Texts Can Constitute Binding Contracts

Jul 27, 2016

Under certain circumstances, text exchanges can satisfy the statute of frauds.

For hundreds of years, courts have required tangible proof that commercial and other contracts reflect a “meeting of the minds” by the parties to an agreement.

In the Middle Ages, handwritten documents had to validated by signatures and wax seals impressed with the crest or emblem of the individuals or commercial entities executing the contract. (This was the original purpose of signet rings.)

When printed contracts became commonplace, both parties signed “original copies” of their agreement. Notaries attested to the authenticity of the signatures.

In the United States, this format was codified in the statute of frauds.

With the advent of the almost universal use of electronic communication via email, the old rules became an unnecessary encumbrance and courts have accepted that email correspondence with, and eventually without, an electronic signature can bind the parties.

In a recent case, St. John’s Holdings LLC v. Two Electronics LLC, a Massachusetts court has taken the next logical step in expanding the scope of the statute of frauds by ruling that, given the appropriate factual circumstances, electronic text exchanges can create a binding contract.

Matthew DeVries, in an article in Best Practices Construction Law, reviews the Court’s reasoning in this case.

Real estate agents for the buyer and seller exchanged a series of texts in which they outlined, in considerable detail, the terms of the sale. This culminated in the buyer’s agent texting the buyer’s acceptance of the seller’s terms.

“’Tim, I have the signed LOI and check it is 424 [pm] where can I meet you?’”

The seller’s agent accepted the LOI and the deposit check. However, the seller refused to honor the agreement. The buyer filed suit to enforce performance.

“Thus the questions in the St. John’s Holding were: (a) whether a text message can be a writing under the Statute of Frauds; (b) whether the alleged writing contains sufficiently complete terms and an intention to be bound by those terms; (c) whether there is an offer and acceptance.”

The Court found that a binding contract had been created. This, according to Mr. DeVries, is the first time a Court has ruled on this issue.

The use of texts to negotiate and consummate contracts is probably going to become “business as usual.” Contractors and their counsel should take this into consideration when exchanging text messages.

 

Source—

LOL! OMG. HUH? Court finds That Text Message Can Form Binding Contract, Matthew DeVries, BEST PRACTICES CONSTRUCTION LAW, June 24, 2016.