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New Media and Technology Law Blog

UCC, Not Uniform Electronic Transactions Act, Governs Formation of Contract by Exchange of E-Mails

Posted in Online Commerce

The Uniform Electronic Transactions Act was adopted by the National Conference of Commissioners on Uniform State Laws in 1999. Both the UETA and its companion federal enactment, the Electronic Signatures in Global and National Commerce Act, Pub.L. 109-229 (June 30, 2000) were adopted during a flurry of concern about the enforceability of electronic contracts that followed on the opening of the Internet to commercial traffic in the early 1990s. The UETA was quickly adopted in a majority of states, and since then, has yielded only a handful of opinions, perhaps reflecting the fact that the Act was less a desperately needed gap-filler than a codification of largely accepted principles applicable to the electronic transactions that had been occurring every day in business.

Occasionally issues arise with respect to the UETA, however, and the application of the Act (or more accurately, the Wisconsin enactment of it) became an issue in Alliance Laundry Systems, LLC v. Thyssenkrupp Materials, NA, 2008 U.S. Dist. LEXIS 58985 (E.D. Wisc. Aug. 5, 2008). The issue posed is a fundamental one, and the opinion is therefore noteworthy.

The case involves a plaintiff buyer and a defendant steel company that corresponded by e-mail concerning a proposed transaction. When the defendant failed to deliver the steel that the buyer expected, the buyer sued, alleging that a contract was formed by the exchange of e-mails. On the plaintiff’s motion for summary judgment, the district court ruled that the dispositive issue was one of contract formation, and that there were disputes as to the relevant facts and the inferences to be drawn from them, thus the case could not be disposed of on a motion for summary judgment.

The court did, however, address the defendant steel company’s argument that the exchange of e-mails did not result in the formation of a contract because under the UETA, a contract cannot be formed electronically unless the parties first make an agreement to do so. The court rejected that argument and stressed that the issue of contract formation is governed by Article 2 the Uniform Commercial Code (in the case of a transactions in goods), not by the provisions of the Uniform Electronic Transactions Act. Citing the Prefatory Note to the UETA, the court emphasized that it is the UCC rather than the UETA that “provides the substantive law that determines whether parties form a contract.”

In discussing the UETA, the court explained that its purpose was to validate the use of electronic records and signatures, and in the case before it “if the jury determines that the parties’ e-mails were sufficient to form a contract, the UETA will not prevent its enforcement.” The court concluded that as a “practical matter,” if the evidence shows “that the parties reached an agreement electronically, they will likely also show that the parties agreed to conduct the transaction by electronic means.”

The court also rejected the defendant steel company’s argument that the UCC statute of frauds barred enforcement of any agreement that may have been formed electronically because there was no signed physical writing. The court explained that the UETA “authorizes parties ‘to agree’ to conduct transactions by e-mail and directs courts determining whether parties have so agreed to consider the ‘surrounding circumstances, including the parties’ conduct.’ *** If the parties have agreed to do business electronically, an electronic signature will constitute the signature required by the UCC’s statute of frauds.”

The remainder of the opinion is also of interest for the court’s outline of the remaining issues in the case, including the application of other UCC contract formation provisions to the parties’ dealings.