This bill has been adopted by both houses of the Legislature and has been presented to the Governor for signature on 7/12/00. The bill is too long for complete inclusion in this article and our discussion will be limited to certain essential provisions essential to understanding the Act and its interrelationship with the Federal counterpart. The act will be effective October 1, 2000 and will be applied prospectively. The full text can be found through the General Assembly link on our Website in Senate Bill 1266 or at, http://www.ncga.state.nc.us/html1999/bills/currentversion/senate/sbil1266.full.html
This legislation is a part of the framework in the developing structure of e-commerce. The use of electronic transactions is increasing explosively. People are now involved in electronic commerce in their daily lives, sometimes without even realizing it. Ordering goods from online businesses such as Amazon.com or Ebay.com are obvious examples. When you swipe your credit card through a gas pump or grocery check out, when you use an ATM machine or check your bank balance over the telephone and when you order goods or guarantee a room reservation over the telephone using a credit card you are participating in e-commerce. Today these transactions will usually produce a paper confirmation of the transaction. In the near future legislation such as this Act will facilitate transaction without any paper documentation. We predict that this Act will be modified many times as business practices using electronic transactions evolve and become more standardized.
The provisions of the Act will be contained in the new Article 40 of chapter 66 of the General Statutes and is entitled Uniform Electronic Transactions Act, at section 66-308 et. seq. NCGS Sec. 66-308.1 sets out the definitions used in the Act. Some important definitions are set out that will aid in understanding the import of the changes the act will engender in commerce. An electronic record is a record "created, generated, sent, communicated, received, or stored by electronic means" (NCGS Sec. 66-308.1-8). An electronic signature consists of an "electronic sound, symbol, or process attached to, or logically associated with, a record and executed or adopted by a person with the intent to sign the record" (NCGS Sec. 66-308.1-9). A record is "information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form" (NCGS Sec. 66-308.1-14). This definition clearly encompasses the use of auditory records as well as visual ones. As technology advances it is conceivable that certain records could involve the electronic transmission of data integrating the perceptions of touch, taste and smell as well.
The statute makes specific exception for wills, codicils or testamentary trusts. The statute does not apply to transactions to the "extent they are governed by Chapter 25 of the General Statutes other than G.S. 25-1-107 and G.S. 25-1-206, Article 2, and Article 2A" (NCGS Sec. 66-308.2).
This phrasing seems to say that sales of goods, leases, goods to be severed from realty and sales of personal property valued over $5000 not otherwise constituting goods under the UCC are covered by the act while the rest of the transactions covered by the UCC are excluded. Transactions governed by the Electronic Commerce in Government Act, Article 11A of Chapter 66 are also excluded. NCGS Sec. 66-308.2(c) is a catchall clause that will prevent exclusion of transactions covered by their own e-commerce provisions adopted separately from the Act. It should be noted that the revision of Article 9 (Secured Transactions) of the UCC includes substantive electronic commerce provisions.
The act includes a separate section, NCGS Sec. 66-308.16, dealing with consumer transactions. This section is integrated legislation that is consistent with the federal Electronic Signatures in Global and National Commerce Act. It provides that "the use and acceptance of electronic records or electronic signatures in consumer transactions shall be subject to the requirements set out in this section. The section provides additional, consumer specific exclusions from the operation of the Act. Excluded are:
(1) Any notice of the cancellation or termination of utility services, including water, heat, and power.
(2) Any notice of default, acceleration, repossession, foreclosure or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual.
(3) Any notice of the cancellation or termination of health insurance or benefits, or life insurance or benefits (excluding annuities).
(4) Any notice of the recall of a product, or material failure of a product that risks endangering health or safety.(5) Any document required to accompany the transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials." (NCGS Sec. 66-308.16(b))
A consumer must expressly agree to conduct a transaction by electronic means. This agreement can be found only when the following apply:
"(1) The consumer has affirmatively consented to the use of electronic means, and the consumer has not withdrawn consent.
(2) The consumer, prior to consenting to the use of electronic means, is provided with a clear and conspicuous statement: (containing a detailed disclosure requirement omitted here)
(3) The consumer, prior to consenting to the use of electronic means, is provided with a statement of the hardware and software requirements for access to and retention of the electronic records; and the consumer 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.
(4) After the consent of a consumer in accordance with subdivision (1) of this subsection, if a change in the hardware or software requirements needed to access or retain electronic records 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, the person providing the electronic record provides the consumer with a statement of the revised hardware and software requirements for access to and retention of the electronic records, provides a statement of the right to withdraw consent without the imposition of any condition or consequence that was not disclosed under sub-subdivision (2)b. of this subsection, and again complies with subdivision (3) of this subsection." (NCGS Sec. 66-308.16(c))
NCGS Sec. 66-308.16(d) requires that a written copy, not in electronic form, of the transaction must be provided to the consumer when the transaction is conducted on equipment provided by the seller. Future notices regarding the transaction may be in electronic form only if confirmed by the consumer on equipment not provided by the seller. This section also provides a pro-consumer forum choice by stating that if a person "enters into a consumer transaction that is created or documented by an electronic record, the transaction shall be deemed to have been made or to have occurred at the individual's residence."
Under the Act, a record or signature may not be denied legal effect because it is in electronic form. In a proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form. A contract may not be denied enforceability because an electronic record was used in its formation. If a statute requires a document to be in writing, an electronic record satisfies the law provided it complies with the provisions of the Act. If a law requires a signature, an electronic signature will satisfy the law as long as it complies with the provisions of this Article. We should observe that this provision would not apply to instruments excluded from the Act such as wills. (NCGS Sec. 66-308.7) (NCGS Sec. 66-308.12)
The Act includes specific provisions concerning changes, errors and the attribution of electronic signatures. It also recognizes that security provisions on the systems of the parties will vary and makes rules taking this into account. (NCGS Sec. 66-308.8) (NCGS Sec. 66-308.9) If an error in a transaction occurs in a transmission between the parties, the following rules apply:
"(1) If the parties have agreed to use a security procedure to detect changes or errors and one party has conformed to the procedure, but the other party has not, and the nonconforming party would have detected the change or error had that party also conformed, the conforming party may avoid the effect of the changed or erroneous electronic record.
(2) In an automated transaction involving an individual, the individual may avoid the effect of an electronic record that resulted from an error made by the individual in dealing with the electronic agent of another person if, at the time the individual learns of the error, the individual:
a. Promptly notifies the other person of the error and that the individual did not intend to be bound by the electronic record received by the other person;
b. Takes reasonable steps, including steps that conform to the other person's reasonable instructions, to return to the other person or, if instructed by the other person, to destroy the consideration received, if any, as a result of the erroneous electronic record; and
c. Has not used or received any benefit or value from the consideration, if any, received from the other person.
(3) If neither subdivision (1) nor subdivision (2) of this section applies, the change or error has the effect provided by other law, including the law of mistake, and the parties' contract, if any.
(4) Subdivisions (2) and (3) of this section may not be varied by agreement. (NCGS Sec. 66-308.9)
NCGS Sec. 66-308.10 makes provision for electronic notarization and acknowledgment. If a signature or record relating to a transaction is required to be notarized, acknowledged, verified, or made under oath, that requirement is satisfied if the electronic signature of the official, and all other information required to be included by applicable law, is attached to or logically associated with the signature or record. It would seem to permit an electronic version or image of a notarial seal.
NCGS Sec. 66-308.11 contains requirements for the retention of electronic records. The retention requirement of any law is satisfied by retaining an electronic record of the information which must accurately reflects the information set forth at the time the record was first generated in its final form. It must remain accessible for later reference.
NCGS Sec. 66-308.7(b) provides that if any other law requires a record to be posted or displayed in a certain manner the record must be posted or displayed in the manner specified in the other law.This provision would seem to exclude the registration of instruments under the recording acts until such time as they are amended. Considering the current state of technology this seems prudent. Preservation of digital records is not exclusively concerned with the useful life of storage media. The accessibility of these documents is much more dependent on the life expectancy of the hardware access system. The digital media in use today will outlast the capability of systems to retrieve and interpret the data if handled with care. We have seen most systems become obsolete in a very short period of time. The most prevalent system in the world today is subject to a government attempt to restrict its virtual universality. Record archives must be prepared to migrate valuable digitized data, indexes, and software from one generation of computer technology to a newer generation. The use of digital technologies for recording title instruments requires a commitment to long-term access, information management procedures and processes, and development of appropriate definitions and standards. On the national level pieces of the standardization puzzle are being put into place with the MERS mortgage repository and the federal Electronic Signatures in Global and National Commerce Act. However, there are substantial pieces yet missing and the picture appears even worse on the state level. Software and hardware systems in the one hundred Register of Deeds offices are anything but uniform. Most still do not have high speed Internet access and many have no modem access at all. Many are using obsolete computers with outdated software. Some offices have computerized records that are unusable by their current indexing system. In some offices old microfiche records are virtually unreadable on obsolete, inoperable and unrepairable equipment. There will be serious concerns for title examiners were we to apply e-commerce principles to real property records without standardization of software and hardware on the state and national level.
One issue that is frequently discussed when the subject of e-commerce comes up concerns forgery. It is important to remember that from time immemorial objects of commerce have been forged. The problem will always be with us as long as creative minds apply themselves to the task of acquiring the property of others without payment. Anyone who has worked around the deed vaults for any length of time knows of incidents of forgery affecting recorded instruments that were apparently successful for a time. One has to assume that some remain undiscovered. Only vigilance and diligence can thwart a determined forger. The technology of digital security is progressing at an extremely rapid pace. So much so, that we predict that it will be far more difficult to alter a digital document than a paper one sooner than it will be possible to record electronically with assurance of easily access in the distant future.
It is important to note that the North Carolina statute does not mandate the use of electronic records (NCGS Sec. 66-308.4(a)). Rather it provides a legal framework to standardize and further enable the use of electronic transactions in commerce. This is in distinct contrast to the new Federal legislation adopted in U.S. Senate Bill 761, the Electronic Signatures in Global and National Commerce Act, an Act that does mandate the acceptance of electronic records by state agencies (with certain exceptions). The Federal statute does contain an exemption to preemption for state statutes as follows.
"SEC. 102. EXEMPTION TO PREEMPTION.
(a) IN GENERAL- A State statute, regulation, or other rule of law may modify, limit, or supersede the provisions of section 101 with respect to State law only if such statute, regulation, or rule of law--
(1) constitutes an enactment or adoption of the Uniform Electronic Transactions Act as approved and recommended for enactment in all the States by the National Conference of Commissioners on Uniform State Laws in 1999, except that any exception to the scope of such Act enacted by a State under section 3(b)(4) of such Act shall be preempted to the extent such exception is inconsistent with this title or title II, or would not be permitted under paragraph (2)(A)(ii) of this subsection;"
What remains unclear is whether the various exceptions exclude the operation of the Federal act upon deed registries. There is considerable debate in the real estate service industry currently going on concerning this issue. Since it is technologically impractical at present to implement the federal mandates in states such as North Carolina, we anticipate that the interpretation will exclude such offices. Sec. 107(a) of the Act provides that its provisions shall be effective on October 1, 2000.
The full text may be found at: http://thomas.loc.gov/cgi-bin/query/z?c106:S.761: (please note that the semicolon following 761 is part of the URL and it will not work without it).
There is accompanying legislation for both state and federal acts that excludes coding and security measures from public disclosure laws.