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When Does a Text Become a Binding Contract?

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

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 and 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 and now texts are following suit. Indeed, both businesses as well as consumers are often quite surprised, and in some cases quite alarmed, to learn that seemingly casual conversation, can create a legally binding contract if it contains relevant language.

Commercial Real Estate Brokers Negotiate Through Text Message

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.

It is the case where a text launched a lawsuit: St. John's Holdings v. Two Electronics, LLC. 

St. John's Holdings 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 seller's broker followed up by texting the buyer's broker to ask that the letter of intent be 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, instead. The seller refused to countersign the letter of intent as directed by the buyer. The buyer, believing that it had entered into a binding contract with the seller, filed a lawsuit in Massachusetts state court to enforce its legal interests.

Massachusetts Appeals Court: The Text Created a Binding Contract

The case made it to the Massachusetts Appeals Court, which focused its analysis on whether the emailed letter of intent, together with the text message, was sufficient to satisfy the Statute of Frauds. The Statute of Frauds requires that all land sale contracts, including those involving commercial buildings, be in writing in order to be enforceable - contracts that are oral or verbal are not binding.

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, it had created an enforceable contract.

Remember, a basic binding contract must comprise four elements:

  1. An offer,
  2. An acceptance of the offer,
  3. Consideration, and 
  4. The intention of the parties to create a binding relationship.

In St. John's Holdings, the Court reasoned that each of these basic elements of contract formation were satisfied.

What This Means for Contract Law

As of this writing, 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 case it leads to a lawsuit, like it did in St. John's Holdings.

Massachusetts Business and Contract Litigation Lawyers at the Katz Law Group

At the Katz Law Group, we have assisted many businesses in making sure that their texts do not end up unintentionally creating contracts. Our business and contract litigation attorneys can tailor the boilerplate language that your business uses, keeping you out of the contract bind and letting you correspond freely without having to think twice about the effects of your communications.

Contact us online or call our law office at 508-480-8202 for help in Marlborough, Worcester, Framingham, or the rest of Massachusetts. 

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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