What Does Binding Mean in a Text Message
To be legally binding, a communication must possess an intention to create a legal obligation. This is a basic principle of contract law. If that intention to create a legal obligation is present and the other elements of a legally binding agreement are met, then the text will be legally binding. Typically, those other elements are agreement (or mutual assent) and consideration. Just stating "I accept the terms of the license" or a mere "I agree" without responding to an offer will not satisfy a court as a basis for a legally binding statement. Rather, there must be a meeting of the minds or a knowing acceptance of specific terms. In most circumstances, texts must include consideration, which normally means the exchange of something of value. In the contract context, once parties have achieved a binding agreement, specific performance may be required or a monetary payment may be necessary to bring the parties in compliance with the terms of the agreement. Specifically in the electronic arena, and in this instance texts, there is case law discussing the intricate details of what consideration might mean. One court, for example, stated that "a promise made in return for an act or a promise of the performance of an act constitutes consideration." The good news is that text messages do not need to be in writing in order to be binding . However, if the parties included an offer that was not accepted or additional terms were added to the offer, a court must still apply the traditional statue of frauds analysis to see if a writing would be needed. In contracts, that means that the overall contract may be binding (e.g., a binding promise for future payment) but terms may need to be finalized. Consider the following illustration. A text message exchange is take it or leave it: A standard offer. Is it binding? Yes. A counteroffer can bind. Is it binding? No. A general statement such as "I accept the terms of the license." Would it be binding? No. A general statement such as "I accept the terms of the license" with a stated acceptable term. Would it be binding? Yes. A general statement such as "I accept the terms of the license" and then a counteroffer. Would it be binding? Yes. "A general statement such as "I accept the terms of the license" and then a counteroffer only if we can discuss this further. Would it be binding? Yes. A general statement such as "I accept the terms of the license" and then a counteroffer for further negotiation. Would it be binding? Yes. When a text message is part of an electronic exchange, a message can be binding without a specific offer. The parties simply must have had the exchange.
Factors that Make Text Messages Legally Binding
A myriad of factors that may determine whether text messages are binding. Legally, a contract exists when the following elements are present: If all of the above do not exist, no legally binding agreement exists, and if one or more are present, a legally binding agreement may exist. Intent. Key to existence of a legally binding contract is intent of parties to be legally bound. The intention to be legally bound is typically evidenced by some type of agreement. So, text messages that are clear on their face as to intent to be bound may satisfy this factor. See e.g. ooVoo, Inc. v. 1 Media Sales, Inc., No. 12 Civ. 485 (SAS), 2012 WL 1255200 (S.D.N.Y. Apr. 13, 2012) (finding intent to be bound where parties exchanged emails that clearly stated that they were entering into an agreement and that specifically enumerated the parties’ obligations). Intent to be bound may also be inferred based on the words and acts of the parties. See e.g. James v. Globe Mfg. Co., 121 A.D. 3d 1256, 3 N.Y.S. 3d 264, (N.Y. App. Div. 2014) (allowing emails to suffice as evidence of intent to be bound where defendant had previous dealings with the plaintiffs, prior to their execution via email, plaintiffs’ and defendant’s employee all allegedly exchanged emails and responded to the plaintiffs’ emails. Id.at 1264.); see also O’Keeffe v. A&M Blue States, LLC, 269 Ga.App. 360, 604 S.E.2d. 250 (Ga. Ct. App. 2004) (finding that it could be inferred that parties entered into an agreement via email sent to defendants’ attorney. Id.at 251.) If the parties’ intent cannot be clearly discerned, then intent to be bound would issue where the parties’ behavior indicates that they understood that they were setting the terms for future performance. See e.g oovoo, 2012 WL 1255200 (finding that plaintiff had satisfied its burden by "prov[ing] defendants’ course of conduct shows they understood they were setting terms for [a] future performance." Id. at *5.); see also Icon-IP Pty, Ltd. v. Specialitys Cafe, Inc., 70 F. Supp. 3d 1034 (N.D.CA Jan.15, 2014)(holding that intent to be bound satisfied when parties were in active litigation and settled the case over email.) Mutuality of agreement. An essential element of an enforceable contract is mutuality of agreement, which exists when the parties "have intentionally fixed the terms of their agreements." Franklin v. Kreling, 122 Cal. App. 4th 998, 998, 19 Cal. Rptr. 3d 630 (2004); see also, Jacola v. Imbesi, 234 AD2d 581, 652 N.Y.S.2d 145 (1996) (holding that to be enforceable, contract must be reasonably definite); Halivin v. Church of God of the Jubilee, No. CV-02-08850 CJC(RZ), 2004 WL 7331961 (C.D. Cal. 2004) (observing that "an agreement that is so vague or indefinite in its material terms that a court cannot ascertain whether breach occurred or provide an appropriate remedy will not be enforceable"). Consideration. A promise to create a legal relationship between parties is sufficient consideration. See e.g. Edsel, L.C. v. Diebenow, 143 P.3d 487, 497 (Colo. ct. App. 2006) (stating "[a] promise to do something that you have no legal obligation to do is sufficient as consideration for a contract."); see also Franklin, 122 Cal. App. 4th at 1004, 19 Cal. Rptr. 3d at 633 (stating that "even if the contract is not bilateral, mere rescission and modification of an earlier contract by a subsequent agreement occurs whenever there is a bargain between the parties to the old contract.") Clarity of Terms. Finally, for an agreement to be enforceable, the terms must be sufficiently clear for the court to assess damages. See e.g. Icon-IP, 70 F. Supp. 3d 1034 (holding terms were definite because the "resolution agreement provided the date by which defendants were to make payment, the amount they were to pay, the consequences of default, and the jurisdiction and venue in which defendants were to make payment." Id.at 1043); see also oovoo, 2012 WL 1255200, at *5 (holding that the parties "agreed upon an asset purchase price, the method and timing of payment, and other relevant performance criteria." Id.) Accordingly, courts will likely consider the duration and scope of the agreement, the parties involved, and the consideration exchanged to determine whether the essential terms of the agreement were sufficiently definite. See, e.g., Reuben H. Donnelley Corp. v. St. Regis Publications, Inc., 80 Civ. 700 (KMW), U.S. Dist. LEXIS 11625 (S.D.N.Y. Jan. 27, 1981).
Texts that Have Been Considered Legally Binding in Court
In one such case, the court ruled a text between two tech entrepreneurs constituted an enforceable contract. The text was sent by one of the men to the other who was looking for funding for his new technology. "We have a deal", the investor’s text began, then went on to name the company, interest rate and repayment schedule, and ended with a number for the entrepreneur to call with questions.
Exactly how the text was produced has also become a point of contention in other lawsuits. In another case, a former Illinois college baseball player claimed he had a binding contract with a women’s professional softball league until the investors decided to discontinue the entire league. He contended the messages were a contract signed by both parties. However, his signature was nowhere on the messages. They were instead printed from the text message screen of his potential business partner and had been altered (the 5 became a 4). As it turns out, he had only printed the section of the text he’d intended to use, and not the parts that questioned the ability of the investor to attract enough players for a season to be viable. Although, the court determined that there was a valid business relationship that was destroyed no one believed he owned the texts.
Legal Considerations with Using a Text as an Agreement
Agreements made over text are not new. Many businesses have also used text messages as an informal means of communication. But even if the parties are engaging in casual conversation, it is a good idea to keep in mind some practices that will help to clarify intent and establish the authenticity of the communications as a formal binding agreement.
- Keeping Text Transcripts. If you wish to preserve texts for future use, consider transcribing or printing them out for your record, as there could be technical difficulties with maintaining the texts on the device. Depending on the content and the purpose of the texts, keeping a transcript may help to establish context and intentions. Keeping a transcript of all texts during an exchange of offers and counter-offers could also assist in establishing the parties’ respective positions and negotiation history.
- Confirming Intent. While a digital auto-signature may not qualify as a valid signature for the purposes of forming a binding agreement (especially in the case of legal documents), it is important to confirm an individual’s intent to be legally bound during the course of the exchanges . For example, an individual may intend to enter into an exclusive agency agreement with your business, instead of a joint agency agreement, but the texts do not reflect the individual’s intent to enter into a binding legal agreement. Where possible, it may be advisable to explicitly draft all terms of the agreement and require the individual to review and execute the agreement either in person or via electronic means.
- Follow Up with Formal Representation. After negotiating via text messages, it is a good practice to follow up with the individual by confirming the nature of the relationship and the next steps in writing (e.g., hiring, start date, etc.). In the context of agents making requests, it is a good practice to obtain a signed request for representation, with all particulars and details. In the case of formal contracts or legal documents, it is important to have the individual sign the contracts and fully execute the documents. Where appropriate, it may also be advisable to offer the office visit to formally introduce the individual to members of the business and provide information about the relationship.
How Digital Signatures Apply to Texts
Part of the uncertainty over whether a text message constitutes a legal contract or merely the beginning a negotiation has to do with whether that text is genuine, and whether the sender intended to be held to its terms. In the past, this ambiguity could be resolved by relying on formalities associated with the underlying agreement: if it was a real estate deal, was there a handwritten signature? A commercial deal, or a large consumer transaction? Could a thumbprint, biometric scan, or voice signature be used to verify the identity of the sender?
But as the technology underpinning our intrusions into the digital world evolve, so do the ways in which we can verify the parties to a transaction. In the digital world, one of the most common methods is a digital signature. In fact, the wide adoption of industry recognized standards for digital signatures is the basis for enforcing electronic documents as legally binding, without the need for the signatories to physically sign their names on pages of paper.
Many of us have first encountered digital signatures when buying something online, an eSignature flow where the seller requests your signature within the flow – often by clicking "I Agree" or a check box – and then receives a PDF file with a copy of your signed document (including the cryptographic signature) that they may use to enforce the transaction terms. This is convenient because it eliminates the need to send information to a notary public, who would then attest the identity of the signatories, print the document, obtain signatures, and then mail the original and a copy back to the parties following the transaction.
eSignatures are based on the digital signature technology, which works by embedding information in the computational representation of a document that indicates the origin of the document and whether the document has been altered. It’s not full-proof, but it creates an unnecessary barrier to forging the transaction terms of a seller who has entered into an eSignature agreement with a buyer.
There are a number of reasons that parties may not use a form eSignature mechanism – perhaps the nature of the communication was too informal for it or the nature of the transaction too complex, or the parties were simply unaware of the tool. Nonetheless, if the acceptance of terms is clear, the intent behind the action unmistakable, and the quantum of loss (to the party alleging enforcement, of course) significant enough, a court may be willing to overlook the ways that digital signing falls short of orthodox paper signing with all its gewgaws and formalities.
Notably, in the United States, digital signatures are given a great deal of weight as viable evidence of contract formation in contracts that fall under the E-Sign Act (for certain federal law) and relevant state legislation like the California Uniform Electronic Transactions Act. These laws remove the paper and ink signature requirement for certain types of transactions, and provide guidance on how to weigh the validity of an eSignature.
Even if a text message doesn’t meet the technical criteria of a legally binding text message, if the text message is anchored to a well-curated digital identity for the sender of the text message and the tension between formalities and informality serves as the foundation for a negotiated agreement, a court may proceed in the balance of probabilities to find that a legally binding agreement has been created.
Exceptions and Shortcomings
While the enforceability of a text message is generally accepted, there are important limitations and recognized exceptions. Enforceability depends on the subject matter of the transaction, the parties to the transactions, the jurisdiction in which the transaction occurs (as enforceable agreements are a matter of contract law), and more. For example, although an email is not an original writing for purposes of satisfying the fraud statute of frauds, CRPC § 1636; Stobaugh v. Santa Clarita (1997) 58 CA 4th 574, 580 ["Enforceability and recordation of a memorandum do not satisfy the statute of frauds."], an email with the essential terms of a real property transaction that satisfies the statute of frauds may, nevertheless , be accepted into evidence. Section 1624(a) of the California Civil code requires that certain agreements be in writing in order to be enforceable. The statute of frauds governs only those contracts for which a writing is necessary to create the contract and does not affect contracts already created. It only prohibits enforcement of such contracts until a subsequent writing is developed. In California, agreements that fall within the statute of frauds include, but are not limited to (1) purchases or sales of real property, (2) leases of real property for longer than one year, (3) easements, and (4) sales of goods for $500 or more. CRPC § 1624. Supp. 2d 33-34. Closing any form of deal in electronic or text form is recommended to be avoided until or unless and unless the agreement or contract resides in the statute or fraud (this list is not exhaustive) and thus needs to be signed in a form conveyed in writing.