With a few swift clicks of the keyboard, you just landed the deal of your career – a multi-year, multi-million dollar contract. The accomplishment feels electric, and congratulations from your coworkers abound. Unfortunately, the person on the other end of that email chain did not intend for you to land the deal, much to your dismay. The two of you had been negotiating via email for several weeks, and it seemed natural to seal the deal that way. But have you? Will your emails hold up under scrutiny from the board or, worse, a judge? And how could you have ensured your intent to contract was clear and that both of you were agreeable to contracting via email in the first place?
Contracting by email is nothing new to most general counsel. The E-Signature Act, applicable to interstate dealings, has been in effect since 2000, and many states and countries followed soon thereafter. What is new, however, is the increasing willingness with which courts are finding validity in contracts formed via email, often with parol evidence, from employees charged with the task to negotiate, but not necessarily sign, them. Without proper checks and measures in place, you could find your company in court litigating over not just who meant what in an email, but whether a contract exists at all.
Signatures: From Pen and Paper to Keystrokes and Inboxes
The contract signature requirement is older than our U.S. common law. Beginning in 1677, and by some accounts earlier, with an act of English parliament, certain contracts were required to be in writing and signed by the party against whom enforcement was sought, in order to be enforceable. These included contracts for marriage, for services that by their terms required performance for more than one year, agreements to transfer interests in real estate, wills and executor contracts, sureties and contracts for the sale of goods over a certain value, to name a few. Many states codified the rule. However, over time, a number of exceptions developed. In most states, only the material terms of a contract must be in writing. For the sale of goods, later codified in the Uniform Commercial Code, this means quantity, as all other terms can be determined using a reasonable “gap filler.” For services, this means the identification of the parties, the service and timing sufficient for a court to determine the parties’ intent. Thus, not all terms need be in writing or, if in writing, signed by either party.
A number of legal defenses were also developed to match commercial realities. These include admission by the party opponent and partial performance consistent with the terms of the alleged contract and promissory estoppel. Additionally, between merchants – that is, parties charged with specialized knowledge and/ or regularly dealing in the goods at issue – a letter of confirmation from one merchant to which the other, having reason to know of its contents, fails to object within a reasonable time (typically ten days).
