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Anne W.

Anne Wallingford, WordSmith

 

Freelancer's FAQ



Electronic Contracts


Why have a paper trail?
Have you implemented a way to audit and archive your electronic contracts, purchase orders, and invoices? Some companies have instituted a policy of following-up electronic documents (faxes and e-mail) with standard mail just so they can create a paper trail. Why? According to the U.S. statute of frauds, certain transactions must be evidenced with a document, a writing, and a signature in order to be legally enforceable.

The Uniform Commercial Code (U.C.C. Section 1 – 201(1)) states:
"… [a] contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker."

Although it can be argued that faxes meet the above legal requirement, other electronic communications, such as computer-transmitted correspondence, definitely fall into the "maybe" category. It can be argued that an electronic message is a written document, but the general lack of control of an electronic message makes it fairly easy to falsify a signature.

Prior Agreements

Parties involved in electronic contracts often establish a prior agreement that lets each side accept as a legal document a properly transmitted document (secured transmittal) containing a designated code within the document (encoded document). The embedded code is considered a legal signature.

Acknowledgement of Transmissions

The American National Standards Institute has established ANSI X12 as a standard for acknowledging electronic transmissions. A transmission acknowledgement confirms receipt and/or intelligibility of a message. An application acknowledgement responds to the message's content, by accepting or rejecting the message. For example, Company W faxes a purchase order to Company B. Because Company W forgot to specify the quantity of widgets being ordered, Company B acknowledges receipt of the purchase order and rejects the order because it is incomplete. After the order is corrected, Company W resends the purchase order. This time, Company B acknowledges both receipt of and acceptance of the purchase order.

Legally Acceptable Documentation

Audit logs that record all transmissions, even failed attempts, also add legal credence to electronic transmissions. Trusted recordkeepers, notarized faxes, restricted access to transaction software, archived data, and careful preservation of records increase the legal creditability of electronic transmissions. For instance, a photocopy of a thermal paper fax must preserve all marks. For additional security, the original fax is attached and stored with the photocopy.

Authenticity is often the main objection to the legal acceptance of electronic messages. Therefore, it is important to establish verifiable procedures for documenting the transmission and receipt of your electronic messages.

A good reference book for this and similar issues is CyberLaw: The Law of the Internet by Jonathan Rosenoer (Springer, ISBN 0-387-94832-5).



Please feel free to share your ideas about this topic by posting to the Sharing Ideas forum. If you would rather keep your comments private, leave me a message on the form below. - Anne W.

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© 1999 Anne Wallingford

Friday, August 10, 2007