Jun 22, 2016

Akorede Omotayo - Binding a contract by Text Message?

photo - irishtimes.com 

Binding a contract by Text Message? New Traps for Deal – Makers in Commercial Negotiations.

With the prevalence of email and text messaging in today’s business world, multi-billion dollar deals can be signed up without the parties even sitting down together. As Frank Aquila and Sarah Payne of Sullivan & Cromwell LLP submits, Business negotiations, and especially commercial deals, between lawyers and businesspeople alike occur over emails, often with shorthand, with words that may not be chosen with the same degree of thought and care as the words that are “written” in the actual transaction document.

However, in a recent United States decision by the Massachusetts Land Court, considered by many as a landmark, text messages between two real estate brokers regarding the purchase and sale of a commercial building was held to be capable of constituting an acceptance to an offer.

Facts of the case
In this case, St. John’s Holdings, LLC v. Two Electronics LLC, the plaintiff, St. John’s Holding (SJH), and the defendant (Two Electronics) had negotiated for the sale of a commercial building worth $3.232 million. Both parties were represented by commercial real estate brokers and had negotiated in person and via email and text messages, during the course of which both parties had agreed to reduce the terms of the agreement to a letter of intent (LOI).

Subsequently, the seller’s broker sent the buyer’s agent a text message asking that the buyer sign the final LOI and submit a deposit check, which the buyer later did. Each of the text at issue concluded with the sender’s name. However, rather than execute its end of the LOI, the seller’s agent accepted a third party’s offer to buy the building. The jilted buyer sued to enforce its rights as a buyer of the building under a binding letter of intent to purchase.

It was the defendants case that no contract was formed because Two Electronics did not accept the offer to purchase and the communication between the parties about the sale of the property did not satisfy the condition in the Massachusetts’s Statute of Fraud that an acceptance will not be binding except it is in a written form.

Court's Judgement
However, even though the Seller did not physically sign the LOI, the Court found that the text messages, taken in context, constituted an acceptance to make the contract binding. Further, the Court found that the typed signature at the end of the text was sufficient to authenticate the identity of the sender.
In other words, as O’Connor reiterates, the court noted that “[t]he communications between SJH and Two Electronics before the text message evidenced a meticulous attention to provisions that would govern the agreement to purchase the [building].” When read in context of the exchanges between the parties, the court concluded that the text messages at issue constituted a binding offer and acceptance.

Concluding remarks
Of course this case is just a persuasive precedent, it’s importance to contractual dealings in Nigeria is a little more than obvious. Contracting parties and brokers should be aware that making commercial deals via emails and text messages is gradually becoming a dangerous minefield.

Brokers need to take precautions to qualify their language in all electronic communications and warn their clients to use the following disclaimers when negotiating deals: “Emails and text messages sent or received shall neither constitute acceptance of conducting transactions via electronic means nor shall create a binding contract in the absence of a fully signed written agreement.

It is the opinion of this writer that a new level of precaution is required when engaging in such instantaneous and often seemingly informal commercial negotiations.

Akorede Omotayo