Beware of contracts in indelible digital ink
In our digital age, more and more business transactions are being conducted electronically. Generally speaking, this makes doing business much easier and more convenient; but in some cases, the very ease with which people can communicate contains hidden and potentially costly pitfalls. One example of this is negotiating the details of a business deal via e-mail. Here are some tips to help you avoid accidentally writing a contract in indelible digital ink.
Be careful what you don’t sign
Normally one imagines a contract arising when there’s a written document and both parties to the contract sign it. Until it’s signed, the document is just a potential contract, a document for discussion. After it’s signed, however, it’s a legal contract. But not all contracts are made with pen and paper.
Whenever you’re negotiating via e-mail it’s important to keep in mind the Uniform Electronic Transactions Act (UETA). Adopted by 47 states, this act supports the validity of electronic contracts. It doesn’t create contracts where they otherwise wouldn’t exist, but it does recognize that legally binding contracts can be created electronically.
The UETA says that, under certain circumstances, if the parties contemplated a signature in order to form a contract, the electronic exchange can constitute the equivalent of a signature. Put simply, this means you have to be careful what you sign, even if you don’t sign.
Don’t dispense with the formalities
People have a tendency to be fairly informal in e-mail communications. That’s why it needs to be clear from the beginning that until the board of directors, chief executive officer, or whoever has authority, approves the deal, it’s not a deal. Otherwise the language you use in an e-mail could come back to haunt you.
Think about what are you saying and how it might be read in the abstract. If, in your e-mail correspondence with another company you say, “We’ve got a deal,” but what you really mean is “We’ve got a deal on price,” make that clear. Unless you’re willing to be bound by what you say in your e-mail, you should avoid any contract-type language that says “I accept” or “We got a deal.”
For example, if you’ve come to an agreement on price, but still need to hammer out the other details of a transaction, don’t say, “Glad we could reach agreement,” and leave it at that. Instead, make it clear that there are still more terms to be settled. A better response would be, “I’m glad we could reach agreement on price. Now let’s negotiate the other terms we need to agree on.”
Your lawyer would love it if you make it clear in every single e-mail that, until final approval, there are no done deals, but in reality, you’re not likely to do that. Still, strive to err on the side of caution. Periodically remind the other party that all agreements reached via e-mail are conditional. As a practical matter, you should at least clearly state your need for final approval at the beginning of your e-mail correspondence and in your final e-mail.
At the beginning, you might say, “This is good that we’re talking and negotiating, but we don’t want to be bound until we sign a written contract.” At the end, if you are the one making the offer that you think is going to be accepted, you should say, “Here’s our latest counteroffer. If this is acceptable, let me know by e-mail and I will take it to our board of directors for final approval.” If you receive an offer and are prepared to accept it, you can say, “We can accept these terms on the condition that they are approved by our board of directors as we previously discussed.”
Unfortunately, we often respond to our email just as we’re heading out the door and aren’t as vigilant as we ought to be. What can you do if you think you may have already given away too much in your correspondence? In that case, you can always send an e-mail afterwards clarifying the need for final approval and cross your fingers.
After you send this clarification, one of three things will occur: 1. They’ll write back and say, “No problem. This is our understanding too.” 2. They won’t write back at all, or, 3. They’ll write back saying, “What are you talking about? Of course we have a deal.”
There’s really no downside to clarifying your position and there may be an upside if the other side responds in the first or second way. Your clarifying e-mail would be a very beneficial piece of evidence to pull up should they decide to sue you for breach of contract three years down the road. If they really believed they had a deal, they will probably be deemed estopped or to have acquiesced in what your position was because it would have been reasonable for them to respond in the third way.
Even if they do respond in the third way, at least you’ll know sooner than later that you have a problem (and if that’s the case, you should save all of your email exchanges to use as evidence in the event a lawsuit surfaces later). Keep in mind though, that if a contract did arise from your correspondence as we’ve already said is possible under the UETA sending the clarification e-mail won’t change that fact.
Ultimately, the best policy in your digital dealings is vigilance. Because even electronic ink can be indelible.
Darren Lemieux is a litigator in Lewis and Roca’s Reno office. He can be reached at DLemieux@LRLaw.com. Dan Waite is a litigator and managing partner in Lewis and Roca’s Las Vegas office. He can be reached at DWaite@LRLaw.com.
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