Brief ⁽¹⁾

Senate Sub. for HB 2879 enacts the Uniform Electronic Transactions Act and combines within it the provisions of the Kansas Electronic Signatures Act.

Uniform Electronic Transactions Act

HB 2879 applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties' conduct. The act does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed or used by electronic means or in electronic form.

Basic Rules. The basic rules of electronic transactions are set forth in the bill as follows:

• A record or signature may not be denied legal effect or enforceability solely because it is in electronic form or digital.



• A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.



• If a law requires a record to be in writing, an electronic record satisfies the law.



• If a law requires a signature, an electronic signature or digital signature satisfies the law.

Automated Transactions. In an automated transaction, the following rules apply:

• A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements.



• A contract may be formed by the interaction of an electronic agent and an individual, acting on the individual's own behalf or for another person, including by an interaction in which the individual performs actions that the individual is free to refuse to perform and which the individual knows or has reason to know will cause the electronic agent to complete the transaction or performance.



• The terms of the contract are determined by the substantive law applicable to it.

Rules for Sending and Receiving Records. An electronic record is sent when it:

• Is addressed properly or otherwise directed properly to an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record;



• Is in a form capable of being processed by that system; and



• Enters an information processing system outside the control of the sender or of a person that sent the electronic record on behalf of the sender or enters a region of the information processing system designated or used by the recipient which is under the control of the recipient.

An electronic record is deemed to be sent from the sender's place of business and to be received at the recipient's place of business. For purposes of determining place, the following rules apply:

• If the sender or recipient has more than one place of business, the place of business of that person is the place having the closest relationship to the underlying transaction.




• If the sender or the recipient does not have a place of business, the place of business is the sender's or recipient's residence, as the case may be.

An electronic record is received when:

• It enters an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record; and



• It is in the form capable of being processed by that system.

An electronic record is received even if no individual is aware of its receipt.

Receipt of an electronic acknowledgment from an information processing system establishes that a record was received but, by itself, does not establish that the content sent corresponds to the content received.

Changes and Errors. If a change or error in an electronic record occurs in a transmission between parties, the following rules apply:

• 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.



• The following rules may not be varied by agreement of the parties. 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 the electronic agent did not provide an opportunity for the prevention or correction of the error and, at the time the individual learns of the error, the individual:



• 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;



• Takes reasonable steps, including steps that conform to the other person's reasonable instruction, 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



• Has not used or received any benefit or value from the consideration, if any, received from the other person.

If none of the above applies the change or error has the effect provided by other law, including the law of mistake, and the parties' contract, if any.

Kansas Electronic Signatures Act

The bill also would enact the Kansas Electronic Signatures Act. An electronic signature means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record. A digital signature is defined as a type of electronic signature consisting of a transformation of an electronic message using an asymmetric crypto system.

In addition, the bill provides the following:

• That electronic records, signatures, and contracts shall be recognized as valid, and as satisfying legal requirements for records and signatures.

• That no state agency is required to use or permit the use of electronic or digital signatures. It also provides any state agency may adopt rules and regulations regarding their use as long as the rules and regulations meet or exceed those adopted by the Secretary of State.



• A registered certification authority must create and preserve records to demonstrate compliance with all rules and regulations of the Secretary of State. Failure to maintain any of these qualifications will cause the registration to lapse. Violation of the act, upon notice and hearing, may result in a civil penalty of up to $10,000 per failure or violation.



• Procedures to be followed to become a registered certification authority include:

• registration with the Secretary of State;



• payment of an annual filing fee of $1,000;



• filing of a surety bond, certificate of insurance, or other evidence of financial security in the amount of $100,000; and



• approval by the Secretary of State in accordance with rules and regulations.

• The Secretary of State can adopt rules and regulations to implement the Act and the Secretary of State is given authority to establish reciprocity with other states and nations.

The Senate Committee amended HB 2879 by combining provisions of SB 559 (Uniform Electronic Transactions Act) with provisions of HB 2879 (Kansas Electronic Signatures Act).

Background

A representative of the National Conference of Commissioners on Uniform State Laws testified in favor of the uniform. He said SB 559 is the first comprehensive effort to prepare state law for the electronic commerce era. He said the rules established in SB 559 are almost all default rules and only apply if the terms of an agreement do not govern.

The State Archivist said a well established body of law already deals with government records retention. A representative of the Attorney General's Office said SB 559 would leave consumers with less protections and expressed various concerns. A representative of the State Treasurer's Office opposed the sections of the bill dealing with government records and retention.

Representative Jim Morrison testified in support of the measure and indicated the bill reflects the collaborative effort of many key individuals.

Also expressing support for the bill were delegates representing the Information Network of Kansas, the Kansas Bureau of Investigation, the Secretary of State, and the Heartland Community Bankers Association. Written comments of support were received on behalf of the Kansas Insurance Department and the Kansas Chamber of Commerce and Industry.

The fiscal note indicates the Secretary of State's Office cost for implementing the bill would be $109,430 and 2.0 FTE positions for $87,500. Annual office space for these positions would total $3,330 and one-time equipment costs would be $18,600.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html