What Constitutes a Legally Binding Agreement?
For any kind of contract to be legally binding, there are certain characteristics and qualities that must be present within the document. These essential elements include an offer, a clear acceptance of that offer, and consideration for the proposed action. The offer is, simply put, a proposal for an agreement backed up by a serious intent to proceed. In other words, if I act in the way you’re suggesting, what will you do? An offer may be oral, in writing, or implied through conduct. It can be a very straightforward proposal, but if it’s not clear, it is not binding.
Acceptance is a simple acceptance of the terms of the offer. For example, if you offer to sell me a bicycle for 50 bucks, a simple answer of "deal" is an acceptance of the offer. An acceptance doesn’t have to be in writing. It can be oral or even implied through action. That said, an acceptance must be made in a manner that mirrors the offer. A party wishing to accept an offer must do so as it is proposed. If I make an offer of 50 bucks for your bike, I can’t accept your counter-offer to sell it to me for 75 bucks. The reason for this rule is that if potential performance is 50 bucks , it can’t suddenly be 75 bucks based upon a new term imposed by the other side. Of course, counter-offers are frequently made on contracts which become legally binding only when the original offeror subsequently accepts them.
Consideration is the essence of what the parties to a legal agreement are promising one another. It is something that one party supplies to the other and which has value. The bicycle story again is a good example; in order to get my 50 bucks, the seller of the bike must make that bicycle mine. When the deal is done, it can technically be said that the buyer ‘takes’ title of the bike and the seller ‘takes’ the money. Traditional written contracts are publication from one party to the other of an intent to be bound by the stipulations contained in that piece of paper. This is the familiar contractual process of making an offer, having it accepted by the counterparty, and exchanging consideration.
In today’s digital world, however, publications of offers and acceptances happen not in writing, but through the internet, web pages, and text messages. Are these agreements binding? Some are. Some aren’t. It all depends on the omen of those key elements—offer, acceptance, and consideration—in the eyes of a judge.
Text Messages as Legally Binding Contracts
In order for a text message to be found to be legally binding, courts require that such a text message have the elements of a contract: offer, acceptance, consideration, legal purpose and capacity. The offer must be unequivocal and communicated to the offeree. The text messages must contain sufficient specificity that an agreement on all essential terms can be found in the text messages. That there is no authorized signature on the text message does not preclude enforcement of the text message as a contract. Then there needs to be an acceptance of the terms. Courts have found in some cases that the acceptance is implied by the conduct of the parties. In other words, the party responding to the text message takes some action consistent with the terms of the contract and the court finds an acceptance has occurred. That there was a legal purpose to the contract and that the parties had capacity are typically not issues in finding a legally binding text message contract. Consider the Pennsylvania case of Hurst v. Lefkowitz, CP-35-MD-0000633-2016 (Pa. MDJ. Magisterial Dist. Ct. Magisterial Dist. Ct. July 12, 2016). In this case, there were text messages back and forth between the parties regarding the sale of certain ferroalloy to Mr. Lefkowitz. The equilibrium price went up and down. In certain text messages, Mr. Lefkowitz advised that the materials were going to be shipped to his company or to a particular location at a stated price and Mr. Hurst also advised that the materials would be shipped to a particular place and paid for and gives a breakdown of the cost. The defendant in that case denied entering into an agreement with the Plaintiff. However, the text messages set forth that the prices were mutually agreed upon, the location, the quantity, the type of materials transferred and were clear in the description of what the parties sold, where it was sold and the amount. The Magistrate Judge found that the text messages here are an offer by Mr. Lefkowitz to purchase ferroalloy materials from Mr. Hurst and the texts constituted a valid and enforceable contract. The court went through each of the text messages and found that they contained the material terms such as the parties’ names, delivery date, payment terms, and quantity and price of the materials as sufficient to make it legally binding. In another Pennsylvania case, SCF Nat. Bank of East Texas v. Wireless Holdings, LLC, 2018 Tex. App. LEXIS 2074 (Tex. Ct. App. March 26, 2018), a bondholder sent a text message to the borrower that the bondholder agreed to make a $1 million loan to the Borrower. The borrower replied that the terms were acceptable to him. The borrower then filed bankruptcy. The court found that the text message satisfied the statutes of fraud in writing requirement to be legally binding and enforceable. In Becker v. Hooshang, 2019 Ill. App. LEXIS 138 (Ill. Ct. App. January 29, 2017), the Court granted a Motion to Enforce a Settlement Agreement that was reached by text messages between the parties. There were multiple text messages going back and forth between the parties and their respective attorneys regarding settlement terms. The fact that the Plaintiff made an oral motion for leave to withdraw the settlement agreement within hours of it being reached and purportedly accepted, did not give the court reason to undo the agreement when the core terms of the agreement were known and accepted by both parties. The takeaway from these groundswell of cases is that text messages can be deemed to be legally binding contracts when the essential terms have been agreed upon by the parties. The fact that it is a text message instead of a written contract signed by the parties, does not preclude enforcement of the text message as a contract.
Important Legal Opinions and Cases
Almost as soon as the written word was used, there were disputes of contract. Increasingly, these disputes have come to include the use of text messages to make or break a contract. When a former Fox Sports employee tweeted from a protected account about a trade rumor, his access to his locked account was revoked, and when Petronas Chemicals Group agreed to buy prices for refinery products via text, they concluded that the sale had been binding. After a series of cases involving disagreement over whether a contract had been formed through text messages, the National Football League and players union even made it obligatory for any agreement between the two parties to be made in writing with both parties signing for it to be enforceable.
Ruling on this issue in Halsey v Milton Keynes General Hospital NHS Trust [2004], Justice Eady found that an agreement via "telephone or fax" could be concluded if "there is an express or implied promise by one party to enter into a contract with the other or, alternatively that it intermediate an existing contract in the course of negotiation." Further, it was Judge Andrew Smith in Snowball v. Musson, who decided that "a contract which is intended to be binding for six months but which falls short of the elements which would make it a legally binding contract might fall instead to be an agreement to negotiate (or to continue to negotiate) on the matters contained in the agreement." Following these findings, subsequent courts decided that, in the case of Clegg v Olle Anderson, "a range of formalities might be replaced with clear evidence of intention to contract" and that "the mere fact that an agreement is made to refer outstanding matters to an arbitrator does not mean that an agreement is not binding on the parties." As a result, an issue such as the one in the Laborers Local 17 Health Benefit Fund v Philip Morris Inc case could result in the contract being found to be legally binding.
Parties that wish to document their discussions can benefit from the Halsey and Snowball findings. The desire to create a contract that is binding can be followed by the "individuals entering into an agreement intend it to be legally binding and not simply a prelude or framework for future negotiations." If the parties have such intentions, they should set out the terms of the agreement in its entirety so as "to be enforceable against them." This means that a clear intention to establish a binding, contractual relationship should be sufficiently documented. With this in mind, the lessee of a freight space should seek to have a confirmation of the terms and conditions of the agreement, which include the subject matter of the contract, the price and any special arrangements.
Risks and Issues with Legal Texts
Though there are many ways in which text messages have been potentially helpful during the quarantine of Covid-19, if parties choose to rely on text messages in place of more formal contracts, they face various challenges and risks. Parties could misinterpret a text and disagree about whether and when a deal has been made. A party who suffers damages should expect the opposing party to make the same denial, that the text was merely an ongoing negotiation, not a binding contract. The party who wrote the text will have difficulty proving their interpretation and their damages. Indeed, the very challenges of litigation may dissuade parties from bringing suit over text messages rather than more formal contracts.
In addition, parties may intentionally resort to text messages because they do not want the transaction to be more formal than it was. But this can backfire: even parties who were aware of and did not mean to subvert anticipated requirements for a written contract may find themselves unable to prove their contract ever existed in the first place. Even oral contracts sometimes fail for want of written proof. Yet if they had written in full, the Hutton court noted, "the parties would have been bound … by the terms contained therein." Therefore, parties who choose to ignore the practical benefits of written contracts, and enter into agreements through text messages instead, ought to think through whether that is truly what they want.
Guidelines for Drafting Legally Binding Texts
We’ve established that certain texts can be legally binding. But the question is: how do you craft an enforceable text? The answer is that there is no hard and fast rule, but there are a number of best practices that will make it much easier for a court to find a text to be binding.
Be Mindful of Language
First, when you’re sending a text that you really want to be binding, use clear language and avoid ambiguity. Clearly stating that you are making an offer, that you expect a response, etc., is important to creating binding communications .
Documenting Provisions
Second, if you’re creating terms for a binding contract as a multiple text message exchange, make sure you record all of those terms. If you make a deal orally – which you shouldn’t if you want it to be legally binding – be sure you document everything before considering that deal to be legally binding.
Ask for Explicit Consent
Third, if possible, ask for explicit consent to record the terms in question. This is the ideal way to draft a text message deal. Record it as you go, clearly obtain agreement, and you should have more than enough to go on.
Electronic Signature Regulations and SMS Messages
The E-SIGN Act (named for "Electronic Signatures in Global and National Commerce") and the Uniform Electronic Transactions Act ("UETA") are federal and state laws that govern the use of electronic signatures in commerce. The E-SIGN Act specifically addresses the validity of electronic signatures by generally providing in 15 U.S.C. § 7001(c) that "When an electronic contract, reply, or other acknowledgement is otherwise legally sufficient, it is not invalid under any law in any jurisdiction requiring a signature as a condition for using or enforcing a contract or agreement for failure to provide for the use or acceptance of electronic signatures."
Because text messages are often sent in furtherance of a business relationship, there’s little reason to believe that text messages are not covered by the E-SIGN Act and/or UETA. Accordingly, a person who sends a text message in the context of a business relationship may be sending an enforceable contract or an enforceable amendment to an existing contract just by hitting the "send" button on his or her smartphone.
The laws regarding enforcement of text-message contracts are still developing. However, it is quite clear that the text-message sender will generally be bound by his or her words unless the context of the conversation signals that he or she is joking or that the text message was not intended to convey a serious communication.
Global Perspectives on Digital Message Contracts
The enforceability of text messages, emails, and social media posts varies across jurisdictions. Common law courts have long grappled with the digital challenge, as in Moore v. City of East Cleveland, 431 N.E.2d 572 (Ohio 1982) ("although it may have been a good idea for some courts to avoid the word ‘property’ in their opinions for public policy purposes, the concept of whether a right is enforceable or not is best determined by the term "contract . . ."); Lecanto v. Dist. Ct. 6th Judicial Circ., 704 So.2d 845 (Miss. Ct. App. 1997) ("[t]here is no doubt that the information contained in a computer is property, but it does not follow that it should be sold to anyone regardless of the amount of information sought to be acquired or the purpose for which it is to be used"); and Coan v. Dunne, 367 F.3d 475 (2d Cir. 2004) ("one or more state-based contracts must be entered into to determine whether and when a trademark is assignable from one to another"). In short, whether text messages and other electronic communications are enforceable contracts is a nuanced issue of state contract law with significant variation between jurisdictions. Internationally, the same digital dilemma persists. Indeed, the United Nations Committee on International Trade Law recognized in the Convention on use Electronic Communications in International Contracts (October 2005) ("the Dispute Resolution Policy") that "legal obstacles to the validity and enforceability of contracts in electronic form pose a greater problem for international than for domestic trade, as the former involves the application of a mixture of legal rules and principles adopted by a number of states." Others have expressed concern over whether these e-contracts would be enforceable in less developed countries, particularly those that lack the requisite technology to utilize electronic communications. ed. Hugh Beale et al. , Electronic Trade Documents: A Challenge for the Developing World?, 16 J. Bus. L. 89-98 (2016). The UK has evolved its legal framework to address the enforceability of electronic communications. It has even created a new category of digital communication (an "electronic document"), which has distinct legal standards governing its validity (such as electronic signatures on contracts, contracts made solely by electronic means, and under-writing contracts). In these circumstances, it is prescribed that the electronic document shall be deemed to be a written document as well as signed, but subject to its authenticity being proved. See The Companies (Electronic Communications) Order 2000 (UK); Electronic Trade Documents Bill (UK 2017). In the EU, "[e]lectronic contracts are assigned the same values and binding force as contracts entered into on paper" though Member States are free to regulate "default rules on contract formation provided that such regulations do not conflict with European law." ed. Hugh Beale et al., Electronic Trade Documents: A Challenge for the Developing World?, 16 J. Bus. L. 89-98 (2016). The EU’s acceptance of electronic communications as contracts follows the enactment of the Directive on Certain Legal Aspects of Information Society Services [The Directive] (Directive 2000/31/EC of 8 June 2000 on Certain Legal Aspects of Information Society Services (Directive on Electronic Commerce) (O.J. 2000, L178/1 (EC)), which establishes both broad and narrow principles for EU Members to abide by in regulating electronic contracts including, transparency, the need for human involvement, the burden of proof of receipt by parties in electronic communication and acceptance, and prohibiting the criminalization of electronic contracts. AND See Coyle, Lasting Value: Recent Developments in Contact Theory Under the CISG, 36 FLA. St. J. L. Rev. 773, 834 (2009).