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Do Emails Create Legally Binding Contracts?

July 01, 2020

With email now the primary means of personal and business communications worldwide, it is important for parties to be aware of the potential legal consequences of these communications. While contract parties may treat emails in the same way they treat oral conversations, a fundamental question is whether the legal system views such communications as mere informal conversations or legally binding.

Going back to basic contract law, in order to form a binding contract, parties must generally meet the following elements: (1) offer; (2) acceptance; (3) mutual obligation or other valuable consideration; and (4) competency and capacity. In real estate transactions, the agreement also must meet the “statute of frauds,” which requires certain types of agreements to be signed and in writing. When email communications meet the essential terms of contract formation, the next hurdle is to determine when such communications satisfy the statute of frauds.

Electronic Transactions and the Law

Congress took note of the importance of the enforceability of electronic transactions and enacted the Electronic Signature in Global and National Commerce Act (E-Sign), which became effective on October 1, 2000. The Uniform Electronic Transactions Act (UETA) is the state law counterpart to E-Sign created by the National Conference of Commissioners on Uniform State Laws in 1999. Since then, 47 states have adopted the UETA, along with the District of Columbia, Puerto Rico, and the US Virgin Islands. Although Washington, Illinois, and New York are the only states that have not adopted the UETA, all three have similar legislations governing the handling of electronic transactions.

Both the UETA and E-Sign have the uniform objective of removing barriers to the use of electronic writings and electronic signatures in business, commercial, and governmental transactions. The UETA and E-Sign attempt to validate electronic transactions and signatures by according them the same legal status as traditional paper documents and conventional ink signatures. Both statutes emphasize that, where the statute of frauds requires a contract to be evidenced by a signed writing, an electronic record and electronic signature will meet that requirement.

The UETA defines an electronic record as “a record created, generated, sent, communicated, received, or stored by electronic means.” There is no disagreement that emails are considered electronic records under the UETA. To satisfy the electronic signature requirement under both the UETA and E-Sign, the signature must be (1) an electronic sound, symbol, or process; (2) attached to or adopted in the electronic record; and (3) made with the intent to sign the electronic record. Thus, the enforceability of an electronic signature generally requires the presence of the signature in connection with the electronic record, and the intent of the parties to be bound by the signature. For example, inserting one’s name in an email or a firm’s name is enough to meet the requirements of the statutes.

In a recent opinion, the Court of Appeals for the First District of Texas reversed a trial court and held that although an email was not signed by the sender, the name or email address in the “from” field is a symbol logically associated with the email and thus satisfies the requirement of a signature under the UETA. The court further explained that the UETA “expressly allows for automated transactions to satisfy the requirements of contract formation. The very nature of automated transactions requires the mechanisms for the transaction to be established in advance of the actual transactions.” The court concluded that the name and email address being automatically set up to be included in the “from” field of the email does not preclude them from having binding legal effect.

However, not all courts are in agreement that a party intends to be bound by the terms of a contract by inserting its name at the end of an email or the presence of an automatic signature block. The Fort Worth Court of Appeals held that the automatic signature block did not constitute a signature because nothing in the email suggested that the party in that case intended for the automatic signature block to be a binding signature. The court differentiated between physically typing in a signature line and an automatically generated signature block. Other courts have disagreed, holding that there is no difference between typing a signature block into emails and typing the block once and instructing a computer program to append it to future messages.

While both the UETA and E-Sign require that the parties must first agree to conduct the transaction by electronic means, “agreement” is considered in light of the surrounding circumstances. For example, courts will look to whether the parties explicitly or implicitly agreed to conduct the transaction through electronic means. Implicit agreement may be based on the ongoing email negotiations, the parties using email as the primary means of communication, or the specific content of the email. To negate such an agreement, courts will also look at whether either party has an added disclaimer to its emails rejecting the content of the emails to be interpreted as a binding offer or acceptance.

Conclusion

While email contract formation remains subject to basic contract law, the legal system continues to evolve to accommodate technological developments that have changed the way we communicate. Differing interpretations of automatic signatures highlight some of the challenges courts face in applying legal principles to new technologies. For the time being, email users should be aware that (1) messages in an email exchange can be pulled together to meet the requirements of contract formation; (2) a contract need not be on physical paper nor signed in ink in order to be legally binding; (3) purposely typed email signatures are likely to satisfy any statute of frauds requirement in real estate transactions; and (4) when an email is not intended to be a binding contract, it may be beneficial to add a disclaimer rejecting any contention that the email is a contract.