The Effect of Electronic Contracting & Potential Pitfalls

On September 16, 1999, Governor Gray Davis signed Senate Bill 820 making California the first state to adopt an electronic contracting law. The law went into effect January 1, 2000. Its primary purpose is to "ensure that electronic contracts (records and signatures) have the same legal effect as their hard copy counterparts." In addition, the law legalizes electronic signatures and even extending the electronic signature, under certain circumstances, to satisfy requirements that a signature be notarized. The law, however, only applies to transactions where the contracting parties have agreed in advance to be bound by an electronic transaction.

Maybe the law's most extreme fault is that it fails to cover all transactions. The following contracts are excluded:

1. Wills, codicils, and testamentary trusts.
2. Certain transactions governed by various consumer protection laws (for example, notice of mortgage late fees, non-judicial foreclosure notices, and statements of finance charges).
3. Any transaction under the Automobile Sales Finance Act or the Vehicle Licensing Act.
4. Some retail installment sales contracts.

Even with these shortcomings, the law undoubtedly will have a significant effect on the future of contract law in California and the nation. Exactly what that effect will be, however, remains to be decided in the courtroom. In the following section, we will examine some of the issues.


1. What will be the long-term impact of electronic contracting on the nation's business?

2. What are the potential pitfalls you see with electronic contracting?

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