Sender Beware: How Your Emails or Letters may be Ruled a Binding Contract
Often when we think of a contract, we think of the multi-page document that is plagued with legal jargon and minuscule print, followed by signature lines, and then sometimes followed by even more documents nicknamed “schedules” or “annexes” that in some way modify or supplement everything in the previous pages. But courts do not necessarily require contracts to take on this formal appearance in order to be enforceable.
In order to create a binding contract, courts require the following four elements: (1) an offer, (2) acceptance of that offer, (3) consideration (meaning payment or other benefit to one party or a detriment to another party), and (4) definite certain terms. If there is no formal, written contract, then courts will require a fifth element: demonstration of an intent by the parties to be bound by a contract. This fifth element is an objective standard, so it has nothing to do with what you actually intended, and everything to do with the language actually used by the parties and how a reasonable person (really, a judge) would interpret it. See Alyasmen Group, LLC v. MS Rialto Raintree Village IL, LLC, 2011 IL App (1st) 102875-U. As a result, courts in Illinois and other states have on more than one occasion found all of these required elements to be present in emails or letters sent by unsuspecting business people.
In one somewhat surprising case, business partners exchanged emails about how to close a joint real estate business venture and distribute earnings from completed real estate transactions. Less than one month after the partners reached an agreement by email as to how earnings would be distributed, the partners signed a written contract with terms different than what was agreed to in the emails. One of those business partners later sued to enforce the agreement set forth in the emails. Upon review of the case, the court determined that the business partners expressed the intent to be bound by the emails where one of them stated in his email, “this is final and agreed to,” and even offered to print out and sign a copy of the emails. Furthermore, the terms of the agreement were sufficiently definite and consideration existed such that the judge ruled the emails could constitute a binding contract aside from the actual signed, written contract. Bryant v. Way, C.A. No. 11C-01-164 RRC, 2011 WL 2163606 (Del. Sup. Ct. May 25, 2011).
Courts seem most eager to rule emails are binding contracts when the emails relate to the settlement of an ongoing dispute. An employer was able to enforce an agreement reached through email with an employee regarding settlement of that employees’ employment discrimination claim in Todd v. Kohl’s Department Store, No. 08-CV-3827, 2010 WL 3720265 (N.D. Ill. Sept. 15, 2010). Similarly, in Protherapy Associates, LLC v. AFS of Bastian, Inc., No. 6:10CV0017, 2010 WL 2696638 (W.D. Va. July 7, 2010), a judge ruled an email setting forth payment terms in settlement of a dispute between a provider of physical therapy services and nursing homes was enforceable against the nursing homes.
Emails are not the only correspondence exposed to potentially being ruled an enforceable contract. Letters of intent generally are used to express the intent of two parties to enter into a written agreement in the future, but these too could be construed as an enforceable contract. The Illinois Supreme Court found that one letter of intent between a general contractor and subcontractor was ambiguous as to whether the parties intended it to be a binding contract and as a result ruled that the trial court must hold an evidentiary hearing to determine whether the letter of intent would in fact be binding. Quake Const., Inc. v. American Airlines, Inc., 141 Ill. 2d 281 (1990). Regardless of the outcome, the parties most certainly incurred legal fees and expenses for a court to rule on whether a letter was an enforceable contract.
So how can you prevent your emails and letters from becoming your next contractual obligation? If you are negotiating or making an offer to someone via email, include a disclaimer in your email that makes it clear the negotiations or offer are contingent on the parties signing a written contract. Don’t bury this disclaimer at the bottom of the email in fine print; intentionally include it in the body of the email so there is no denying your intent. If you are negotiating by a letter of intent or sending some other correspondence such as an offer of employment, use language to make it clear that the letter is not intended to create a binding contract. And as always, if there is any uncertainty, have an attorney do a quick review of before you sign or hit send – your legal fees will be far less for a precursory review than later if you are sued for breach of contract.