I. Introduction – A New Legal Frontier
While the principles of contract law are well established, developments in technology and its impact upon our culture have created new legal quandaries that did not reach the legal world’s radar until recent years. A perfect example of this issue is whether text messages can create a binding contract and, if so, what conditions are required? Surprisingly, although text messages have been a popular form of communication for over a decade, in many states these questions remain unanswered because there is no developed case law or specifically enacted legislation. Therefore, for business owners and lawyers to be prepared in their jurisdiction, it is advisable to look at the two states that have most comprehensively addressed text messages and the creation of binding contracts: California and Massachusetts.
II. California – The Statutory Route
The simplest solution for responding to this progression in business culture is to say that no, text messages cannot create legally binding contracts. California has done just that by adding new language to the Statute of Frauds (Assembly Bill 2136) expressly stating that a text message is considered an electronic message of an ephemeral nature which is insufficient to create a contract to convey real property. While there is a limited exception that can make text messages a material consideration in whether a contract is formed, the express exclusion of text messages in the statute resolves much of the potential ambiguity for both California businesses and lawyers.
Part of the reason for this clarification is because the vast majority of states (including California) have adopted the Uniform Electronic Transaction Act, which stipulates that electronic writing and signatures are legally equivalent to physical writing. So in most jurisdictions, the question is left open as to whether a text message should have the legal authority of an email, oral communication, or somewhere in between. California has opted to treat text messages closer to oral statements by enacting Assembly Bill 2136, whereas Massachusetts has opened the door to exploring a contractual landscape where text messages have far greater legal significance.
III. Massachusetts – Exploration Through Case Law
The initial case that appears to have set off a buzz of discussion over text messages in the legal community is St. John's Holdings, LLC v. Two Electronics, LLC. In this case, the Seller texted the Buyer confirming that a letter of intent was acceptable and asking for the Buyer’s signature, but once the Buyer signed, the Seller refused to execute the final letter of intent. The Land Court of Massachusetts has held that “text messages and emails can potentially satisfy the Statute of Frauds, provided that they, like other writings, contain the essential terms of the transaction and are signed by the parties to be bound or their authorized agents.” The court in St. John’s Holdings found that these conditions were satisfied. The text message implicitly incorporated the letter of intent and contemplated all material terms of the contract. Then the court compared text messages to email communications and determined that the simple act of the broker inserting their first name at the end of the text message was enough to qualify as a binding signature in the context of these negotiations.
Therefore, in Massachusetts, businesses should be prepared that if the Statute of Frauds requirements are satisfied, a text message possesses enhanced legal significance and should be managed carefully, similarly to an email or another comparable signed communication. Despite the changing legal environment, there are still practical steps that can be taken even if the business is not located in Massachusetts or California.
IV. A Path for the Future
Due to the novelty of the text message issue and the indeterminacy existing in the legal climate, businesses and lawyers are better served bundling up in preparation of a Massachusetts winter, despite the allure of sunshine in California. The legislation in California is unique, whereas the Massachusetts legislative history is nearly identical to that in many other states and is differentiated primarily upon the basis of case law. As a result, in states that have adopted the Uniform Electronics Transactions Act, it is reasonable to anticipate that courts may develop their own case law in a manner comparable to that of Massachusetts.
Finally, there are a few practical steps businesses can adopt in order to protect themselves from this potential vulnerability. If acceptable to both parties, a specific provision can and should be inserted into the draft agreement explicitly stating that the agreement may only be executed via a formal or physical signature such that a name below an email or text is insufficient. Alternatively, a company could incorporate a practice of no longer manually typing names below emails or text messages or could cease the use of text messages during negotiations.
If a business is concerned that its state may follow in the footsteps of Massachusetts, it would be prudent to understand its state’s treatment of email correspondences in case law, along with concepts such as the material terms of an agreement and the parol evidence rule. It may even be possible to predict the most likely interpretation of text messages from state to state based on these predictive markers and the analogy to email communications. Either way, lawyers and businesses are best suited preparing for the legal significance of text messages in negotiations and the formulation of binding contracts.