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United States

We are living at a time when electronic commerce is becoming an increasingly important factor in the world of business and finance. Yet the law has only begun to formulate principles and rules to govern these new methods of communication.

A recent case decided by the US Court of Appeals for the Tenth Circuit, Bellco First Federal Credit Union v Kaspar 1997 WL 599645 (10th Cir), illustrates the problems which may arise when financial institutions conduct business by electronic means. The Kaspars had telephoned Bellco First Credit Union to apply for a line of credit and a credit card. A Bellco loan representative asked Ms Kaspar questions about her financial condition and entered the information into a loan application form on a computer. The Kaspars never saw or signed the application form entered into the computer.

On the basis of the information in its database acquired from the Kaspars, Bellco issued them a line of credit and credit card. Some time later, the Kaspars filed a bankruptcy petition seeking to discharge the debt to Bellco as well as debts owed to other creditors. Bellco argued that the debt owing by the Kaspars was not dischargeable under the federal bankruptcy code because the Kaspars had submitted a materially false "statement in writing" on the basis of which credit was extended to them.

Thus the Tenth Circuit was confronted with the issue of whether the computer-generated statement of financial condition constituted a "writing" under the bankruptcy code. Noting that exceptions to discharge in bankruptcy are to be narrowly construed, the appellate court held that Bellco should have obtained a written document from the Kaspars which they would see and adopt by signature. As stated by the court in its opinion: "Somewhere in the commercial risk allocation picture, the writing must stand as a bulwark which tends to protect both sides." Thus, the court concluded that a written statement of financial condition does not include an oral statement converted into an electronic format.

Bellco had argued the court should recognize the role of computers in the way financial institutions do business in the contemporary world. The court acknowledged that "in this instance the law lags behind technology and custom", but that is was up to Congress to address this gap by amending the bankruptcy code.

Does the holding in the Kaspar case have application outside the area of discharge of debt under the bankruptcy code? It could possibly be used to interpret the statute of frauds, which requires a writing to have an enforceable contract. Certainty cannot be achieved in the area of electronic commerce through judge-made law; legislatures at the state and federal level must provide guidance by enacting appropriate laws.

Robert Rendell

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