Before You Hit “Send:” Avoiding Inadvertent Contract Formation by E-mail

In the past twenty years, the Internet and cell phones have revolutionized the way the world communicates and transacts business.  In order to “enhance and promote the reliability of electronic commerce,” because “electronic commerce is expanding rapidly and is an engine for economic growth,” in 1999 Pennsylvania became the first state to enact the recommended version of the Uniform Electronic Transactions Act (“UETA”), which gives electronic signatures the same legality as those on paper, elevating electronic signatures and electronic records to functional equivalency with their traditional “pen and paper” counterparts.  Increasingly, courts are relying on electronic transaction legislation such as the UETA, applying rules of contract formation, and finding that e-mails create binding contracts.  It is clear under existing law that e-mail can create or modify a contract.  As a result, you need to be aware of what you state in e-mails to avoid an accidental contract.

A recent decision by the Michigan Court of Appeals addressed the UETA’s effect on e-mailed settlement negotiations. Traditionally, a settlement agreement is a written document signed by the parties or their attorneys.  In Kloian v. Domino’s Pizza, the parties’ attorneys exchanged e-mail messages in the days leading up to a trial.  Counsel for Kloian sent an email to counsel for Domino’s Pizza stating that his client would “accept the payment of $48,000 in change [sic] for a dismissal with prejudice of all claims and a release as [sic] all possible claims.”  In response, Domino’s counsel e-mailed, “Domino’s accepts your settlement offer contained in the message below,” and offered to draft a formal settlement agreement.  The parties never signed a formal settlement agreement.

Domino’s sought enforcement of the e-mails as a binding settlement agreement and prevailed at the trial court.  In affirming the decision of the lower court, the appeals court cited the UETA’s definition of “signature,” stating “The email containing the terms of the settlement offer was subscribed by plaintiff’s attorney because he typed, or appended, his name at the end of the e-mail message.”

A good way to avoid the unintended creation of enforceable contracts using e-mail is to include express disclaimer clarifying that the e-mail is not intended to create a contract.  A recent case highlights the importance of such disclaimers.   In 1-800 Contacts, Inc. v. Weigner, a Utah appeals court upheld the lower court’s determination that email communications did not intend to create a binding agreement where the email stated “[t]his offer is entirely dependent upon my agreement with your attorney’s terms and conditions for the acquisition and is not to be considered legally binding until a physically executed contract between the two companies is completed. Until the time said contract is executed I may, at my sole discretion, rescind or modify this offer in any way I see fit.”  The court noted that the defendant “clearly and unambiguously reserved the right to modify or rescind its offer up to and until the time the parties executed a written agreement.” The court further noted that “If an intention is manifested in any way that legal obligations between the parties shall be deferred until the writing is made, the preliminary negotiations and agreements do not constitute a contract.”

You can protect yourself from unintended contract formation by including an express disclaimer in the e-mail.  Most e-mail applications allow users to create an information block in their e-mails. The block usually includes the sender’s name, address, and other contact information. Individuals and businesses should consider adding a standard disclaimer to the information block.  For example, a simple disclaimer that “Nothing in this e-mail is intended to constitute an electronic signature for purposes of the Electronic Signatures in Global and National Commerce Act (E-Sign Act), 15, U.S.C. §§ 7001 to 7006 or Pennsylvania’s Uniform Electronic Transactions Act, 73 P.S. § 2260.101, et seq., unless a specific statement to the contrary is included in this e-mail” should be sufficient to reduce the risk of inadvertent contract formation.

Consult with the attorney’s at MBM if you wish to learn more about how you can diminish the risk of inadvertent contracting and similar business liability.

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