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A Texan who digitizes his John Hancock on a contract could have more confidence that the contract is enforceable under a bill passed by both houses of the Texas Legislature. Federal legislation passed by Congress and signed into law by former President Bill Clinton in June 2000 legalized electronic signatures, contracts and other records affecting interstate commerce. The federal measure — dubbed the E-Sign Act — took effect last October. If signed by Texas Gov. Rick Perry, S.B. 393, by Sen. John Carona, R-Dallas, will enact a state law for regulating transactions conducted by electronic means. The federal legislation authorizes states to adopt the Uniform Electronic Transactions Act crafted by the National Conference of Commissioners on Uniform State Laws (NCCUSL). Carona says the current legislative session provided Texas its only opportunity to avoid having electronic transactions generated in Texas interpreted under the federal law. “We would have had to rely strictly on federal law. We would have been subject to federal pre-emption,” Carona says. “In keeping with Texas history and tradition, where we can have state control over matters like this, we prefer to do so,” says South Texas College of Law Professor W. David East. According to the Office of House Bill Analysis, current state law doesn’t contain provisions governing the use of electronic transactions. But Texas’ Uniform Commercial Code requires signed contracts for the sale of goods valued at $500 or more. Under S.B. 393, the mere fact that a contract has been signed electronically doesn’t prevent it from being enforceable, says East, who serves on a State Bar of Texas Business Law Section subcommittee that studied the issue and helped get the legislation ready for consideration by the Legislature. “The electronic signature can be just a click of the mouse,” says Steve Borgman, a partner in the Houston office of Vinson & Elkins and a member of the firm’s intellectual property section. Borgman says an electronic signature can be accomplished via the clicking of a “yes” or “I accept” button on a computer screen to signify agreement with the terms and conditions of a sale. S.B. 393 makes that electronic record a legally enforceable agreement, he says. East says the federal law makes digital signatures as legally binding as handwritten ones. But he says it’s important for Texas to enact UETA because state courts can harmonize it better with other state statutes and common law than they could with the federal law. Val Perkins, who lobbied for the bill on behalf of the Texas Business Law Foundation, says his group believes UETA was drafted better than the federal law. If the bill becomes law, Texas will be the 31st state to adopt UETA, says Perkins, of counsel at Coats, Rose, Yale, Ryman & Lee in Houston. UETA applies only to transactions in which each party has agreed by some means to conduct the transactions electronically. Under S.B. 393, an electronic record cannot be enforced against the person who receives the goods if the sender inhibits the recipient’s ability to store or print that record. STAY ON STATE LEVEL John McCabe, legal counsel for Chicago-based NCCUSL, says UETA makes it easier to overcome “statute of frauds defenses” by removing writing and signature requirements that create barriers to electronic transactions. UETA also ensures that courts accept electronic records into evidence, he says. “It’s fundamentally easier to apply state rules to state rules than to apply federal rules to state rules,” McCabe says. Borgman says a number of security measures are available to businesses so that they can ensure the security of electronic transactions. Some vendors use encryption technology to make sure the orders they receive from customers are authentic, Borgman says. Each customer has an encryption code, and a key is used to decode it, he says. Before electronically transmitting an important document to an individual or company in another city, a business can request a certificate from a designated certificate authority. The challenge for the proponents of S.B. 393 was to keep its language close to the model legislation drafted by the uniform law commissioners so that federal pre-emption would not be triggered. If there’s a problem, East says, federal law could trump UETA. “We really didn’t want Texas to be the test case for what pre-emption is,” he says. The effort to produce a “clean” bill ran into problems when S.B. 393 was considered by the Texas House on May 18. House members offered several amendments, but only one that East says could have caused pre-emption problems. Rep. Will Hartnett, a Dallas Republican and probate attorney, proposed an amendment that would have prohibited the use of electronic transactions for the sale of drugs and drug paraphernalia. The amendment also would have prohibited the use of video slot machines, known as “eight-liners.” Hartnett’s amendment was defeated on a 94-46 vote, allowing the bill’s backers to breathe a little easier. If Perry signs the bill — and Carona predicts he will — it will take effect on Jan. 1, 2002.

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