How NOT to Create a Contract Via Email
August 20, 2019
While Negotiating a Contract Via Email May Be Convenient, There Remains the Potential For Mistakenly Creating a Binding Contract
A series of emails can be considered the “meeting of the minds” required to form a binding contract. So while negotiating via your smartphone may be convenient, it is imperative to make sure that your intentions are clear.
So how do you ensure that your emails aren’t construed as a binding contract?
Basic Contract Principles Apply to Electronic Contracts
To start, it is important to understand that the test for a valid contract is the same whether the court is looking at a paper document or an electronic one. Under the Uniform Electronic Transactions Act of 1999, which is now in force in all 50 states, a contract “may not be denied legal effect solely because an electronic record was used in its formation.” The statute also encourages courts to take a “liberal” approach when determining whether a series of emails should be considered a binding legal agreement.
In order for a contract to be enforceable, there must be a valid offer and acceptance, which is supported by consideration. If one party proposes alternative terms in response to an email, the offer is considered rejected and the negotiations continue. In addition, the parties must still intend to be contractually bound. While intent need not be explicitly expressed in the email correspondence, it just must be evident that both sides were planning to be bound by the terms discussed in the email.
While the parties to a contract must agree to its key terms, those terms do not all need to be included in one document or email. Similarly, the same applies to contracts that must be in writing to satisfy the statute of frauds, i.e. contracts which cannot be completed within one year, contracts for real property, and contracts assuming responsibility for the financial obligations of another individual or entity. To satisfy New York’s statute of frauds, these types of agreements must be reduced to a writing that identifies the parties, describes the subject matter, states all the essential terms of the agreement, and is signed by the party to be charged.
In Crabtree v. Elizabeth Arden Sales Corp., the New York Court of Appeals held that a binding agreement may be pieced together out of separate writings, connected with one another either expressly or by the internal evidence of subject matter and occasion. It further held that signed and unsigned writings are to be read together, provided that they clearly refer to the same subject matter or transaction.
Courts Will Enforce Email Contracts
Applying these basic tenants of contract law, courts across the country have found that a series of messages can meet the requirements of an enforceable contract. In 2016, the New York Court of Appeals ruled in Stonehill Capital Management v. Bank of the West that an agreement to sell a distressed loan via the auction loan trading market was enforceable, even in the absence of a formally executed written contract. According to the Court, the terms had been established and agreed upon through the documents and emails exchanged by the parties.
In determining whether the parties intended to be bound, courts will look to the parties’ expressed words and deeds. Accordingly, even an unsigned contract may be enforceable, assuming there is objective evidence establishing that the parties intended to be bound by it. The parties’ course of conduct may be examined to determine whether there was a meeting of the minds sufficient to give rise to an enforceable contract.
For instance, in Chan v. Kwok, the New York County Commercial Division held the plaintiff was entitled to payment of a development and management fee in connection with the acquisition, rehabilitation, management and maintenance of a property, even in the absence of a signed agreement. According to the Court, “although [the] defendants did not sign a writing expressly assenting to the management and development fee, the surrounding circumstances establish[ed] that the parties intended to be bound by the payment term.” The court further highlighted that the plaintiff’s letter proposal to his family members “explicitly” noted the fee and that the family members “agreed to be bound by the fee term by making monetary investments in the project.”
Of course, not all electronic or otherwise unsigned correspondence will lead to a binding contract. In Saul v. Vidokle, the court held that emails exchanged between the parties regarding the sale of a condominium were insufficient to satisfy the statute of frauds. In reaching its decision, the Second Department emphasized that the emails “left for future negotiations essential terms of the contract, such as a down payment, the closing date, the quality of title to be conveyed, the risk of loss during the sale period, and adjustments for taxes and utilities.”
Being Proactive Can Help Avoid Unintended Contractual Liability
Given the fact that it may be difficult to infer the parties’ intent from a series of electronic messages, it is advisable to be explicit regarding whether you intend to form a legally binding contract via email. Clearly stating your intentions can help avoid legal headaches down the road. When negotiating via email, make it clear to the other party that your electronic correspondence should be considered non-binding, and that any agreement is contingent upon the execution of a physically executed, formal written contract.
To err on the side of caution, business professionals may want to consider including a disclaimer stating that any email negotiations must be confirmed by a separate written contract executed by the parties. So that your employees don’t unintentionally bind your business, it is also a good idea that all company emails include language stating that the sender is not authorized to bind the company or that the signature block does not constitute a valid legal signature for the purpose of contract formation.
An experienced business attorney can help you with protective language for your company emails and the signature block described above. For assistance, we encourage you to contact a member of the Scarinci Hollenbeck Corporate Transactions & Business Law Group.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work at 201-806-3364