HF 2443 (LSB 5341HV (1) 89)

HOUSE FILE 2443

BY  COMMITTEE ON JUDICIARY

(SUCCESSOR TO HSB 679)

A BILL FOR

An Act relating to contract enforceability regarding smart contracts and distributed ledger technology.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 554D.103, subsections 4, 8, and 9, Code 2022, are amended to read as follows:
   4.  “Contract” means the total legal obligation resulting from the parties’ agreement as affected by this chapter and other applicable law. “Contract” includes any contract secured through distributed ledger technology and a smart contract.
   8.  “Electronic record” means a record created, generated, sent, communicated, received, or stored by electronic means. “Electronic record” includes any record secured through distributed ledger technology.
   9.  “Electronic signature” means 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. “Electronic signature” includes a signature that is secured through distributed ledger technology.
    Sec. 2.  Section 554D.103, subsections 5 and 16, Code 2022, are amended by striking the subsections.
    Sec. 3.  Section 554D.108, subsection 2, Code 2022, is amended to read as follows:
   2.  A contract shall not be denied legal effect or enforceability solely because an electronic record was used in its formation or because the contract is a smart contract or contains a smart contract provision.
    Sec. 4.  NEW SECTION.  554E.1  Definitions.
   As used in this chapter, unless the context otherwise requires:
   1.  “Account” means the same as defined in section 554.9102.
   2.  “Chattel paper” means the same as defined in section 554.9102.
   3.  “Contract” means same as defined in section 554D.103.
   4.  “Controllable account” means an account evidenced by a controllable electronic record that provides that the account debtor undertakes to pay a person that under the uniform commercial code has control of the controllable electronic record.
   5.  “Controllable electronic record” means an electronic record that can be subjected to control under any applicable article of the uniform commercial code. “Controllable electronic record” does not include a deposit account, electronic copy of a record evidencing chattel paper, electronic chattel paper, electronic document of title, electronic money, investment property, or a transferable record.
   6.  “Controllable payment intangible” means a payment intangible evidenced by a controllable electronic record that provides that the account debtor undertakes to pay a person that under any applicable article of the uniform commercial code has control of the controllable electronic record.
   7.  “Deposit account” means the same as defined in section 554.9102.
   8.  “Digital asset” means any electronic record that represents or evidences economic value or economic, proprietary, or access rights and may be used as payment. “Digital asset” does not include a deposit account, electronic copy of a record evidencing chattel paper, electronic chattel paper, account or general intangible that is evidenced by an electronic record, controllable account, controllable payment intangible, electronic money, electronic document of title, investment property, or transferable records.
   9.  “Distributed ledger technology” means:
   a.  An electronic ledger where the ledger is redundantly maintained or processed by more than one computer or machine to guarantee the consistency.
   b.  An electronic record of transaction or data where the electronic record is uniformly ordered and maintained or processed to guarantee nonrepudiation of the recorded transactions.
   10.  “Electronic chattel paper” means the same as defined in section 554.9102.
   11.  “Electronic document of title” the same as defined in section 554.1201.
   12.  “Electronic money” means an electronic medium of exchange currently authorized or adopted by a domestic or foreign government, not including a deposit account. “Electronic money” includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries.
   13.  “Investment property” means the same as defined in section 554.9102.
   14.  “Payment intangible” means the same as defined in section 554.9102.
   15.  “Record” means the same as defined in section 554D.103.
   16.  “Smart contract” means an electronic record that is an event-driven program or computerized transaction protocol that runs on a distributed, decentralized, shared, and replicated ledger that executes the term of a contract, including but not limited to taking custody over and instructing the transfer of assets.
   17.  “Transaction” means a sale, trade, exchange, transfer, payment, or conversion of a digital asset or other property or any other action or set of actions occurring between two or more persons relating to the conduct of business, commercial, or governmental affairs.
   18.  “Transferable record” means the same as electronic signatures defined in the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §7021(a)(1) and as defined in the uniform electronic transactions Act, section 554D.118, subsection 1.
    Sec. 5.  NEW SECTION.  554E.2  Classification of digital assets.
   Digital assets are intangible personal property.
    Sec. 6.  NEW SECTION.  554E.3  Legal effect of distributed ledger technology and smart contract.
   1.  A record, signature, or contract shall not be denied legal effect or enforceability solely because it is created, generated, sent, signed, adopted, communicated, received, recorded, or stored by means of distributed ledger technology or a smart contract.
   2.  A contract shall not be denied legal effect or enforceability solely because of any of the following:
   a.  The contract contains a smart contract term.
   b.  An electronic record, distributed ledger technology, or a smart contract was used in the formation of the contract.
   3.  Notwithstanding any other provision to the contrary, a person owning or lawfully using distributed ledger technology to secure information in the course of engaging in or affecting interstate commerce or foreign commerce retains the same rights of ownership or use with respect to such information as before the person secured the information using distributed ledger technology. This subsection does not apply to the use of distributed ledger technology to secure information in connection with a transaction to the extent that the terms of the transaction expressly provide for the transfer of rights of ownership or use with respect to such information.
    Sec. 7.  NEW SECTION.  554E.4  Construction and application.
   This chapter shall be construed and applied as follows:
   1.  To facilitate transactions and the use of distributed ledger technology and smart contracts consistent with other applicable law.
   2.  To be consistent with reasonable practices concerning distributed ledger technology and smart contracts and with the continued expansion of those practices.
    Sec. 8.  REPEAL.  Section 554D.106A, Code 2022, is repealed.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to digital assets, smart contracts, and distributed ledger technology.
   The bill defines “controllable account” to mean an account evidenced by an electronic record that the debtor undertakes to pay the person that has control of the controllable electronic record. The bill defines “controllable payment intangible” to mean a payment intangible that is evidenced by a controllable electronic record that the account debtor undertakes to pay the person that has control of the controllable electronic record. The bill defines “digital asset” to mean any electronic record that represents or evidences economic value or economic, proprietary, or access rights that may be used as a payment with exceptions. The bill defines “distributed ledger technology” to mean an electronic ledger where the ledger is redundantly maintained or processed by more than one computer or machine to guarantee the consistency and an electronic record of transaction or data where the electronic record is uniformly ordered and maintained or processed to guarantee nonrepudiation of the recorded transactions. The bill defines “electronic money” to mean an electronic medium of exchange currently authorized or adopted by a domestic or foreign government, but not including a deposit account. The bill defines “smart contract” to mean an electronic record that is an event-driven, automated transaction that runs on a distributed, decentralized, shared, and replicated ledger that executes the terms of the contract. The bill defines “transaction” to mean the sale, trade, exchange, transfer, payment, or conversion of a digital asset or other property or actions relating to the conduct of business, commercial, or governmental affairs. The bill defines “transferable record” to mean the same as defined in the uniform electronic transaction Act and as “electronic signatures” are defined in the federal Electronic Signatures in Global and National Commerce Act.
   The bill provides that digital assets are classified as intangible personal property. The bill provides that signatures, records, and contracts executed, created, generated, sent, communicated, received, signed, adopted, recorded, or stored by means of distributed ledger or smart contract are valid documents or agreements that maintain full legal effect. A person engaging in commerce who uses distributed ledger technology to secure information retains the same rights of ownership with respect to the information as the person had prior to using the distributed ledger technology.
   The bill makes conforming amendments.
   The bill repeals Code section 554D.106A regarding use of distributed ledger technology.