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Trading Partner Agreements

Largely because of the uncertain state of the statute of frauds in the online environment, there is a growing trend for parties to enter into written trading partner agreements before they engage in electronic transactions. Trading partner agreements attempt to resolve unsettled legal issues, such as the application of the statute of frauds, through written contractual provisions.

 Some trading partner agreements include waiver clauses in which the parties expressly agree not to raise the statute of frauds as a defense in a dispute over the enforceability of subsequent electronic transactions. Other agreements include definitions of writings and signatures specifically directed to the type of electronic communications the parties will use in forming their online agreements.

 Proposed Article 2B of the Uniform Commercial Code will likely resolve many of the issues surrounding the statute of frauds in online contracts. Originally designed to address only software licenses, Article 2B has grown to include online licenses, subscription agreements, and other forms of electronic contracts.

 Many of the transactions conducted online relate to the sale or lease of consumer goods. State and federal consumer protection laws (e.g., Magnuson-Moss Warranty Act) govern these transactions, which regulate advertising, warranties, and disclaimers. These laws also provide consumers with remedies not normally available under common law or the UCC. In addition to general consumer protection laws, many states have adopted or are in the process of adopting specific laws directed at electronic transactions to protect consumers. It is important to check for the latest development of consumer protection law intended to cover Internet transactions.
 The Electronic Signatures in Global and National Commerce Act validates contracts executed by electronic signature and serves to protect consumers by requiring consumers to provide adequate consent to an electronic transaction. The Act establishes the validity of certain transactions in or affecting interstate or foreign commerce. Specifically, it provides that a signature, contract, or other record relating to such transactions may not be denied legal effect, validity or enforceability solely because it is in electronic form. A contract relating to interstate or foreign transactions may not be denied legal effect, validity or enforceability solely because an electronic signature or electronic record was used in its formation. The Act defines an electronic record as a contract or other record created, generated, sent, communicated, received, or stored by electronic means. An electronic signature means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed by or adopted with the intent to sign the record. However, this act only applies to interstate and international commerce. It would therefore only affect transactions between buyers & sellers in different states, or in different countries.

 The Uniform Computer Information Transactions Act (UCITA) was proposed for state adoption to eliminate the requirement for tangible writings and signatures in the purchase of “computer information”. Unfortunately, only about 2 states have actually enacted a version of this proposed act.  Most state legislatures are not expected to create or adopt a version of that law; therefore, it is not likely to provide much of a uniform solution.

 The Uniform Electronic Transactions Act (UETA) was proposed for amendment of  state commercial codes to eliminate the requirement for tangible writings and signatures in the purchase and sale of “goods”. Some version of this legislation has been adopted in 47 states and the US Virgin Islands. Even if it is adopted in all 50 states, it will only govern transactions for procurement of goods, and not services or computer information.

 UCC Article 2B revisions, as proposed for adoption by National Conference of Commissioners for Uniform State Law, would change some of the requirements for a writing and a signature. Contracts formed electronically would therefore be enforceable. It will be years before that recommendation is universally adopted and incorporated into state commercial codes. There is also little case law interpreting such legislation. Therefore, it may be some time before this UCC revision provides a viable solution to address the requirements for a writing and for a signature.

 It should also be reiterated that UCC and state commercial code requirements are not applicable to services. Therefore, an electronic contract may be binding to a services transaction, even though it might not have been enforceable for a commodity purchase.

Inside Trading Partner Agreements