Let’s revisit a basic legal issue – how contracts are formed. It’s not as formal as most people think. As a notable Internet advertising contract case shows, you can even make or modify a contract with a few words transmitted by instant message.
Hundreds of years ago, contracts were formed when two people met and agreed on a deal. A “contract” was the manifestation of their verbal agreement, not any words or writing. As explained in a recent book, Parchment Paper Pixels: Law and the Technologies of Communication, by Loyola Law School professor Peter Tiersma, things changed as parchment, writing, and eventually typewritten documents came into use. The Anglo-American legal world came to think of a “contract” as a written document, signed by the parties. Indeed, we often say, “You need to get it in writing.”
A signed formal document, however, isn’t essential for a legally effective contract. Only certain kinds of contracts (ones for sales of real estate, loan guarantees, and sales of goods worth more than $500, for example) need to be in writing. Other contracts can be formed orally or through a course of dealing or exchange of forms.
And even if a writing is involved, what constitutes a “writing”? That’s where the recent instant message case is illuminating.
Smoking Everywhere Inc. sells electronic cigarettes. It contracted with CX Digital Media Inc., in August 2009, for Internet advertising, agreeing to pay $45 for each completed sale it obtained through CX Digital’s Internet ads, for up to 200 sales per day.
A month later, Smoking Everywhere’s vice president for advertising conducted an instant message conversation, during the course of a full workday, with an account manager at CX Digital. Toward the end of the day, after discussing the testing of new ads and new URLs, these messages were passed back and forth, within a stream of IMs over a two-hour period:
Account manager: We can do 2000 orders/day by Friday if I have your blessing.
Advertising VP: NO LIMIT.
Account manager: awesome!
In response, CX Digital stopped using the 200 sales/day limit, and began making an average of 1,200 referrals per day. When CX Digital billed Smoking Everywhere for the higher volume, however, Smoking Everywhere refused to pay.
Ruling on the dispute, a federal court in Florida held that the IM exchange demonstrated the clear intent to remove the prior daily referral limits, and thereby modified the contract. The monetary consequences of this two-word contract change? $1,235,655.
In today’s electronic world, a few pixels can create a deal — and make a big difference.