What Constitutes a Legally Binding Agreement?
For a text message or any other form of agreement to be legally binding, there are a two very general requirements under UK law:
1. Intention to create legal relations
It is only once the intention to create legal relations is established that an agreement can be legally binding. Intention is an objective test and will be inferred from the parties’ conduct as a whole.
2. Contractual arrangements
Even if the parties clearly demonstrate their intention to create legal relations , the contract remains unenforceable unless the parties have fulfilled the necessary elements of a contract, namely:
· An offer;
· An acceptance;
· A consideration; and
· Certain essential terms.
As both of these factors are necessary for an agreement to be considered a legally binding contract, it is important to understand how these requirements look on balance.
Can Legal Agreements be Entered into Via Text?
While the rise of text messaging as a method of communication is a ubiquitous feature of daily life, the question remains whether text messages can constitute a legally binding contract. Whether text messages can be used as an enforceable agreement is presently being considered by the English courts. In English case law, interpretation of whether a series of text messages amounted to an enforceable agreement are two recent cases. In RTS Flexible Systems Ltd and Maurice O’Reilly (2017), a series of text message exchanges between two commercial parties concluded that an agreement had been concluded – despite the parties contending that the negotiations were ongoing and there was no intention to be legally bound.
In the case of Borax Holdings Ltd v Geo. K. Huhne and EA (Huhne) (2017), a series of text message exchanges between husband and wife during divorce proceedings constituted an enforceable agreement to settle, thereby disposing of any future claims between them.
In a joint judgment the court concluded that a reasonable person would have concluded that the parties intended to be legally bound by the text messages, which contained an indication of the settlement terms, and "expressed sufficient finality to conclude the agreement without further action".
The case of Borax Holdings Ltd is the first English case to consider an enforceable settlement agreement evidenced by firm negotiations via text message. It seems likely that parties will continue to use text messaging to negotiate and conclude agreements.
What is Required for a Text Message to be Legally Binding or Enforceable?
For a text message to be binding, it must include, at a minimum, the following elements. First, the text message must include an offer or invitation to enter into a contract. Second, the text message must be accepted and the acceptance communicated to the other party. This is typically done by sending a reply text message concurring with the offer. Third, there must be "consideration," which is generally thought of as a thing of value that is exchanged between the parties. In the context of a text message exchange, the acceptance of the offer can serve as consideration, at least in some cases.
With respect to the initial text message, courts have answered the question of whether an initial text message constitutes an offer has been answered differently in the states. Most states will find the initial text message — which is an offer — sufficient to meet the statute of frauds as long as other elements of a valid contract are present. Simply opting into the text program may, by itself, not be sufficient to satisfy the statute of frauds, but where the text message recipient accepts delivery of messages, this is usually enough.
Regardless of the rules for determining whether a text message is binding, one thing is clear — the text message sender should never text unless he or she fully understands the important legal issues discussed above. A few of the pitfalls to avoid include the following.
Technical Barriers to Enforceability
Using a text message as a mandate is not without its challenges. Authentication, intent, and completeness are among the issues to be faced by those who would rely on text messages for the complete terms of an agreement.
Authentication poses a significant obstacle to the enforceability of agreements based on texts. Courts will only enforce a text message relied upon as a contract when the validity of the alleged contract is undisputed. Even then, the text message must meet the legal requirement of being an original, or, if in electronic form, be an accurate copy. As the content of text messages is easily changed, courts are wary of relying on texts as originals. At best, authentication of most text messages will be minimal—depends on the integrity of the provider’s system (and the carrier), the reliability of popularly used messaging apps (like Skype, iMessage and WhatsApp, etc.), and whether the recipient’s message app has maintained and/or protected the texts it received.
Civil codes require that a contract be expressed in such a way as to show the consent of the parties. Thus, a text message must show intent. In some places a text will fail under the Statute of Frauds unless it contains the transferring party’s signature. Put differently, if the subject agreement requires a writing, any electronic record will not satisfy the statute without a handwritten signature, unless the statute expressly provides otherwise. For example, according to the California Uniform Electronic Transactions Act [CUETA], a text message is only authenticated when it includes the sender’s electronic signature. An electronic signature is an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the record. In other words, a text message agreement will only be legally enforceable if the person who authored the message took some action to authenticate the text.
While a text message may be admissible in court, it may fall short of constituting a complete statement of the terms of the parties’ agreement. One of the most important components of a contract is that it conveyed the final and complete agreement of the parties. The message may be merely an outline of the agreement or discussion regarding the agreement rather than the final and complete agreement. Parties may talk about or draft the agreement in various forms before settling on the final product. Thus, a text message may be a draft, incomplete, or fragmentary.
Best Practices for Texts to be Enforceable
When it comes to electronic contracts, it is wise to follow best practices to ensure that what’s been communicated is enforceable (as opposed to being an "informal agreement" that may be hard to prove in court). A few tips:
1. Don’t abbreviate
Jokes abound about miscommunication via text. If any kind of contract or sensitive material is being communicated, spell it all out. Abbreviating or using terms such as "LOL" or "FYI" can leave the other person confused as to what is meant. The person who has agreed to a term should be able to accurately explain it. And a person in Court should be able to accurately describe a contract and its terms using the actual words or phrases that were used in the agreement.
2 . Documentary evidence
You must keep documentary evidence of the contact, whether it be via screenshot or some area of the phone that retains text messages. In addition, if the other person has a tracking or monitoring program on the cell that has created documentary evidence, it is imperative to ensure that these programs do not overwrite the text messages over time to ensure the contact is retained.
3. Confirm
If the contract or request is especially important to you, confirm it with an email or other more formal document. If you get confirmation back that the person understood the request, you may have a greater chance of enforcing the text-based communication. This goes back to the #1 item: If you can explain the terms accurately, this will help you. However, it’s never a bad practice to confirm the terms via a more formal medium than text.
When Texts Alone Are Not Enough
There are several conditions under which text messages may not be sufficient to create a binding contract. For example, if a contract falls under the category of contracts which must be in writing to be enforceable (such as for the sale of land), the Statute of Frauds will not be satisfied if the only evidence of an agreement is found in a text message. Similarly, in the context of transactions which fall outside the scope of the Statute of Frauds, even if they do not need to be reduced to writing, they may still require a level of formality which is not satisfied by a text message. For example, some jurisdictions enforce wills that are handwritten but disallow those which are not handwritten (see, e.g., Texas), such that a properly executed text message may not be sufficient.
Even if the contract does not fall within the scope of the Statute of Frauds and is not subject to a heightened level of formality (if any), the Statute of Limitations may have a role to play. In some jurisdictions, the Statute of Limitations can be four years post-acceptance; although the acceptance need not be in writing, it may help satisfy the evidentiary component of the Statute of Limitations. Accordingly, there may be no fourth anniversary listed in a text message if a plaintiff attempts to commit their text message to evidence two years after its receipt, for example.
Conclusion: Weighing the Risks vs. Benefits
When it comes to legally binding agreement, texts come with both potential benefits and significant risks. The potential benefits include the ability to more easily contract with or enforce obligations against someone in a timely fashion, and the ability to create an additional, often nonformal record that can be retrieved for various purposes.
On the other hand, relying on a text as the final manifestation of agreement carries high risk that the parties may not have established clear agreement on all the terms or even the fact that they were creating a legally binding agreement at all. When the parties do reach some level of understanding but do not intend to form a legally binding agreement, the resulting communications may actually form a legally binding agreement. Even in the potentially face-value circumstances where the parties may have achieved a meeting of the minds, those meeting of the minds may be on an unclear level of understanding and may have never reached a level of mutual assent. Still other risks involve high costs of litigation and legal exposure when the recipient of the text (or bystander of the text) disputes the true intent and understanding of the asserting party .
From a practical standpoint, businesses and individuals must weigh the many circumstances in which they might have a legally binding contract established by text message. Even if the risk of having a legally binding contract established by text message is a minor consideration to the business or individual, many businesses and individuals simply prefer that a formally formatted, formally documented, legally binding agreement be put in place. Such documents would include the essential terms of the agreement, express language about the limitations of liability, and explanations of the various intentions and understandings of the parties.
For those businesses and individuals who have chosen to use text messages for forming agreements, following some basic practices can help avoid the more extreme instances of either risk. Recommendations include: Mistakes happen, especially in the fast-paced environment that necessitates the use of a text message. With the above practices in mind (and the creative recall in writing down the relevant details), you can make use of text messages without trepidation.
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