the statute of
frauds, requires a written contract for sale of property in excess
of $5,000 in amount or value of remedy; Articles 2 and 2A govern
sales and lease transactions, respectively.
\3\Title II also notes that ``[d]elivery, possession, and
endorsement are not required to obtain or exercise any of the rights
under this subsection.'' 15 U.S.C. Sec. 7021(d). The Code explains
why an electronic signature would still be enforceable without
delivery (UCC Sec. 4-110), possession (UCC Sec. 3-301), or
endorsement (UCC Sec. 3-205) of the instrument.
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Each state's commercial law controls whether electronic
transactions are allowed under that state's uniform commercial code.
While some states' rules require parties to execute commercial
contracts in written form, several states have used section 102(a)(1)
of ESIGN to adopt electronic transactions laws that incorporate or
exclude commercial transactions under the uniform commercial code from
the application of the state electronic transactions laws. See National
Conference of Commissioners on Uniform State Laws at http://www.nccusl.org/nccusl/LegislativeByState.pdf.
Forty-six states have
adopted the version of UETA recommended by NCCUSL or their own version
of UETA. Of the states that have passed UETA laws, most of them have
expressly excluded contracts governed by select uniform commercial code
provisions from the operation of the state electronic transactions
laws.\4\ The remaining states have passed state UETA laws that do not
contain language that expressly excludes all uniform commercial code
provisions. These statutes may contain general provisions, however,
that make the substantive commercial law controlling and require an
examination of the commercial code to determine whether certain
electronic commercial transactions are legally valid.
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\4\See e.g., New Mexico H.B. 232, available at, http://www.nccusl.org/nccusl/pubdrafts.asp
(excludes Articles 3, 4, 4A, 5,
8, and 9 of the Uniform Commercial Code from ESIGN). Approximately
43 states have an exception for specific uniform commercial code
provisions. For a list of states that have adopted electronic
transactions laws, see the National Conference of Commissioners on
Uniform State Laws website, available at, http://www.nccusl.org/nccusl/legislativebystate.pdf
.
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Some state legislatures and state courts have also enacted the
Uniform Computer Information Transactions Act (UCITA). Most UCITA laws
specify that if there is conflict between their provisions and those of
the state uniform commercial code, the latter is controlling.
Consequently, if a state's regulations regarding electronic signatures
contains an exception for certain transactions governed by the uniform
commercial code, then the uniform commercial code will control,
regardless of what UCITA allows.

The ESIGN Section 103 Evaluation

The ESIGN Act directs the Assistant Secretary of Communications and
Information to conduct an evaluation of whether the exceptions set out
in section 103 of the Act continue to be necessary for the protection
of consumers, and to submit a report to Congress on the results of the
evaluation no later than June 30, 2003. The Assistant Secretary for
Communications and Information is the chief administrator of NTIA. As
the President's principal advisor on telecommunications policies
pertaining to the Nation's economic and technological advancement, NTIA
is the executive branch agency responsible for developing and
articulating domestic and international telecommunications policy.
The ESIGN section 103 evaluation of the state uniform commercial
code law exception is intended to evaluate the current status of the
law regarding this issue in preparation for a report to Congress on
whether this exception remains necessary to protect consumers. This
evaluation is not a review or analysis of state uniform commercial code
provisions for the purpose of recommending changes to those
regulations, but to advise Congress of the current state of law and
practice regarding this issue. Comments filed in response to this
Notice should not be considered to have a connection with or impact on
ongoing specific federal and state rulemaking proceedings concerning
contracts governed by state uniform commercial codes.

Invitation to Comment

NTIA requests that interested parties, including members of the
bar, courts and consumer representatives, submit written comment on any
issue of fact, law, or policy that may assist in the evaluation
required by section 103(c). We invite comment from all parties that may
be affected by the removal of the state uniform commercial code
exception from the ESIGN Act including, but not limited to, state
agencies and organizations, national and state bar associations,
consumer advocates, and commercial law practitioners. The comments will
assist NTIA in evaluating the potential impact of the removal of this
exception from ESIGN on consumers, companies, practitioners, and state
electronic transactions laws. The following questions are intended to
provide guidance as to the specific subject areas to be examined as a
part of the evaluation. Commenters are invited to discuss any relevant
issue, regardless of whether it is identified below.
1. Discuss state Uniform Electronic Transactions Act (UETA)
provisions that either include or exclude any sections of the State
Uniform Commercial Code provisions that are also exceptions to section
101 of the ESIGN Act.
2. Describe state uniform commercial code provisions that are
excluded from the state electronic transactions laws or the ESIGN Act
and that require written documents for commercial contracts and
transactions. Indicate whether there other state or federal regulations
that require commercial contracts and transactions covered by the state
uniform commercial codes to be excluded from the operation of ESIGN or
the state UETA laws.
3. Discuss whether and how the inclusion of all state uniform
commercial code contracts and transactions under the requirements of
ESIGN and the state UETA laws would affect consumers. How would this
affect companies?
4. Discuss all state uniform commercial code provisions that may
need to be modified to accommodate interstate, online transactions.
5. Are there issues surrounding the execution of commercial
documents covered by the exception, such as authentication and privacy,
that should be considered?
6. How would the removal of the state uniform commercial code
exception from ESIGN affect federal or state commercial law?
7. Describe the types of commercial transactions and contracts that
would either benefit from or be harmed by the removal of the state
uniform commercial code exception to ESIGN.
8. Would the economic impact be greater on consumers or a
particular industry if the exception is eliminated from ESIGN?
Please provide copies of studies, reports, opinions, research or
other

[[Page 78423]]

empirical data referenced in the responses.

Dated: December 19, 2002.
Kathy D. Smith,
Chief Counsel, National Telecommunications and Information
Administration.
[FR Doc. 02-32405 Filed 12-23-02; 8:45 am]

BILLING CODE 3510-60-S