Avoiding Accidental Contracts By Email: A Tech-Centric Point of View
In today’s fast-paced business environment, email is indispensable. But its speed and informality can lead to the inadvertent use of contract-forming language, resulting in unintended binding agreements. This problem is exacerbated by legal regimes that favor the recognition of contracts formed by email, with the intent of facilitating electronic commerce and online shopping. There are, however, several steps that companies can take to reduce their exposure to the danger of accidental contracts, which are offered below.
By way of background, forming a contract is relatively easy. It requires only an offer, acceptance, an exchange of value (or “consideration”), and agreement to be bound. Emails can satisfy all these requirements, even through the use of accidental or careless language, so long as it is objectively reasonable for the receiving party to believe there is an agreement. The Uniform Electronic Transactions Act of 1999 (“UETA”) has been adopted or mimicked by all 50 states. It provides that a contract “may not be denied legal effect solely because an electronic record was used in its formation,” and it requires that courts be “liberal” in upholding contracts formed electronically. Under the UETA, the contract is formed based on what the person writes, not what he or she thinks. So the fact that one “accidentally” used contract-forming language is not generally a defense. Likewise, in 2000 Congress enacted the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 (“E-Sign”). This statute extends the UETA to interstate and foreign transactions, and preempts state laws that effectively require physically signed contracts. Although E-Sign and the UETA help make online commerce possible, they also create a legal environment that is conducive to accidental email contracts. The same is true for judicial decisions in many states that accept loose language like “that’s doable” as a sign of binding acceptance of an offer, and that read multiple emails together to form a single contract.
In addition to training employees about these risks, there are several preventative steps companies can take to reduce the incidence of accidental contracts. First, although it may be cumbersome for certain industries, business emails can state that the company intends to be bound only by a physically executed, formal written agreement that includes all usual and customary provisions. Courts have relied on such language to reject claims of email contracts, because it undercuts any intent to be bound via email alone.
Second, businesspeople should be clear in their emails about any obstacles remaining in the path to a final deal. It may seem obvious, for example, that an offer is subject to certain conditions, or that further management approval is required. But the counterparty may not know about these strings still attached, or may disagree that they really exist. So, as a matter of corporate hygiene, emails should recite such requirements. Courts have relied on these sorts of statements to reject claims of contracts by email.
Third, companies should consider adding automatic disclaimers to business emails. They can state, for example, that the email’s signature block does not constitute a signed writing for purposes of a binding contract, or that the sender of the email is not authorized and has no intent to form a contract unless certain “magic words” appear in the text. The more specific the disclaimer can be, the better. It can also time-limit any price quotes, so that an “offer” cannot reasonably be accepted months later after it is no longer realistic. The time-limit at least creates a defense to such a claim by a dilatory purchaser.
Fourth, companies can try to implement policies that restrict the use of imprecise or informal language in business emails, although this is very difficult to do. For example, employees can be cautioned to avoid terms such as “offer” and “accept” in their emails, unless they really mean it and have authority to bind the company. Employees can also be instructed to avoid unconditional “promises” and to correct misinterpreted emails promptly. All of these steps can help prevent, or at least create defenses to, later claims of accidental contract.
Email has helped usher in an era of fast and relatively informal deal-making, which has many benefits but also creates risks. Although it is likely impossible to eliminate the risk of accidental contracting, knowledge of the problem and taking the simple steps identified above can help reduce it.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.