Audit, Compliance and Risk Blog

Email Notice and Due Diligence Under the Uniform Commercial Code

Posted by Steve Imparl on Tue, Jan 07, 2014 a business or person is responsible for providing notice to another business or making that business aware of something, they must follow certain guidelines in conveying the information (e.g., sending it by registered mail on or before the required date), in order to show due diligence. Section 1-202(f) of the Uniform Commercial Code (U.C.C.) defines “due diligence” and “the exercise of due diligence” broadly. The U.C.C.’s requirements for “due diligence” include:

  • Maintaining reasonable procedures for communicating significant information to a person conducting a commercial transaction.

  • Complying reasonably with those procedures.

Businesses and individuals engaging in online transactions should develop policies and practices with regard to email that will tend to show that they are exercising due diligence with regard to notices sent and received by email, for example:
  • Designate a person (and one or two backup personnel) responsible for checking the organization’s email box at least daily, and perhaps at certain times each day (e.g., 8:00 A.M., 12:00 P.M., 4:00 P.M.).

  • Designate a policy for responding to email within a certain period of time (such as 24 hours for messages requiring approval of a manager, and 12 hours for routine messages).

  • Ensure that all employees are aware of the organization’s policy regarding email and instruct employees to forward email that is inadvertently sent to them to the person in the organization responsible for managing the organization’s email.

  • In all contracts allowing for notice to be given by electronic mail, state that such notice may be sent to only one electronic mailbox. Notices that are sent to any other electronic mailbox should be deemed invalid under the contract.

  • Establish procedures for prompt recovery of email from your email or Internet service provider in the event of an email server being down or telecommunications problems.

  • Such procedures are especially valuable since E-Sign has become law and since UETA has gained acceptance in the states. Both of these laws allow binding contracts to be formed online.

This discussion above assumes that the conduct and responsibilities of a human agent are at issue. An entirely different set of problems occurs when we expand the concept of agency to include “electronic agents.” At the present time, the law of electronic agency is still new and there is little case law to indicate how electronic agents will affect online commerce.

However, both E-Sign and UETA define an electronic agent as a “computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part without review or action by an individual at the time of the action or response.”

Applying these definitions, you should consider a two-part test for determining whether an electronic agent has performed its duties with “due diligence”:

  • Would the actions performed by the electronic agent constitute due diligence if performed by a human agent?

  • If the electronic agent did not perform some or all of its duties because of a software logic error, hardware failure, or other failure, could the principal have reasonably foreseen such problems and have prevented them?

STP has recently published an update to Internet Law: The Complete Guide. 

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About the Author

Steven Imparl received his Bachelor of Science and law degrees from DePaul University. His law practice is concentrated in Internet, e-commerce, and computer law. In addition, his professional experience includes information systems management.

This specialized background, combining information technology and business with law, gives him an edge in interpreting Internet issues. In addition to writing Internet Law: The Complete Guide, he is a frequent contributor on Internet and e-commerce issues to other publications.

He is a member of the Illinois Bar.


photo credit: dampeebe via photopin cc

Tags: Corporate Governance, Business & Legal, Employer Best Practices, Internet