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WHEN DOES A TEXT BECOME A BINDING CONTRACT?

Posted by David Katz | Apr 15, 2018 | 0 Comments

A. IN TODAY'S ELECTRONIC WORLD, TEXTING HAS BECOME THE PRIMARY VEHICLE OF COMMUNICATION. IT ALSO CAN CREATE A CONTRACT.

As more business is conducted by text, new legal problems will follow. Just fathom for a moment these statistics: As of 2017, there were 8 trillion texts sent per day around the world. By the end of 2013, there were six billion texts sent every day in the United States alone. Between 2011-2014 global text usage grew a whopping 140% in two and a half years. Many now refer to texting as the new email because of its speed. In fact, quicker means everything in today's business world and that is where texting has a distinct advantage over email. In the business world, the advantage of texting is obvious: Faster read, faster reach, no subject line needed, more personal and more noticeable.

The average person doesn't realize, however, that text communications can, in certain instances, create contractual relationships. Emails can create contracts (we addressed this issue in an earlier blog) and now texts are following suit. Indeed, businesses, as well as consumers, are often quite surprised, and in some cases alarmed, to learn that seemingly casual conversation, which contains relevant language, can be sufficient enough to create a legally binding contract or even a guarantee in some instances.

Since texts and contracts continue to be a developing issue in the legal and business world it is worth dropping back to a fairly recent case decided by our own Massachusetts Appeals Court. In the case where a text launched a lawsuit, in St John's Holdings v. Two Electronics, involved negotiations for the purchase of a commercial building. The buyer's broker had emailed the seller's broker an unsigned letter of intent as an attachment. The letter of intent which the parties intended to be binding had to be signed by both parties. The sellers' broker followed up by texting the buyer's broker to ask that the letter of intent is signed and that a deposit made. That text said as follows: "Steve(seller) wants(buyer) to sign first, with a check, and then he will sign. Normally the seller signs last or second. Not trying to be stupid or contrary, but that is the way it normally works. Can (buyer) sign today and get it to me today. Tim." The buyer then signed the letter of intent and provided a check to the seller. However, believing that they hadn't created a binding contractual relationship with the buyer, the seller accepted a third party's offer for the property and refused to countersign the letter of intent as directed by the buyer. The buyer believed it had entered into a binding contract with the seller and sought to enforce its legal interests in Massachusetts state court.

Upon appeal, the Massachusetts Appeals Court focused its analysis on whether the emailed letter of intent together with the text message was sufficient to satisfy the Statute of Frauds which requires that all land sale contracts such as the building, in this case, be subject to a writing in order to be enforceable. In its decision, the Court held that because the letter of intent set forth terms of the deal in detail and the text message was signed by the seller's broker there was created an enforceable contract. Remember, a basic binding contract must comprise four elements: There must be an offer, acceptance of an offer, consideration and the intention of the parties to create a binding relationship. In St.John's Holdings, the Court reasoned that the basic elements of contract formation were satisfied.

For now, Massachusetts is the only jurisdiction to actually have a reported case in this area. I suspect that more litigation will erupt for the simple reason that business deals move quickly and the use of texting as the mechanism to consummate the deals will continue at lightning speed. With that said, as a business owner, whenever you text, tweet or email THINK BEFORE YOU SEND. If you need to use texting to consummate a deal, you absolutely must include language indicating with clarity that a contract cannot be created through your text. Also, and perhaps most importantly, you need to find a way to preserve all texts which are by their very nature prone to being deleted. If your business plans on doing business deals via text messages then you need to find a way to back up your text communications in the event of a later potential legal problem such as that which occurred in St.John's Holdings.

At the Katz Law Group, we have assisted many businesses in making sure that their texts do not end up unintentionally creating contracts. We can tailor language to your business that keeps you out of the contract bind and permits you to correspond freely without having to think twice as to the effects of such communication. Please feel free to call us at 508-480-8202.

About the Author

David Katz

Attorney David S.Katz is the founder and managing partner of the Katz Law Group, P.C., located in Marlborough, Massachusetts...

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