Email communications can result in contracts being formed and subsequently varied between two parties. Businesses need to be aware of the fact that even more informal communications electronically mediated via text, instant message communications and skype can have the same effect as a written legal contract.
Instant Message communications are commonly thought of by parties as being real time live conversations which take place over the internet. However it is a mistake to consider them as being oral in their legal character. Such communications can be saved by a party involved in business dealings and, depending on the circumstances, relied upon as a formal written contract capable of enforcement.
When examining the enforceablity of oral, text, skype or instant message communications, you should revert to ordinary principles of contract law to determine whether all of the elements required are present to establish a legally valid contract giving rise to binding rights and obligations. There is no reason why instant message communications could not result in the formation or alteration of a signed or unsigned contract, provided the other elements of a contract are present.
In today’s modern world business representatives frequently engage in communications by instant message, which is an essential tool in the conduct of business online. Online businesses are involved in exchanges by instant message with customers, suppliers and business partners.
Businesses need to be alert to the real risk that their agents, representatives or employees may inadvertently make representations which create legal obligations, irrespective of whether or not they have been granted specific permission to do so.
Under the law if a person has the apparent or ‘ostensible’ authority to bind a business contractually, and the other party reasonably relies on this authority, this will be sufficient to bind the business legally and give rise to legal consequences.
The fact that instant message communications can modify written contracts was illustrated in a recent US case, CX Digital Media v Smoking Everywhere. In this case the defendant sold cigarettes and CS, an affiliate market network, were paid by the defendant to generate sales referrals under a written agreement.
The written agreement contained a clause which included a limit of 200 sales per day and a ‘no oral modification clause’ which stated that the terms of the written agreement could only be “by a subsequent writing signed by both parties”.
The defendant’s Vice President of Marketing was engaged in an instant message exchange with CX about various matters including the 200 day limit clause. A copy of the transcript revealed CX as saying “We can do 2000 orders/day by Friday if I have your blessing” to which the VP’s response was “NO LIMIT”.
A dispute arose over the payment to CX of affiliate sales of 1244 sales per day, and the issue of the enforceability of the Instant Message communication arose for a court’s consideration.
The Court analysed the case by applying principles of contract law. The court held that the IM conversation about modifying the 200 sales per day limit was definitive, and that CX had asked whether they could increase that to 2000 referrals today byasking for the defendant’s blessing. The court construed this as the offer of a new term, and the defendant’s response “NO LIMIT” as a counter-offer which suggested a new term.
This varied the terms of the original offer, and CX accepted this conter-offer by signifying their assent when CX said “awesome!” in the IM transcript. The defendant tried to argue that there was a clause stating that there was to be no modification of the written contract otherwise than by a signed written agreement. However as the Court pointed out the instant message agreement wasn’t oral; it was in writing. Under the law of Delaware and other jurisdictions, conduct or statements can modify a written contract whether signed or unsigned in any event.
Finally the VP advertising argued that only he had the capacity to modify the contract however the court said that there was enough evidence to indicate that the VP of marketing had the capacity to bind the company and that CX was entitled to rely upon this.
The case serves as a reminder that informal communications, whether oral, by email or even instant messages can create and even modify written signed agrements. As business representatives are increasingly engaging in informal communications such as text, email and Instant messages, businesses should be aware that what they may perceive as electronically mediated ‘conversations‘ may qualify as ‘writing’ and give rise to binding contractual legal rights and obligations.