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At What Point Does an Email Become a Binding Contract?

The email has become the primary means of communication from business to business because it is immediacy, ease of operation and little cost to operate. With the ever-increasing use of emails comes the reality that more and more business matters will be negotiated through email. From these negotiations, email exchanges will often unknowingly lead to a subsequent binding contract between the parties. Gone are the days where it takes a hard copy of a contract signed in ink with a pen to be the only way for a contract to be formed. Today, electronic communication has revolutionized the way businesses communicate with most people still laboring under the mistaken belief that an email is nothing more than an informal form of communication. As a result, offers, counter-offers, and terms of proposed agreements are often exchanged via email under the expectation that these emails constitute no more than mere negotiation with any binding "deal" to be later finalized in writing. Nothing could be further from the truth.

Over the past several years, courts from Massachusetts to New York to North Carolina have held that a series of emails and letters between two parties can when taken as a whole create a binding written contract. Most people realize that the law generally requires a written, signed agreement for a transaction to be legally binding. What most people do not realize, however, is that an email exchange can also satisfy the legal requirements and collectively constitute a binding contract. This is especially true when parties reduce their discussions to emails to discuss or propose potential contract offers, counteroffers, and terms. In Massachusetts, both appellate and trial courts have held that a parties' email exchange constituted an unambiguous agreement on all material terms and therefore held a contract to exist.

In a number of Massachusetts cases, as well, courts have decided that even though the parties to a contract planned to later "memorialize" the settlement terms in a written agreement this did not lessen the effect of the binding nature of the previous emails. In New York, courts have also held that email exchanges complied with Statute of Frauds' requirements for signed writing based upon the sender's intention to authenticate the email by typing his name at the bottom of the email. In both Massachusetts and New York, as in many other jurisdictions, courts have held that the Uniform Electronic Transactions Act ("UETA") provides that a contract and signature will not be denied legal effect solely because the communications are in electronic form.

Needless to say, the current trend of courts applying contract principles to email exchanges has caught a number of businesses and their attorneys completely off guard. In order to avoid sinking into this delusional quicksand,  the Katz Law Group would advise that businesses exercise prudence when it comes to formalizing agreements via email whether the discussion pertains to a real estate contract or a non-real estate contract by implementing the following requirements:

1. Thoroughly think about what you are doing and the context in which you are doing it. Make sure that any communication is indicated as a draft and that it is checked in advance by your client.

2. If you do not intend to create a contract by email, you should ensure that clear language is used in the email or later emails, particularly if there is a lengthy email exchange, that there is no intention to create a contract except pursuant to a later written agreement. To this end, you should place a heading on each email, "For discussion purposes only."

3. You must include language in the email that the later written agreement be executed by someone who has the legal authority to sign a contract for you or your business before you are considered contractually bound.

4. Make sure you include disclaimers in the emails. Some examples of effective disclaimers to be used, individually or collectively, are as follows:

a. "The terms set forth in these emails are subject to later review and approval by the parties and are non-binding until the signing of a physically executed, formal written agreement by the parties."

b. "My email signature block does not constitute a signed writing for purposes of a binding contract." 

c."The sender of this email is not authorized, and has no intent, to make offers or contracts by email."   

5. Stay away from using contract terms such as "agree", "offer" and "accept" unless such terms are utilized under the guise of one of the disclaimers set forth above.

6. Make sure you reserve all rights for the client to review, comment, and/or revise any settlement discussions.

These recent court decisions serve as a clarion call to all contracting parties to avoid casually negotiating the terms of any proposed agreements via email in order to avoid having these communications unintentionally deemed enforceable and then becoming bound by unwanted agreements. For further information, please contact the Katz Law Group and we can guide you through the various steps required to protect your rights and interests when creating email communications.

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