Contracts Via Email: Five Tips for Avoiding Unintended Liability
December 31, 2013
Business transactions and contracts are frequently negotiated via email rather than traditional letter correspondence. While the use of technology certainly speeds up the process, it can also lead to unintended liability.
As New Jersey business litigation attorneys, we are seeing a dramatic increase in the number of cases involving disputes over whether an email exchange constitutes a binding contract. Therefore, this post offers a brief overview of the law governing email contracts as well as some tips for protecting your business.
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.
Nonetheless, the basic principles of contract law still apply. In order for a contract to be enforceable, there must be a valid offer and acceptance, supported by consideration. If one party send an email proposing different terms, the offer is considered rejected, and the contract formation process starts fresh. The parties must also intend to be contractually bound. While intent need not be explicitly expressed in the email correspondence, it just must be clear that the parties intended to be contractually bound.
To avoid a costly breach of contract lawsuit, below are five tips for negotiating a contract via email:
- Clearly state your intentions. Court will analyze what you said, not your subjective intentions when evaluating whether a valid contract has been formed. Therefore, it is imperative to memorialize everything in writing.
- Put the other party on notice. If you do not want to be bound by an email contract, 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.
- Include a fail-safe in all email correspondence. Assuming that employees may neglect to take proper precautions to protect against an accidental contract, it is advisable to include a blanket disclaimer in all business emails. Language may include 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.
- Address quickly. If you suspect that the other party may be interpreting your email exchange as the basis for a binding contract, it is imperative to take swift action, in writing, to correct any misconceptions.
- Provide training to employees. Your staff should understand the hazards of accidental email contracts as well as the company’s policies for negotiating via electronic correspondence.
If you have any questions about this article or would like to discuss the legal issues involved, please contact me, Joel Kreizman, or the Scarinci Hollenbeck attorney with whom you work.