Hoopes & Adams, PLC: Legislation for Electronic Transactions

Legislation for Electronic Transactions

As the use of electronic commerce and electronic business to business transactions continues to increase, the enforceability of agreements and contracts made only in electronic format has become an increasingly important issue.

In 2000, the Arizona Legislature took the lead in addressing this issue through the adoption of Arizona’s version of the Uniform Electronic Transactions Act (the "Act"). Effective July 18, 2000, the Act amended Title 44 of the Arizona Revise Statutes by adding Chapter 26 and provides for the legal validity and enforceability of electronic contracts and signatures. The legislation also makes such signatures and contracts admissible into evidence in any legal proceeding.

The Act applies to any electronic record and electronic signature relating to a transaction. An "electronic record" is a record that is "created, generated, sent, communicated, received or stored by electronic means." An "electronic signature" can be a "sound, symbol or process that is attached to or logically associated with a record and that is executed or adopted by an individual with the intent to sign the record." The effect of an electronic signature is that it cannot be denied legal effect or enforceability solely because the record to which it is attached is in electronic form. In turn, a contract formed by an electronic record cannot be denied legal effect and enforceability solely because an electronic record was used in its formation.

The Act applies only to transactions between parties who have agreed to conduct transactions by electronic means. If the parties have agreed to conduct a transaction by electronic means, the transaction is considered to be "in writing" for purposes of any law requiring that a written agreement exist between the parties before that agreement is enforceable.

To confirm an electronic record has been sent, it must be: (a) properly addressed or otherwise properly directed to an "information processing system" the recipient has designated; (b) in a form that is capable of being processed by the information processing system designated by the recipient; and (c) it must actually enter an information processing system that is outside the control of the sender. For these purposes, an "information processing system" is defined as "an electronic system for creating, generating, sending, receiving, storing, displaying or processing information." Likewise, an electronic record is deemed received if it enters the information processing system the recipient has designated in a form capable of being processed by that information processing system.

Finally, in terms of security, a signature is deemed a secure electronic signature if, through the application of a security procedure, it can be demonstrated the electronic signature, at the time it was made, was:

unique to the person using it;
capable of verification;
under the sole control of the person using it; and
linked to the electronic record to which it relates in such a manner that if the record were changed the electronic signature would be invalidated.

If it can be demonstrated that an electronic record signed by a secure electronic signature has remained unaltered, the record is a secure electronic record from the time of signing forward. A rebuttable presumption arises that a secure electronic record has not been altered since the specific time from which the secure status relates and that the secure electronic signature is the electronic signature of the party to whom it relates.

Arizona’s Electronic Transactions Act provides a predictability and uniformity to transactions carried through by electronic means. Given the ever expanding use and scope of these transactions, the Act is an important first step in addressing the use of new technologies in today’s business environment.