Tips On How To Ensure That Your Email Deal Terms Are Enforceable
Gone are the days when deals are made on the back of cocktail napkins. These days, with the prevalence of electronic communication, deal or settlement terms may be established through a series of emails between the principals of the contracting parties. An understanding of the point at which an email deal becomes enforceable is crucial to know when you might or might not have a deal. As discussed below, a few simple tips may help to clarify this both for the parties and, if necessary, the court.
California’s Uniform Electronic Transactions Act (“UETA”), Civil Code section 1633.1, et seq., governs this issue. The UETA provides that an electronic record satisfies transactions requiring that the terms are in writing and signed by the parties, with the exception of certain transactions enumerated in the statute. Through the UETA, “the Legislature has [ ] expressed general approval of the use of electronic signatures in commercial and governmental transactions.” Ni v. Slocum, 196 Cal.App.4th 1636, 1647 (2011). Under the UETA, a record or signature may not be denied legal effect or enforceability solely because it is in electronic form. As long as the facts establish that all parties to the transaction agreed to conduct the transaction by electronic means and that the signing parties intended for their electronic signature to act as a binding signature, an electronic signature is legally binding under the UETA.
Specifically, Section 1633.7 of the UETA provides, as follows:
(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
(c) If a law requires a record to be in writing, an electronic record satisfies the law.
(d) If a law requires a signature, an electronic signature satisfies the law.
Just recently, the California Court of Appeal explored this issue in J.B.B. Investment Partners, Ltd. V. R. Thomas Fair, 2014 WL 6852097 (Cal. App. 1 Dist. December 5, 2014), unpublished, as modified (December 5, 2014). Although the Court of Appeal initially certified this decision for publication, the California Supreme Court subsequently decertified the opinion for publication, which means it cannot be relied upon as precedent in legal proceedings. This issue is worth monitoring in the future as the case law evolves. Nonetheless, the J.B.B. Investment Partners case offers a degree of guidance to practitioners and business persons as to what one court considered significant when agreeing to settlement or deal terms by electronic mail.
In J.B.B. Investment Partners, the parties attempted to enter into a settlement agreement to resolve contemplated litigation. In an email, the plaintiff’s attorney set forth various settlement terms, identified as “final,” and requested that the defendant respond with a “no” or “yes.” In response, the defendant sent several emails stating that he accepted and/or agreed to the terms, and two voicemail messages were sent as well with the same acceptance.
The trial court granted a motion to enforce a settlement between the parties under California Code of Civil Procedure section 664.6. The trial court found that defendant’s printed name at the end of his email where he had agreed to the settlement terms set forth in an email from plaintiff’s counsel was an “electronic signature” within the meaning of the UETA, and what it referred to as the “common law of contract” or “contract case law.”
The Court of Appeal reversed the trial court order enforcing the settlement after finding that the facts in that case did not warrant a finding that the parties agreed to conduct transactions by electronic means or that the defendant intended that his printed name at the end of his email was a signature to an acceptance of the electronic offer. Notably, the Court of Appeal employed a heightened standard of review given that the plaintiff was seeking to enforce a settlement agreement under Code of Civil Procedure section 664.6; it is unclear if the Court would have reached the same conclusion in a different context.
The J.B.B. Investment Partners court examined the UETA and focused on the criteria that the electronic signature is executed or adopted by a person with the intent to sign the electronic record. This means that the surrounding circumstances of the transaction must evidence that all the parties to the transaction agreed to conduct the transaction by electronic means and use electronic signatures to formalize their agreement.
The court explained, “[t]he [ ] offer did not contain any statement indicating that the parties agreed to enter into a final settlement by electronic means.” The court stated, “[t]he absence of an explicit agreement to conduct the transaction by electronic means is not determinative; however, it is a relevant factor to consider.”
This leads to Tip No. 1: When agreeing to the deal terms in an email exchange, it is prudent to include a term stating that the parties agree to conduct the transaction by electronic means pursuant to the UETA, the parties agree to the use of electronic means to formalize their agreement and that acceptance of the terms may be accomplished by electronic signature and in counterparts. With such language, the parties’ intentions are clear as to the effectiveness of the email terms as a binding transaction.
Another factor the J.B.B. Investment Partners court considered to conclude that the email exchange was not a binding settlement was that the parties provided in their email communications that future paperwork would be drafted to formalize the deal. The court rendered this decision in the face of specific language added by the plaintiff’s counsel that the settlement agreement [established by the email terms] was otherwise binding under Code of Civil Procedure section 664.6. In reaching this conclusion, the court placed dispositive weight on the fact that there were no counter-party signatures by the plaintiffs on the emails exchanged, despite that the plaintiff’s attorney sent the email with the settlement offer.
This leads to Tip Numbers 2 and 3. Tip No. 2: Include a provision that, although the parties intend to enter into a more formal agreement, the terms shall be binding upon the parties with full force and effect even in the absence of a formal agreement.
Tip No. 3: Make sure all parties to the transaction provide an electronic signature agreeing to the deal. After first acceptance, it would be prudent to have the other contracting party (as opposed to counsel) exchange a simple “accepted” counter-email with an electronic signature.
Although the J.B.B. Investment Partners ruling may seem surprising given that the emails exchanged by the defendant stated several times “I accept” or “I agree,” with his typed signature at the bottom of the email, it was subject to a heightened standard under Code of Civil Procedure section 664.6, which is triggered when a party seeks to enforce a settlement between the parties.
Ultimately, whether a court will conclude that the parties intended that the email terms to be an enforceable contract will be based upon the factual circumstances of each transaction as well as traditional contract law principals. However, utilizing the guidance provided by the J.B.B. Investment Partners case may help to convince a court that the parties intended that the email terms would be an enforceable contract.