We have had a number of clients run into issues relating to whether or not an email exchange constituted a binding contract. This issue comes up regularly when informality creeps into negotiations conducted electronically, bringing up the age-old problem that has likely been argued before judges for centuries: one party thinks “we have a deal,” the other thinks “we’re still negotiating.” While email can be useful in many contract negotiations, care should be taken to avoid having to run to court to ask a judge to interpret an agreement or enforce a so-called “done deal.”
With limited exceptions, under the federal electronic signature law, 15 U.S.C. § 7001, and, as adopted by the vast majority of states, the Uniform Electronic Transactions Act (UETA), most signatures, contracts and other record relating to any transaction may not be denied legal effect solely because they are in electronic form. Still, a signed email message does not necessarily evidence intent to electronically sign the document attached to the email. Whether a party has electronically signed an attached document depends on the circumstances, including whether the attached document was intended to be a draft or final version.
There have been a number of recent cases on this issue, which I’ve discussed further below, but the bottom-line, practical takeaways are as follows:
- Consider an express statement in the agreement that performance is not a means of acceptance and that the agreement must be signed by both parties to be effective.
- If you do not believe the agreement is final and accepted, do not begin to perform under the agreement unless there is an express written (email is ok) agreement by the parties that performance has begun but the contract is still being negotiated.
- When exchanging emails relating to an agreement, be prudent when using certain loaded terms such as “offer,” “accept,” “amendment,” “promise,” or “signed” or phrases of assent (e.g., “I’m ok with that”, “Agreed”) without limitations or a clear explanation of intent.
- Terms of proposed agreements communicated via email should explicitly state that they are subject to any relevant conditions, as well as to the further review and comment of the sender’s clients and/or colleagues. To avoid ambiguity, to the extent finalizing an agreement is subject to a contingency (e.g., upper management or outside approval, or a separate side document signed by both parties), be clear about that in any email exchange that contains near-final versions of the agreement.
- Parties wishing to close the deal with an attachment should mutually confirm their intent and verify assent when the terms of a final agreement come together.
- While it is good practice to include standard email disclaimers that say that the terms of an email are not an offer capable of acceptance and do not evidence an intention to enter into any contract, do not rely on this disclaimer to prevent an email exchange – which otherwise has all the indicia of a final agreement – from being considered binding.
- Exercise extreme caution when using text messaging for contract negotiations – the increased informality, as well as the inability to attach a final document to a text, is likely to lead to disputes down the road.
While courts have clearly become more comfortable with today’s more informal, electronic methods of contracting, judges still examine the parties’ communications closely to see if an enforceable agreement has been reached.
Now, for those who are really interested in this subject and want more, here comes the case discussion….
Last month, a Washington D.C. district court jury found in favor of MSNBC host Ed Schultz in a lawsuit filed by a former business partner who had claimed that the parties had formed a partnership to develop a television show and share in the profits based, in part, upon a series of emails that purported to form a binding agreement. See Queen v. Schultz, 2014 WL 1328338 (D.C. Cir. Apr. 4, 2014), on remand, No. 11-00871 (D. D.C. Jury Verdict May 18, 2015). And, earlier last month, a New York appellate court ruled that emails between a decedent and a co-owner of real property did not evince an intent of the co-owner to transfer the parcel to the decedent’s sole ownership because, even though the parties discussed the future intention to do so, the material term of consideration for such a transfer was fatally absent. See Matter of Wyman, 2015 NY Slip Op 03908 (N.Y. App. Div., 3rd Dept. May 7, 2015). Another recent example includes Tindall Corp. v. Mondelēz Int’l, Inc., No. 14-05196 (N.D. Ill. Mar. 3, 2015), where a court, on a motion to dismiss, had to decide whether a series of ambiguous emails that contained detailed proposals and were a follow-up to multiple communications and meetings over the course of a year created a binding contract or rather, whether this was an example of fizzled negotiations, indefinite promises and unreasonable reliance. The court rejected the defendant’s argument that the parties anticipated execution of a memorialized contract in the future and that it “strains belief that these two companies would contract in such a cavalier manner,” particularly since the speed of the project may have required that formalities be overlooked.
Enforceability of Electronic Signatures
A Minnesota appellate court decision from last year highlights that, unless circumstances indicate otherwise, parties cannot assume that an agreement attached to an email memorializing discussions is final, absent a signature by both parties. See SN4, LLC v. Anchor Bank, fsb, 848 N.W.2d 559 (Minn. App. 2014) (unpublished). The court found although the bank representatives intended to electronically sign their e-mail messages, the evidence was insufficient to establish that they intended to electronically sign the attached agreement or that the attached document was intended to be a final version (“Can you confirm that the agreements with [the bank] are satisfactory[?] If so, can you have your client sign and I will have my client sign.”).
A California decision brings up similar contracting issues. In JBB Investment Partners, Ltd. v. Fair, 182 Cal. Rptr. 974 (Cal. App. 2014), the appellate court reversed a trial court’s finding that a party that entered his name at the end of an email agreeing to settlement terms electronic “signed” off on the deal under California law. The facts in JBB Investment offered a close case – with the defendant sending multiple emails and text messages with replies such as “We clearly have an agreement” and that he “agree[d] with [plaintiff’s counsel’s] terms” – yet, the court found it wasn’t clear as to whether that agreement was merely a rough proposal or an enforceable final settlement. It was clear that the emailed offer was conditioned on a formal writing (“[t]he Settlement paperwork would be drafted . . .”).
Performance as Acceptance
Another pitfall of contracting via email occurs when parties begin performance prior to executing the governing agreement – under the assumption that a formal deal “will get done.” If the draft agreement contains terms that are unfavorable to a party and that party performs, but the agreement is never executed, that party may have to live with those unfavorable terms. In DC Media Capital, LLC v. Imagine Fulfillment Services, LLC, 2013 WL 46652 (Cal. App. Aug. 30, 2013) (unpublished), a California appellate court held that a contract electronically sent by a customer to a vendor and not signed by either party was nevertheless enforceable where there was performance by the offeree. The court held that the defendant’s performance was acceptance of the contract, particularly because the agreement did not specifically preclude acceptance by performance and expressly require a signature to be effective.