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§ 10.20 Form: Model Electronic Data Interchange Trading
Partner Agreement *
Use of The Model Agreement And Commentary
The following should be considered by counsel in reviewing and
implementing the Model Agreement and Commentary:
(1) Provisions of the Model Agreement contained in brackets ([])
identify options for counsel to consider; in several cases, the bracketed
language represents alternatives presented within the Model
Agreement, while in other instances the provisions are themselves
presented as optional.
(2) The Commentary has the following purposes: To explain how the Model Agreement works, the purposes of
each section and the intended effect of certain provisions in the
context of existing commercial law. To provide background technical information relating to certain
aspects of EDI and prevailing general industry practices. To provide specific drafting considerations on the manner in
which provisions of the Model Agreement may be utilized or
modified in preparing a definitive agreement.
(3) The Appendix is an essential component of the Model
Agreement. The parties should use the Appendix to set forth
information essential to the proposed trading relationship as well as
additional terms and conditions. Counsel should not consider the
Appendix merely a "technical" item; rather, it is the field upon which
mutual business decisions which affect the substance of the
relationship of the parties, as well as the validity and enforceability of
the underlying transactions, are to be specified. For that reason, the
format of the Appendix is a suggested format, but does not represent a
required structure. Counsel is encouraged to adapt the form and
content of the Appendix to meet the requirements of any particular
business relationship.
*This Model Agreement and Commentary was prepared by the Electronic
Messaging Services Task Force under the auspices of the Subcommittee on Electronic
Commercial Practices of the Uniform Commercial Code Committee, Section of
Business Law, American Bar Association. The Agreement and Commentary is the
subject of an extensive Report that is available from the ABA Section of Business
Law. Before using the Model Agreement, the Report should be consulted. 1990
American Bar Association. All rights reserved.
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Model Electronic Data Interchange Trading Partner Agreement
THIS ELECTRONIC DATA INTERCHANGE TRADING
PARTNER AGREEMENT (the "Agreement") is made as of _____,
19__, by and between _______________ ("ABC"), a _____________
corporation, with offices at _____________________ and
_______________ ("XYZ"), a ___________ corporation, with offices
at ______________________________.
Recitals
ABC and XYZ desire to facilitate purchase and sale transactions
("Transactions") by electronically transmitting and receiving data in
agreed formats in substitution for conventional paper-based
documents and to assure that such Transactions are not legally invalid
or unenforceable as a result of the use of available electronic
technologies for the mutual benefit of the parties. NOW THEREFORE, the parties, intending to be legally bound,
agree as follows:
Comment
1. The scope and purposes of the Agreement are as follows:
The Agreement is to be used between commercial trading
partners; the Agreement is not intended for use in consumer
transactions.
The Agreement is to be used only in connection with domestic
purchase and sale transactions involving goods, as contemplated by
Article 2 of the Uniform Commercial Code (the "Code"). Counsel
may wish to consider the Agreement in developing suitable
provisions for use in other types of EDI relationships, such as those
which are international in scope, or which involve the performance
of services (including transportation and shipping activities).
The Agreement is intended to facilitate the commercial
relationship of the trading parties. The Agreement does not
generally advocate particular solutions to what are essentially
business issues; freedom of contract is encouraged. The Agreement does not attempt to resolve all aspects of
commercial trading relationships which are within the scope of
Article 2 of the Code. Counsel is cautioned to consider the
additional issues which arise from the underlying Transactions
(issues which are not unique to the use of EDI) and to develop
appropriate responses.
2. Certain provisions of the Agreement have the effect of varying
the application of provisions of Article 2. In this respect, the
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Agreement implements two of the fundamental purposes of the Code,
namely (a) to simplify, clarify and modernize the law governing
commercial transactions, and (b) to permit the continued expansion of
commercial practices through custom, usage and agreement of the
parties. See UCC § 1-102(2). In order to accomplish these purposes,
the Code is to be liberally construed and applied. See UCC § 1-102(1).
This flexibility is intended to allow the underlying principles to be
developed in light of unforeseen and new circumstances and practices.
See UCC § 1-102, comment 1. Freedom of contract is also an
important principle of the Code. See UCC § 1-102(3) and § 1-102,
comment 2. Thus, parties are free to vary by agreement the effect of
all provisions of the Code, except to the extent the general obligations
of good faith, diligence, reasonableness and care may not be
displaced. See UCC § 1-102(3) and § 1-102, comment 3.
3. The Recitals set forth the mutual intention of the parties for valid
and enforceable obligations to result from the electronic
communication of data in substitution for conventional paper-based
documents. See also Sections 1.1, 2.1 and 3.3, and the Comments
thereto. The execution and delivery of the Agreement and the
performance of Transactions, together with the conduct of the parties
in accordance with its terms, should be considered sufficient to show
the existence of contracts for the sale of goods. See UCC § 2-204.
Drafting Considerations
1. The Agreement does not designate either party as buyer or seller.
Either party may, therefore, purchase or sell goods in accordance with
its provisions, unless appropriate modifications are made. For
example, counsel may wish to add to the Appendix, as to each
Document (as defined in Section 1.1), which party may be the
"Sender" of that Document. See Sections 1.1 and 3.1, and the
Comments and Drafting Considerations thereto.
2. Consider whether either or both of the parties are merchants, and
the implications under the Code of that classification on the
underlying commercial relationship and the rules of conduct which are
defined by the Agreement. See UCC §§ 2-104(1) and 2-104(3). Note
that if the parties are not corporations, appropriate changes should be
made.
1. Prerequisites
1.1 Documents: Standards
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Each party may electronically transmit to or receive from the other
party any of the transaction sets listed in the Appendix, [transaction
sets which the parties regularly transmit] and transaction sets which
the parties by written agreement add to the Appendix (collectively
"Documents"). Any transmission of data which is not a Document
shall have no force or effect between the parties unless justifiably
relied upon by the receiving party. All Documents shall be transmitted
in accordance with the standards [and the published industry
guidelines] set forth in the Appendix.
CommentGeneral:
1. Establishing an EDI trading relationship, by necessity, involves a
series of decisions, primarily technical in nature, by both parties
regarding: (a) the formats in which the data will be transmitted, and
the standards and possible implementation guidelines to be adopted in
connection with such formats; (b) the possible selection of third-party
service providers (as well as the various business decisions required in
connection with establishing such relationship); and (c) the
development and maintenance of appropriate computer and
communication systems and security procedures. Section 1 and the
Appendix provide a framework for the parties to mutually structure
these decisions. Compliance with the provisions of Section 1 will
confirm their intent to give legal significance to the transmissions. See
Sections 2.1, 2.3 and 3.3.3, and the Comments thereto.
2. Implementing EDI should also involve careful evaluation of
existing internal business procedures and controls of the parties
relating to paper-based commercial practices, and consideration of the
extent to which such procedures and controls should be strengthened
and/or modified in connection with the establishment of an electronic
communication and trading environment. For example, authorizations
to release purchase orders or approve payments, as well as rules
regarding security and confidentiality, should be reviewed. See also
Sections 2.1 and 3, and the Comments thereto.
3. This Section contains the first use of "by written agreement" or
"in writing" in the Agreement. The Agreement provides the flexibility
to allow notices, modifications, amendments or other communications
required or permitted by the Agreement to be "in writing" to consist of
electronic transmissions, but only if the transmissions satisfy the
criteria of the Agreement for "Signed Documents" (as defined in
Section 3.3.2). Alternatively, the Agreement could specify paper-
based writings are required, if the parties consider it appropriate.
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Documents:
4. "Transaction sets" define the types of data which the specified
transmission must contain and the format in which the data must
appear. Transaction sets function like conventional paper document
forms, and include purchase orders, requests for quotation, purchase
order acknowledgements, invoices, remittance advices and purchase
order change requests. In addition, transaction sets exist in which "free
text" may be communicated as a segment; this type of transaction set
would be appropriate for notices, modifications or amendments (such
as those described in Comment 3 above).
5. The Agreement generally applies only to those transmissions of
data classified as "Documents" under Section 1.1. At a minimum,
transaction sets listed in the Appendix (including subsequent
additions) are Documents.
6. The Agreement provides, as an option, for transaction sets which
are not listed in the Appendix but which are regularly transmitted to
be considered as Documents. No attempt to define "regularly
transmit" has been made. However, see Section 3.3.3 (and UCC § 2-
208).
7. The "regularly transmit" option should be considered when both
parties wish to give effect to new transaction sets without express
prior agreement. Parties who wish to retain tight control over which
transmissions qualify as Documents under Section 1.1 will eliminate
the "regularly transmit" option from the Agreement. Note that, if the
"regularly transmit" option is not included, regularly transmitted
transaction sets may still be given effect, though inconsistent with the
terms of this Agreement. See UCC §§ 1-103, 2-208 and 2-209. In
addition, such parties may wish to eliminate from the second sentence
of Section 1.1 the phrase ". . . unless justifiably relied upon by the
receiving party" or make other modifications to, or entirely delete, that
sentence. Note, however, that such changes may not effectively
prevent a transmission which is not a Document from having legal
effect, where the receiving party has under the circumstances,
including the language in the Agreement, justifiably relied on that
transmission. See Comment 6 above and Comment 8 below.
8. The second sentence of Section 1.1 is not intended to alter the
law of reliance; the provision simply prevents a party which has
transmitted data from avoiding the legal effect of the receiving party's
justifiable reliance merely because the format had not been previously
classified as a Document. However, note that the remaining provisions
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of the Agreement relating to Documents are not applicable in those
circumstances. See, for example, Sections 1.2.3, 2.1, 3.3, and 4.6.
Standards:
9. "Standards" are the uniform specifications for the electronic
interchange of business data and include provisions of the structure
and format of data as well as the transmission of the formatted data.
There are also standards, among other things, for certain security and
communication procedures.
10. The selection of applicable standards is a matter of some
flexibility. The parties may mutually select and utilize one or more
sets of recognized standards, or, within certain technical limits,
customize those standards to their mutual benefit. Existing technology
also permits each party to adopt a different standard for transmission
of a Document, with Providers (as defined in Section 1.2.1)
subsequently conforming the different formats to each party's adopted
standard.
11. Virtually all standards for EDI include detailed technical
requirements to facilitate EDI, including transaction sets, data
dictionaries, segment dictionaries and other uniform controls. Pursuant
to the provisions of the Appendix, the selection by the parties of
applicable standards acts to incorporate by reference these additional
requirements. Should the parties desire to exclude or modify any of
such requirements, such changes may be made in the Appendix.
Guidelines:
12. "Published industry guidelines" contain recommended
procedures and implementation guidelines for the use of EDI within
particular industry groups (recent examples include guidelines of the
automotive, chemical and pharmaceutical industries). In contrast to
standards, which require compliance for the effective interchange of
data, guidelines generally are intended to aid implementation among
trading partners. The Agreement, as an option, provides the parties the
ability to require compliance with any guidelines which they mutually
adopt and specify.
13. Counsel should carefully evaluate any available guidelines to
assure that any conflicts between the guidelines and the standards, or
between different guidelines, are understood and resolved. The
adoption of certain guidelines, for example, may affect the process of
contract formation in an unintended manner, since several current
guidelines suggest certain procedures (e.g., which Documents are
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acceptable responses to other specified Documents) which may be in
conflict with what the parties mutually negotiate and specify in the
Appendix. Language in the Appendix has been included to avoid this
result by subordinating the content of any selected guidelines to the
provisions of the Agreement.14. Counsel should evaluate whether any existing guidelines,
whether or not adopted, may be considered, in any interpretation of
the Agreement, as a usage of trade to be considered with respect to
any Transaction. See UCC § 1-205(2).
Drafting Considerations
1. The parties should identify and list the transaction sets which
may be transmitted between them as Documents. The Appendix is
structured in accordance with most common methods of identifying
Documents. However, proprietary Documents, not based upon any
particular standard, may also be utilized and listed.
2. In specifying Documents in the Appendix, it is recommended
that the parties agree that any selected Document be communicated
only in the then current release version or the release version
immediately preceding the then current release version. Consistent
with the provisions of Section 1.3, this will require the parties to
periodically install new release versions of software corresponding to
new revisions of the applicable standards. See Section 1.3, and the
Comments thereto. Counsel may wish to consider establishing a time
frame in which any such releases must be installed.
3. In completing the Appendix, any transaction set listed as an
Acceptance Document (pursuant to Section 2.3) should also be listed
as a Document. See Section 2.3, and the Comments thereto.
4. The Agreement permits any Document specified in the Appendix
to be transmitted by either party. If this result is not desired,
appropriate restrictions should be specified in the Appendix. See
Recitals, Drafting Consideration 1.
5. If the parties do not wish transmissions which are not Documents
to be given any force or effect, appropriate changes may be made. See
Comments 7 and 8 above.
1.2 Third Party Service Providers
1.2.1. Documents will be transmitted electronically to each party
either, as specified in the Appendix, directly or through any third party
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service provider ("Provider") with which either party may contract.
Either party may modify its election to use, not use or change a
Provider upon 30 days prior written notice.Comment
1. Section 1.2 provides the structure to specify the channel(s) of
communication to be used in transmitting Documents between the
parties. Transmissions may be made directly between the parties or
through Providers. To the extent Providers are selected, Section 1.2
provides a framework for considering those aspects of the trading
partners' relationship under the Agreement which are related to the use
of Providers.
2. Among other things, Providers function as electronic mail
processing systems and may (a) maintain electronic "mailboxes" into
which communications can be placed for trading partners, and (b)
interconnect with other Providers to permit communication between
their respective customers. Providers have become an important aspect
of general industry practice relating to EDI.
3. Section 1.2.1 provides maximum flexibility for each party to
choose and maintain the desired channel of communication. Decisions
to communicate directly or through Providers will be affected by
factors such as cost, the nature of available services, the volume of
transmissions, the bargaining power of the respective parties and
continued evolutions in technology.
4. Counsel should note that Section 1.2.1 requires the parties to
have contracted with any Provider specified for them in the Appendix.
This assures that each party has obtained the availability of each such
Provider.
5. Notice of any modification of a party's election provides a
reasonable opportunity for the other party to make corresponding
adjustments in operations. Generally, 30 days is considered, consistent
with general industry practice, as a reasonable notice period; however,
that period may be adjusted, based on what may be reasonable for a
particular relationship.
Drafting Considerations
1. If the parties elect to communicate directly, counsel may wish to
consider specifying in the Appendix appropriate technical
information.
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2. If either party uses one or more Providers, the names and related
information of such Providers are to be set forth in the Appendix. If
Providers are to be used for particular services or transactions, such
indications would be appropriate in the Appendix. 1.2.2. Each party shall be responsible for the costs of any Provider
with which it contracts, unless otherwise set forth in the Appendix.
Comment
1. Section 1.2.2. permits the parties to allocate between them the
various expenses incurred in the use of Providers. Such expenses
relate to the basic services of transmission, receipt, data storage, and
data translation as well as additional services which may be offered.
Counsel should consider the effect of this Section 1.2.2 when
Providers offer a service permitting the parties to automatically agree
on-line as to the allocation of these types of expenses.
2. The Agreement is consistent with the general industry practice
within a paper-based environment that each party absorb its respective
communication costs (i.e., postage, courier costs, and printing
expenses).
Drafting Considerations
To the extent the parties allocate costs in a manner other than as
provided in Section 1.2.2, such allocation may be added in the
Appendix; no change in the Agreement is required. 1.2.3. Each party shall be liable for the acts or omissions of its
Provider while transmitting, receiving, storing or handling
Documents, or performing related activities, for such party; provided,
that if both the parties use the same Provider to effect the transmission
and receipt of a Document, the originating party shall be liable for the
acts or omissions of such Provider as to such Document.
Comment
1. This optional Section permits the parties to establish contractual
responsibility between them for the conduct of their respective
Providers. This Section, if used, has the effect of providing a clear rule
within the Agreement for allocating the risk of loss between the
parties arising from the Provider's conduct. If this Section is omitted,
the parties will have no contractual liability to each other under the
Agreement for the conduct of their respective Providers, except where
such conduct is attributable to either party and causes such party to
breach the provisions of the Agreement.
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2. The originating party is responsible for the acts of a shared
Provider on the basis that such party initiates the final action, with
respect to any Document, to use the Provider.
3. The Agreement does not address the respective right of either
party to assert claims against any Provider under any applicable
service contract, nor does the Agreement alter the liability of the
parties to each other, if any, pursuant to any applicable legal
principles.
Drafting Considerations
1. Liability arising under Section 1.2.3 is subject to the exclusion of
damages contained in Section 4.6; counsel should consider whether
this result is appropriate. The possible effect of Section 4.5 ( Force
Majeure ) to relieve a party of liability under Section 1.2.3 should also
be evaluated.
2. Note that Section 1.2.3 does not act to allocate liability between
the parties where a Provider is not used. See Section 1.2.1.
3. This Section, if used, may be modified to allocate liability in any
other manner upon which the parties agree.
1.3 System Operations
Each party, at its own expense, shall provide and maintain the
equipment, software, services and testing necessary to effectively and
reliably transmit and receive Documents.
Comment
1. This Section imposes a reciprocal obligation upon the parties to
support effective and reliable communications, and allocates the
related costs.
2. Consistent with general industry practice, the obligation to
"maintain" is intended to require the parties to update the specified
items as necessary to assure that effective and reliable
communications are maintained in accordance with prevailing
commercial practices and technology. See Section 1.1, and the
Comments thereto. Section 1.3 may require, therefore, additional
hardware or software acquisitions by the parties as well as the possible
adoption of new security procedures satisfying the requirements of
Section 1.4.
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3. The conduct of the parties in establishing and maintaining
effective and reliable communication enhances the reliability of
Documents (including their content). See Sections 2.1, 3.3, and the
Comments thereto.
Drafting Considerations
To the extent the parties agree upon a different allocation of
expenses, appropriate changes may be made.
1.4 Security Procedures
Each party shall properly use those security procedures, including
those specified in the Appendix, if any, which are reasonably
sufficient to ensure that all transmissions of Documents are authorized
and to protect its business records and data from improper access.
Comment
1. Adequate security procedures are recognized by general industry
practice as critical to the efficacy of electronic communication. This
Section imposes affirmative duties to use security procedures to
ensure the reliability of the communication systems and resulting
business records. The use of adequate security enhances the reliability
of those records and enhances the ability to prove the substantive
terms of any underlying commercial transaction. See Section 3.3.4,
and the Comments thereto.
2. This Section imposes two obligations. First, each party must use
security procedures sufficient to "reasonably" ensure proper
authorization of transmissions. If a party fails to adequately secure its
transmission activities, it may be liable for any unauthorized
transmissions, and the consequences thereof. Second, each party must
use security procedures sufficient to "reasonably" protect business
records and data from improper access. In this case a failure to comply
may again result in liability. This second obligation, when properly
performed, also gives one party some measure of assurance that its
own operations will not be subject to improper access through the
systems and operations of the other party. A party failing to meet this
second duty would, in addition, likely be estopped from submitting its
records as superior to those of the other party, where the other party
has properly met its own duty under Section 1.4.
3. Security procedures may be far-ranging in both sophistication
and detail. Examples include the confidential exchange of Signatures ( see Section 1.5) to authenticate the parties and the content of
Documents which are transmitted or received, the exchange of
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encryption keys (by which the content of communications may be
scrambled and unscrambled only pursuant to the exchanged keys),
physical control of access to equipment and facilities, and the
exchange of identifying information regarding the terminals from
which authorized EDI transmissions may originate (which identifying
information may be contained as part of the electronic "envelope" in
which transmissions are exchanged).4. Whether in any circumstance procedures which have been
adopted or implemented will be considered as "reasonable" will vary
based on the size and relative sophistication of the parties, the
complexity of the operations of the parties, the nature of the
communications and the underlying commercial transactions and
additional factors. This Section provides an objective but flexible test
by which to measure the conduct of the parties. See UCC § 1-204(2).
5. Under this Section, the parties may specify in the Appendix
additional security procedures in connection with either or both of the
requirements described in the above comments. This provision
provides flexibility; as EDI and related technologies continue to
advance, increasingly sophisticated security procedures will likely
emerge which may be appropriate for one or both parties to
implement. Parties should consider specifying in the Appendix any
existing, generally accepted security procedures, special industry
standards and any proprietary or unique security procedures required
by the underlying commercial relationship.
6. This Section encourages the parties to negotiate the level of
security required to induce them to enter Transactions. See Section
3.3, Comment 5. However, to the extent any duty of care may exist
between the parties, liability may also arise at common law. See UCC
§ 1-103.
7. This Section relates to obtaining access to business records and
data; the use of such records and data is covered by Section 3.2.
Counsel should consider the relationship between security procedures
required by Section 1.4 and the treatment of confidentiality in Section 3.2.
Drafting Considerations
Counsel should note that the provisions of Section 4.6 ( Exclusion of
Damages ) do not apply to any breach of the obligations arising under
Section 1.4.
1.5 Signatures
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Each party shall adopt as its signature an electronic identification
consisting of symbol(s) or code(s) which are to be affixed to or
contained in each Document transmitted by such party ("Signatures").
Each party agrees that any Signature of such party affixed to or
contained in any transmitted Document shall be sufficient to verify
such party originated such Document. Neither party shall disclose to
any unauthorized person the Signatures of the other party.
Comment
1. This Section establishes a mechanism for the adoption by each
party of an electronic signature by which each Document may be
signed. UCC § 1-201(39) defines "signed" to include ". . . any symbol
executed or adopted by a party with present intention to authenticate a
writing (emphasis added)." Use of a Signature is important to
establishing the validity of any EDI communication. See Section 3.3,
and the Comments thereto.
2. This Section requires each party to adopt a Signature, but retains
considerable flexibility as to what symbols or codes shall be adopted.
The decision of each party will be made in light of existing
technology, the relative sophistication of the parties, the requirements
of applicable standards and any security procedures which are in use.
A party may select as its Signature the use of its name on a Document
(similar to a form of purchase order imprinted with the buyer's name
and containing no other authorized signature). What is important is
that the use of the adopted symbol or code reflect the intent to
authenticate required by the Code. Regulating the use of any Signature
may also be part of security procedures required by the Agreement;
counsel should evaluate any such procedures to assure that the
required intent to authenticate is preserved.
3. The electronic signature of any party may change from time to
time, in order to protect its confidential character. Accordingly, the
Appendix does not provide for disclosure of any Signature, but relies
on general industry practice for the exchange of Signatures by other
means of communication. If any Signature is used by a party as part of
adopted security procedures the practice of periodically changing the
Signature could be considered as consistent with the obligations of
such party under Section 1.4 to use reasonable security procedures.
4. The last sentence of Section 1.5 prohibits only disclosure of the
Signatures of the other party. If security procedures required by the
Agreement relate to non-disclosure of Signatures, a party which
discloses its own Signature to an unauthorized person may breach the
provisions of Section 1.4.
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2. Transmissions
2.1. Proper Receipt
Documents shall not be deemed to have been properly received,
and no Document shall give rise to any obligation, until accessible to
the receiving party at such party's Receipt Computer designated in the
Appendix.
Comment
1. The increased speed and accuracy of electronic commerce
fundamentally differ when compared to contract formation practices
in a paper-based environment. Parties engaging in electronic
commerce have the ability to efficiently determine whether a
particular transmission has been received by the other party, whether
any transmission is inconsistent with prior business arrangements, or
whether any transmission may be outside negotiated contractual
limits. Consequently, the procedures of electronic commerce, when
effectively implemented, offer the opportunity to achieve greater
certainty in the contracting process. Section 2 provides a framework
for the effective implementation of those procedures for the mutual
benefit of both parties. The provisions set forth rules pertaining to the
timing of receipt (Section 2.1), the obligation of the receiving party to
verify receipt (Section 2.2), the manner in which acceptance occurs
within an EDI environment (Section 2.3), and the disposition of
unintelligible or garbled transmissions (Section 2.4).
2. Section 2.1 provides that no Document may create any legal
obligation until properly received. This Section, therefore, represents a
departure from the "mailbox rule" and parallel legal doctrines. Since
the technology exists by which the party originating the transmission
of any Document can effectively confirm receipt has occurred, it is
inappropriate that the mere dispatch of any Document should be
sufficient for any legal purpose.
3. "Properly received" requires that the transmitted Document be
accessible at a computer designated by the receiving party. This
permits each party to determine the appropriate system location. A
Receipt Computer may be the computer of the third party service
provider, the computer of either party or a specific terminal within a
party's internal network (for example, a billing supervisor's desk). The
Receipt Computer should be situated to enable the receiving party to
promptly and properly transmit a functional acknowledgement upon
proper receipt of any Document, as required by Section 2.2. Such
acknowledgement may be sent by the Receipt Computer or by a
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computer with which the Receipt Computer communicates. Counsel
should review the applicable operations to ensure that a functional
acknowledgement cannot be transmitted before a Document reaches
the Receipt Computer. Counsel should carefully consider the effects
under remaining provisions of the Agreement of selecting as the
Receipt Computer a computer which is not under the respective
control of each party. Note that receipt does not require that any
Document actually be examined, only that the Document be
accessible. In a paper-based environment, this is similar to when a
letter is delivered, but the envelope remains unopened. Each party
thereby defers "receipt" until the "right" person or machine has an
opportunity to have access to the transmitted data.4. Note that Section 2.1 operates to relieve both parties from any
obligation until the Document has been properly received.
5. Except as described in Comment 2 above, the provisions of
Section 2 are not intended to displace other applicable laws relating to
contract formation or the underlying commercial relationship of the
parties.
6. Several examples which illustrate the operation of the provisions
of Section 2 appear at Section 2.4, Comment 6.
Drafting Considerations
1. In identifying the proper Receipt Computer, counsel may wish to
consider, by example, current internal practices of the parties for
giving notice under existing agreements and identify the person
designated for such purposes ( see Section 1.1, Comment 2). Since
virtually any Document may be sent without direct human
involvement, care should be taken that adequate controls have been
established regulating the level of approval (and human authorization)
required to properly receive any Document.
2. Counsel should consider whether any modification by either
party under Section 1.2.1 will require conforming changes in the
designation of the Receipt Computer for such party.
2.2 Verification
Upon proper receipt of any Document, the receiving party shall
promptly and properly transmit a functional acknowledgement in
return, unless otherwise specified in the Appendix. A functional
acknowledgement shall constitute conclusive evidence a Document
has been properly received.
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Comments
1. In light of the capability of technology to facilitate nearly
immediate verification of receipt, and also to verify that no defect in
receipt has occurred, Section 2.2 imposes an affirmative obligation to
provide verification of receipt. Effective verification practices increase
the opportunity for the early detection and resolution of transmission
errors, thereby reducing the exposure of both parties to possibly
significant damages.
2. A "functional acknowledgement" is a transaction set which
confirms that receipt of a Document (in the format specified by such
functional acknowledgement) has occurred and that all required
portions of the Document have been received and are syntactically
correct, but otherwise does not confirm the substantive content of the
related Document. A functional acknowledgement can verify receipt,
but is also designed to identify whether, in fact, omissions or errors in
format or syntax have occurred. To the extent a party transmitting a
functional acknowledgement identifies any errors or omissions, such
notice would satisfy the notice requirements of Section 2.4. See
Section 2.4, and the Comments thereto.
3. A party will "properly transmit" a functional acknowledgement
or Document if it has been transmitted in a manner which complies
with the provisions of Section 1.
4. Whether or not verification is provided will not alter the legal
significance of the initial Document; Section 2.1 controls in that
respect.
5. Counsel may wish to evaluate whether any circumstances exist
where the affirmative obligation to verify receipt should not be
imposed and make appropriate exceptions in the Appendix. For
example, a party's system may not include functional
acknowledgements or the parties may elect to verify in another
manner, such as transaction sequence checking.
6. A party initially transmitting a Document may have an obligation
to make reasonable inquiries or take other actions to discharge any
duty which may exist to mitigate damages arising from a breach of the
provisions of Section 2.2 by the receiving party.
7. The conclusive quality of a functional acknowledgement
established by this Section assures that subsequent reliance thereon is
reasonable.
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2.3 Acceptance
If acceptance of a Document is required by the Appendix, any such
Document which has been properly received shall not give rise to any
obligation unless and until the party initially transmitting such
Document has properly received in return an Acceptance Document
(as specified in the Appendix).
Comment
1. Section 2.3 unambiguously indicates, with respect to the offer
and acceptance of any contract, that no obligation will arise except
upon satisfaction of the provisions of the Agreement. See UCC § 2-
206(1). The parties, by designating appropriate Acceptance
Documents, have the opportunity to define what will constitute
acceptance and can assure that no contract arises from any Document
until there has been mutual and certain agreement upon the terms
contained in such Document.
2. This Section permits the parties to designate Acceptance
Documents for Documents not specifically included in the contract
formation process.
3. An Acceptance Document might be a computer generated
response or a more significant communication, possibly requiring
human evaluation at the receiving end. Selection of the appropriate
Acceptance Document in a particular context may also be influenced
by the manner in which either party interacts with its Provider and by
the commercial relationship of the parties. Note that Section 2.3
operates to relieve both parties from any obligation until an
Acceptance Document has been properly received in return.
4. Note that the party receiving a Document also controls whether
the Acceptance Document is to be sent. If the proposed terms or
content of an initial Document is objectionable, neither party has any
obligation if the Acceptance Document is not properly received in
return.
Drafting Considerations
1. In identifying possible Acceptance Documents, counsel may
wish to consider, by example, current internal practices of the parties
for giving notice under existing agreements and identify the person
designated for such purposes ( see Section 1.1, Comment 2). Since
virtually any Document may be sent without direct human
involvement, care should be taken that adequate controls have been
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established regulating the level of approval (and human authorization)
required to transmit any Document.2. Counsel is strongly encouraged to review the substantive content
of possible Acceptance Documents in selecting the appropriate
confirmation of any Document. For example, in response to a
purchase order, the Acceptance Document may be:
a purchase order acknowledgement (which substantively
confirms the terms of the purchase order); or
a shipping notice (specifying that the goods have been or will
be shipped; see UCC § 2-206(1)(b).
3. For certain Documents (for example, a notice of rejection of
goods from the buyer), no Acceptance Document will be appropriate.
Note, however, if the buyer, having sent such notice does not receive a
functional acknowledgement in return, the buyer is on notice that its
notice of rejection may not have been received, and should consider
either re-sending the notice, or providing such notice by means other
than EDI. See UCC § 1-201(26).
4. Counsel may wish to consider applicable industry
implementation guidelines in selecting appropriate Acceptance
Documents. See Section 1.1, Comments 2 and 13.
5. Counsel should also consider what effects, if any, the selection
and use of Acceptance Documents may have upon the additional
terms and conditions of the underlying commercial relationship, which
may more specifically address contract formation issues (such as the
time period in which offers must be accepted or rejected, and the
manner of communicating rejection, if at all), rights of rejection and
other matters. In addition, notwithstanding the last sentence of Section
3.1, counsel should endeavor to assure that the contract formation
practices developed under the Agreement are consistent with any
commercial relationship established by any other agreement described
in Section 3.1. See Section 3.1, and the Comments thereto.
2.4 Garbled Transmissions
If any transmitted Document is received in an unintelligible or
garbled form, the receiving party shall promptly notify the originating
party (if identifiable from the received Document) in a reasonable
manner. In the absence of such a notice, the originating party's records
of the contents of such Document shall control.
Comment
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1. Section 2.4 is intended to apply only to unintelligible or garbled
messages, incapable of having effective meaning or missing material
data components, for which the originating party may be identified
within the context of the relevant Document. In those cases, the
originating party's records control unless the receiving party gives
prompt notification in a reasonable manner. See UCC § 1-204. Such
notice may be given by other than electronic means. The obligation to
provide notice under this Section is not burdensome in an electronic
environment, and has the advantage of assisting the transmitting party
to correct promptly a miscommunication.
2. The phrase "unintelligible or garbled" is not intended to include
Documents which are, in human readable form, capable of being read
but which contain information which the receiving party knows, or has
reason to know, may be incorrect. For example, if ABC has always
ordered no more than 200 pencils, its purchase order for 200,000
pencils should not be considered unintelligible or garbled, since
pursuant to Section 2.1, the parties can adopt a procedure where XYZ
can always review, confirm or reject the substantive terms contained
in any Document.
3. Section 2.4 is not intended to displace the applicable principles
of the law of mistake. See UCC § 1-103.
4. If, pursuant to Section 2.3, no obligation arises with respect to a
Document otherwise subject to this Section because the required
Acceptance Document has not been properly received in return, then
the fact that such Document is unintelligible or garbled should have no
consequences under this Section.
5. Section 4.6 ( Exclusion of Damages ) clearly applies to liabilities
which may arise in connection with any unintelligible or garbled
transmission; if the parties wish a different result, appropriate changes
may be made.
6. The following examples illustrate the operation of the provisions
of Section 2, taken as a whole:
Example 1. XYZ has specified its mainframe computer as its
Receipt Computer. ABC sends a Document to XYZ's Provider, but the
Document is never made accessible to XYZ's Receipt Computer.
ABC's transmission of the Document has no legal effect.
Example 2. XYZ properly receives a purchase order from ABC but
never transmits in return either a functional acknowledgement or an
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Acceptance Document. No contract has been formed but XYZ is liable
for any damages suffered by ABC, if any, from XYZ's failure to
provide verification as required.Example 3. XYZ properly receives a purchase order from ABC
which by its terms is open for 10 days. XYZ properly transmits an
Acceptance Document within the 10 day period, but the Acceptance
Document is not "properly received" until the 11th day. No contract is
formed.
Example 4. The Appendix requires, as to a purchase order, that a
purchase order acknowledgement be sent as an Acceptance Document.
ABC, as buyer, sends a purchase order, receipt of which is verified by
XYZ, as seller, by sending a functional acknowledgement. However,
XYZ never sends an Acceptance Document. No contract for sale has
been formed.
Example 5. XYZ properly transmits an Acceptance Document,
which is received by XYZ's Provider and stored. Meanwhile, ABC
properly transmits a revocation of its offer, which revocation is
properly received by XYZ's Receipt Computer before the Acceptance
Document is forwarded to ABC's Receipt Computer by XYZ's
Provider. No contract is formed; the revocation is effective.
Example 6. The Appendix requires, as to a purchase order, that a
purchase order acknowledgement be sent as an Acceptance Document.
XYZ, as seller, properly receives a purchase order from ABC, as
buyer, but the price data is missing. XYZ sends a functional
acknowledgement which identifies the omitted data. Under Section
2.4, XYZ has met its obligations. If XYZ, without the price data, then
sends an Acceptance Document, a contract is formed, with the price to
be determined pursuant to applicable law. See UCC § 2-305.
3. Transaction Terms
3.1 Terms and Conditions
This Agreement is to be considered part of any other written
agreement referencing it or referenced in the Appendix. In the absence
of any other written agreement applicable to any Transaction made
pursuant to this Agreement, such Transaction (and any related
communication) also shall be subject to [CHOOSE ONE]:
[A] those terms and conditions, including any terms for payment,
included in the Appendix.
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[B] the terms and conditions included on each party's standard
printed applicable forms attached to or identified in the Appendix
[as the same may be amended from time to time by either party
upon written notice to the other]. The parties acknowledge that the
terms and conditions set forth on such forms may be inconsistent,
or in conflict, but agree that any conflict or dispute that arises
between the parties in connection with any such Transaction will be
resolved as if such Transaction had been effected through the use of
such forms.
[C] such additional terms and conditions as may be determined in
accordance with applicable law.
The terms of this Agreement shall prevail in the event of any conflict
with any other terms and conditions applicable to any Transaction.
Comment
1. Section 3 recognizes that the exchange of Documents furthers the
commercial relationship of the parties, and that the use of available
technology pursuant to its terms should not create any conflict with
other written agreements between the parties, or fail to properly
accommodate the terms and conditions which define the dimensions
of the commercial transactions.
2. Section 3.1 responds to three situations:
The parties have previously or concurrently executed a
separate contract for the sale of goods, which may, by example, be
in the form of a master purchase, requirements or outputs
agreement. See UCC § 2-306.
The parties execute such an agreement after the Agreement is
signed.
The parties conduct business in the absence of, or outside the
scope of, any such agreements, relying solely upon the Documents
and the conduct of the parties pursuant to the Agreement to
establish any contract.
In either the first or second case, the other agreement is assumed to
be the instrument by which the parties have had the opportunity to
negotiate and agree upon terms and conditions applicable to any
Transaction which are not defined by the content of any Document.
However, in the final case, Section 3.1 requires the parties to elect
from among three alternatives the manner for providing the additional
terms and conditions not anticipated by the standard formats of
applicable transaction sets.
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3. Option [A] requires negotiation and agreement upon the
additional terms and conditions. Such option, as compared to the
remaining options, achieves the highest level of certainty in
establishing the terms of any contract of sale. Essential terms and
conditions to be negotiated, by way of example, may include
warranty, delivery, rejection, liability for non-conforming goods and
attorney's fees. The negotiated terms would be included in the
Appendix.
4. Option [B] permits incorporation into the electronic environment
of existing paper-based methods of conducting business. Option [B]
has the objective of clearly defining, for each party, the terms and
conditions upon which it wishes to conduct business, and, to the extent
amendments may be accommodated, the terms and conditions
applicable at any time during the commercial relatioship. If selected,
however, Option [B], in anticipating, but not resolving,
inconsistencies or conflicts in the respective forms of the parties, will
not achieve the highest level of certainty as to the terms of any
contract of sale.
5. Option [B] requires each party's standard printed forms to be
incorporated as a part of the Agreement. The parties may attach such
forms to the Appendix or may identify the appropriate forms which
are to be incorporated by reference. Any identification provided
should be sufficiently specific to identify only one form. However,
selecting the option of attaching such forms to the Appendix assures
that the terms and conditions of such forms are explicitly known and
disclosed.
6. In response to general industry practice, Option [B] includes, as a
further option, language permitting the terms and conditions of any
form attached to or identified in the Appendix to be amended by
subsequent written notice (which notice must be sufficient to
adequately identify the new form or changes). If this option is elected,
either party may incorporate into EDI trading the changes in terms and
conditions which may occur in its paper-based trading practices.
Parties wishing to retain greater control over subsequent amendments
would not elect the optional language. In that case, subsequent forms
would require mutual agreement for subsequent attachment or
identification.
7. In the event of any inconsistency or conflict between the
respective forms of the parties, Option [B] incorporates the method of
resolution set forth in UCC § 2-207 and other applicable law. Since
the attached or identified forms will correspond to Documents which
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have been transmitted, the terms and conditions contained in such
forms should be considered in the same sequence in which the related
Documents are transmitted and received between the parties.8. Option [C], if elected, incorporates into each contract for sale of
goods the manner by which applicable law determines additional
terms and conditions (other than quantity) which have not been agreed
upon by the parties. See, e.g., UCC § 2-305 (Open Price Term), § 2-
307 (Delivery and Single Lot), § 2-308 (Place for Delivery) and § 2-
309 (Time for Shipment or Delivery). Under the circumstances
contemplated by the Agreement, any contract for sale should not fail
for indefiniteness. See UCC § 2-204(3).
9. The last sentence of Section 3.1 confirms that the intent of the
parties to give effect to the provisions of the Agreement is not
contradicted by other terms and conditions applicable to any
Transaction, whether set forth in any agreement described in Section
3.1 or by applicable law. For example, a separate contract for the sale
of goods may provide for acceptance, in a paper-based environment,
to occur upon the receipt of a signed purchase order acknowledgement
at the offices of buyer by certified mail. The last sentence of Section
3.1 provides for the acceptance mechanism established pursuant to the
Agreement to control with respect to EDI transmissions. Thus, the
commercial intent of the parties, taken as a whole, is given effect.
Drafting Considerations
1. If the parties clearly intend that the Agreement is to be used
solely and exclusively in connection with other written agreements,
and that no other EDI transactions should be authorized, the second
sentence of this Section may be deleted. However, such sentence
serves as a "safety basket" for future transactions not otherwise
contemplated and should be deleted only after careful analysis.
2. If the parties elect Option [A], counsel is encouraged to carefully
consider whether additional terms and conditions should be included
to fully implement the commercial intentions of the parties expressed
in other provisions of the Agreement. See Section 1.1, Comment 2,
and Section 2.3, Drafting Consideration 5.
3. If the parties elect Option [B], counsel may wish to consider
specifying the method of providing notice of any amendments to the
printed forms adopted by either party, as well as any minimum period
before such notices take effect.
3.2 Confidentiality
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No information contained in any Document or otherwise exchanged
between the parties shall be considered confidential, except to the
extent provided in Section 1.5, by written agreement between the
parties, or by applicable law.
Comment
1. Section 3.2 focuses on whether the information transmitted in
any Document requires confidential treatment by the parties. This
Section provides for no confidential treatment except for Signatures
(as provided in Section 1.5), and as required by other written
agreements ( see Section 1.1, Comment 3) or by applicable law.
Examples of applicable law would include common law relating to
trade secrets, any court order imposing confidentiality obligations as
to any relevant information or 47 USC 605.
2. If confidential treatment is to be provided, counsel, in
substitution for the provisions of Section 3.2, should prepare
appropriate provisions as to the scope and duration of any obligations,
as well as appropriate remedies. Counsel may wish to give special
emphasis, if only certain information is to be considered as
confidential, on the manner in which, in an electronic environment,
information is to be designated as confidential by the parties.
Information may be designated as confidential on a transaction-by-
transaction basis by including an appropriate designation (by the use
of special codes) within the related electronic transmissions. Such a
technique would satisfy the requirement of this Section 3.2 for
"written agreement" if the parties intend for that effect. See Section
1.1, Comment 3.
3.3 Validity; Enforceability
3.3.1. This Agreement has been executed by the parties to evidence
their mutual intent to create binding purchase and sale obligations
pursuant to the electronic transmission and receipt of Documents
specifying certain of the applicable terms.
3.3.2. Any Document properly transmitted pursuant to this
Agreement shall be considered, in connection with any Transaction,
any other written agreement described in Section 3.1, or this
Agreement, to be a "writing" or "in writing"; and any such Document
when containing, or to which there is affixed, a Signature ("Signed
Documents") shall be deemed for all purposes (a) to have been
"signed" and (b) to constitute an "original" when printed from
electronic files or records established and maintained in the normal
course of business.
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3.3.3. The conduct of the parties pursuant to this Agreement,
including the use of Signed Documents properly transmitted pursuant
to this Agreement, shall, for all legal purposes, evidence a course of
dealing and a course of performance accepted by the parties in
furtherance of this Agreement, any Transaction and any other written
agreement described in Section 3.1.
3.3.4. The parties agree not to contest the validity or enforceability
of Signed Documents under the provisions of any applicable law
relating to whether certain agreements are to be in writing or signed
by the party to be bound thereby. Signed Documents, if introduced as
evidence on paper in any judicial, arbitration, mediation or
administrative proceedings, will be admissible as between the parties
to the same extent and under the same conditions as other business
records originated and maintained in documentary form. Neither party
shall contest the admissibility of copies of Signed Documents under
either the business records exception to the hearsay rule or the best
evidence rule on the basis that the Signed Documents were not
originated or maintained in documentary form.
Comment
1. This Section confirms the validity and enforceability of the
underlying contracts formed by the electronic transmission and receipt
of Documents. See Recitals, Comment 3.
2. The intent of any party to a contract that the contract be legally
binding is an essential predicate for the underlying transaction. The
Recitals of the Agreement initially stated the parties' intentions that
Transactions arising under the Agreement be legally valid and
enforceable; Section 3.3.1 implements such intent.
3. Section 3.3.2 establishes any properly transmitted Document as a
"writing". This provision expands upon the existing definition
contained in UCC § 1-201(46) (defining "writing" to include
"printing, typewriting or any other intentional reduction to tangible
form."). This modification is of the type contemplated by the Code.
See UCC § 1-102(3) and Recitals, Comment 2.
4. Section 3.3.2 (taken with the provisions of Section 1.5) also
establishes Signed Documents as sufficient to satisfy the formal
requirements of UCC § 2-201 (the Statute of Frauds) when the
Documents relate to the formation of any contract for the sale of
goods for the price of $500 or more. See UCC § 2-201 and comments
thereto. Finally, Section 3.3.2 also establishes that Signed Documents
shall be deemed to constitute "original" business records under certain
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circumstances. See Comment 7 below; see also Section 1.4, Comment
1.
5. Under Section 3.3.3, the conduct of the parties pursuant to the
Agreement constitutes a course of dealing and a course of
performance upon which they may rely in structuring their business
relationship. This conduct includes the identification of the
Documents to be transmitted, the establishment of channels of
communication and the adoption of mutually acceptable security
procedures, all pursuant to the provisions of Section 1. UCC § 2-208
contemplates that such conduct be considered in determining the
meaning of this Agreement and any underlying contract for the sale of goods. See UCC §§ 1-205 and 2-208. This conduct, either as a course
of dealing or as a course of performance, should be given effect with
respect to both the Agreement and other applicable purchase contracts,
independent of the status of Signed Documents as signed writings
under applicable law. See also UCC §§ 2-202(a) and 2
