[Federal Register Volume 67, Number 247 (Tuesday, December 24, 2002)]
[Notices]
[Pages 78421-78423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32405]


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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: [email protected]. 
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: 
[email protected]. 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.

(c) Review of Exceptions.--

    (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