e-Mail Exchanges As Binding Contracts

By Shari Claire Lewis
October 28, 2008

Contracts, it is generally assumed, have to be “signed, sealed and delivered” to be deemed effective. The explosive growth of the Internet and the increasing use and prevalence of e-mail, however, have radically altered how those formalities can be fulfilled. As a number of recent decisions in New York and elsewhere make absolutely clear, for good or for ill, parties now can conclude a contract, or amend an existing contract, via e-mail. See, e.g., Seymour v. Hug, 413 F. Supp. 2d 910 (N.D. Ill. 2005) (parties reached enforceable settlement agreement by virtue of e-mails).

Consider, for example, the 2005 decision by the U.S. District Court for the Southern District of New York in Hostcentric Technologies Inc. v. Republic Thunderbolt, LLC, 2005 U.S. Dist. Lexis 11130 (S.D.N.Y. June 9, 2005), where, in a dispute over a commercial lease, the plaintiff tenant sought to enforce a settlement agreement documented in an e-mail exchange against the landlord defendant.

As the court explained, on Sept. 21, 2004, after litigation had begun, the attorney for the landlord sent an e-mail to the lawyer for the tenant “to confirm my client's final settlement counter-proposal.”

The terms of the proposal, as described in the e-mail, provided for a $755,000 payment by the tenant, with the landlord retaining the security deposit, and for the tenant to remove its property from the premises within 21 days at its own expense.

Moreover, the e-mail stated that the pending action “would be dismissed with prejudice and all parties would exchange mutual general releases. The payment is due my client within 10 days from today's date.”

The e-mail added that the counter-proposal “expires by 9:30AM tomorrow unless accepted by you before that time,” and it ended with the attorney's first name.

Later that evening, the tenant's attorney sent an e-mail to the landlord's attorney to accept the offer, stating, “I am writing to formally accept your settlement offer as set forth by you in your message from earlier this evening below.” The e-mail added, “[t]his matter is now conclusively settled. Please let me know how you would like to communicate this fact to the Court.”

The action subsequently was dismissed, but the settlement foundered when a draft stipulation of settlement contained an indemnification clause that the tenant refused to accept.

The tenant sought to enforce the e-mail agreement, asserting that the e-mailed offer and acceptance formed a valid and final settlement agreement. In opposition, the landlord asserted that there had been no final agreement and that it had no intention to be bound by an agreement “in the absence of a fully executed, written agreement” and that the e-mails between counsel “concerned the monetary accord and did not finally resolve the scope of the release and other issues.”

The court found the agreement to be enforceable. As it explained, settlement agreements are contracts and must be construed according to general principles of contract law. See, e.g., Red Ball Interior Demolition Corp. v. Palmadessa, 173 F.3d 481 (2d Cir. 1999).

The formation of a contract requires offer, acceptance, consideration, mutual assent, and intent to be bound, the court added. It then ruled that the Sept. 21, 2004, e-mails met all of these factors. The court noted that the landlord, in its own words, sent the tenant a “final settlement counter-proposal” with an expiration date to accept the offer, and listed all of the essential terms of the settlement: the settlement amount, removal of property from the premises, mutual general releases, and dismissal of the lawsuit.

The tenant accepted the offer within that time frame, e-mailing back to the landlord to “formally accept your settlement offer,” and stating that the matter was “now conclusively settled.”

The court rejected the landlord's argument that it had not intended to be bound by the e-mails, noting that it was not a party's “subjective intent” that controlled, but rather “what the parties said (and/or did).” Here, the landlord's counsel made a final offer in writing to the tenant that stated (or at least objectively appeared to state) all material terms, and the tenant accepted the offer.

The landlord's “(alleged) undisclosed intent” that it would not be bound until the settlement was memorialized in formal documents was irrelevant, the court declared. It then concluded that the e-mails constituted a “classic offer and acceptance,” contained all the terms of the agreement, and evidenced the intent that the “matter [was] now conclusively settled.”

The court applied long-standing principles as to the enforceability of settlements. Relevant to the court's analysis was the absence of any express or implied statement in the e-mails reserving the parties' right not to be bound by the e-mail exchange.

The court refused to find that such a reservation was implied by the fact that the e-mails stated that the parties intended to exchange mutual releases, which are merely “form” documents. The court also refused to infer a reservation of the intention not to be bound based on the e-mail reference to a stipulation of settlement to be submitted to the court, especially because the controversial term in the stipulation ' the indemnity provision ' was inserted by the opponent to the settlement. The opponent had drafted the original offer and thus could have included the indemnity provision in the offer if it was material.

Accordingly, the court concluded, the parties objectively intended for the two e-mails to constitute a binding contract, and the settlement agreement therefore should be enforced.

Signature Requirement

A more recent decision, by the Nassau County Supreme Court in JSO Assoc. Inc. v. Price, No. 07-16167 (Sup. Ct. Nassau Co., March 18, 2008), makes it clear that e-mail contracts also can comply with the New York Statute of Frauds, General Obligations Law '5-701(a)(10). This section provides, in part, “Every agreement, promise, or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise, or undertaking: ' is a contract to pay compensation for services rendered in negotiating ' the purchase, sale, exchange ' of a business ' including a majority of the voting stock interest in a corporation.”

In JSO, an action to recover a finder's fee, the plaintiffs argued that e-mail correspondence, taken as a totality, constituted a sufficient memorandum of the contract to satisfy GOL '5-701(a)(10). The court agreed. Not incidentally, the court also concluded that the e-mails sent to a New York resident that created the contractual relationship might also be an adequate basis to conclude that the defendant transacted business for purposes of jurisdiction over the contract dispute.

The court observed that, for purposes of '5-701(a)(10), a writing or memorandum is sufficient if it “identifies the parties to the contract, the subject matter of the contract, and establishes that plaintiff in fact performed.”

The court then noted that such a writing need not be contained in a single document, and that the terms of the agreement may be established by a combination of signed and unsigned documents, letters, or other writings provided the writing establishing a contractual relationship between the parties bears the signature of the party to be charged or his agent and the unsigned document refers on its face to the same transaction as set forth in the one that was signed.

Here, the court explained, one of the defendants sent an e-mail to one of the plaintiffs about a proposed transaction. In the e-mail, the defendant stated, “I'm impressed. ' Let's talk this morning. Since this has gone beyond the potential status, tell me what you want for bringing this together.”

The following morning, the plaintiff sent an e-mail to the defendant titled, “a few questions.” In the e-mail, the plaintiff indicated he had urged two other individuals to “come up with a cash advance in order for you to make the deal.” The issue before the court was whether there was an agreement that had been “signed.”

The court explained that the defendant's name appeared in the e-mail address at the top of the message. However, it added that the e-mail closed, “I'll talk to you later” and, except for the defendant's name in the e-mail address, was otherwise unsigned.

The court noted that a 40-year-old decision by the Appellate Division, Second Department, held that, “The subscription which the statute [of frauds] demands is a writing at the end of the memorandum” and, thus, that a “scrawl at the top of the memorandum” was insufficient to satisfy the writing requirement. See, Steinberg v. Universal Machinenfabrik, 24 A.D.2d 886 (2nd Dept. 1965). But the Nassau Supreme Court declared that case “was decided in a different technological era, when e-mail and home computers had not even entered the public imagination. Moreover, the requirement of a signature at the bottom was to minimize the opportunity for fraudulent additions to the memorandum, a practice which is not feasible with electronic communication.” It should be noted, however, that the court's assumption that e-mails cannot be fraudulently tampered is not necessarily correct and should not be relied on by practitioners who depend on the exchange of e-mails in lieu of written correspondence to establish legally binding documents.

The court then noted that “electronic signatures” on such formal documents as tax returns or SEC filings are now becoming commonplace. See, e.g., Barrett v. Huff, 6 A.D.3d 1164 (4th Dept., 2004). It accordingly held that where there was no question as to the source and authenticity of an e-mail, the e-mail was “signed” for purposes of the statute of frauds if the defendant's name “clearly appears in the e-mail as the sender.” The court found that because the defendant's name appeared as the sender of the e-mail (and because the defendant had sent another e-mail concerning the deal that he ended with his first name, “in the traditional letter writing fashion”), the statute of frauds' signature requirement was satisfied. See also, Al-Bawaba.com Inc. v. Nstein Technologies Corp., 2008 N.Y.Misc. Lexis 2425 (Kings. Co. April 25, 2008) (holding that e-mails exchanged which set forth the material terms of the parties' agreement followed by the first name of the sender at the end satisfied the requirements of the statute of frauds).

Contract Modification

Finally, another recent decision, Stevens v. Publicis, S.A., 2008 NY Slip Op 02880 (1st Dept. April 1, 2008) by the Appellate Division, First Department, found that e-mail communications can serve to modify an existing contract.

In this case, the plaintiff sold his New York-based public relations firm to the defendant, a French global communications company, and its co-defendant U.S. subsidiary. The sale involved two contracts: a stock purchase agreement, pursuant to which the plaintiff sold all of his company's stock to the defendants, and an employment agreement, pursuant to which the plaintiff was to continue as chairman and chief executive officer of the new company for three years. The plaintiff's duties were to be the “customary duties of a Chief Executive Officer.”

After the acquisition, financial problems appeared, and the plaintiff and a representative of the defendants exchanged a series of e-mails, culminating in a message from the defendants' representative setting forth his understanding of the parties' terms regarding plaintiff's new role at the company. The plaintiff replied by stating that he “accepted the proposal,” and the defendants' representative responded by affirming the defendants' commitment to the modified arrangement. Each of the e-mail transmissions bore the typed name of the sender at the foot of the message.

The Manhattan Supreme Court found that the parties had agreed in writing to modify plaintiff's duties under the employment agreement. In so ruling, the court relied on the e-mail exchange between the parties in which both sides expressed their unqualified acceptance of the modification to the agreement. The plaintiff appealed.

The First Department affirmed. It found that the series of e-mails setting forth the terms of the proposed modification, together with the plaintiff's acceptance of the terms of the agreement and the defendants' representative's immediate reply, “memorialized the terms of the parties' agreement to change plaintiff's responsibilities under the employment agreement.”

The appeals court concluded that the e-mails from the plaintiff constituted “signed writings” within the meaning of the statute of frauds, since the plaintiff's name at the end of his e-mail “signified his intent to authenticate the contents.” Similarly, the court concluded, the defendants' representative's name at the end of his e-mail constituted a “signed writing” and satisfied the requirement of '13(d) of the plaintiff's employment agreement that any modification be signed by all parties.

Conclusion

With the growing use of e-mail by attorneys and business people, electronic contracting rules are developing in New York and elsewhere.

As these recent decisions reflect, e-mail contracting can be an effective way to form an enforceable contract. They can, however, be a boon or curse. e-mail is a casual and speedy form of communications, previously unheard of in the practice of law and which belies its potential legal import.

Parties wishing to avoid the impact of a ruling that e-mail communications have created contractual obligations (or have amended an existing contract) should do what parties do in the traditional context: Make it clear that they do not intend for a contract to be formed until all documentation is fully completed and signed.

In other words, everyone should stop and think before hitting “send.”

Shari Claire Lewis, a partner at Rivkin Radler LLP in Uniondale, NY, specializes in litigation in the areas of Internet, domain name, and computer law. She can be reached at [email protected].

Contracts, it is generally assumed, have to be “signed, sealed and delivered” to be deemed effective. The explosive growth of the Internet and the increasing use and prevalence of e-mail, however, have radically altered how those formalities can be fulfilled. As a number of recent decisions in New York and elsewhere make absolutely clear, for good or for ill, parties now can conclude a contract, or amend an existing contract, via e-mail. See, e.g., Seymour v. Hug , 413 F. Supp. 2d 910 (N.D. Ill. 2005) (parties reached enforceable settlement agreement by virtue of e-mails).