Parties to a variety of contractual obligations are conducting a great deal of business these days through long trails of email exchanges that discuss numerous aspects of a potential agreement. As a result, clients increasingly ask if they may be vulnerable to a breach of contract claim if they decide to drop the “deal” before a formal agreement is signed.  As a typical lawyer, I have to say the answer is “maybe, maybe not.”

 

The Chalker Opinion

The issue of whether emails constitute a written contract is important because the statute of frauds requires a contract to be in writing to be enforceable. The one exception is where an oral contract that is performable within a year or less.

The Supreme Court of Texas recently addressed the issue of email contract formation and provided a thorough discussion of the law. In Chalker Energy Partners III, LLC v. LeNorman Operating, LLC, 595 S.W.3d 668 (2020), Chief Justice Hecht noted at the outset that the common law has long recognized that an agreement can be expressed in multiple writings exchanged between the parties, and said emails qualify as such writings. However, he then noted that email can be distinctly conversational and informal, and a court must decide whether an email exchange truly reflects the meeting of the minds given “the nature of the transaction and the parties’ expressed contemplations.” The court said written instruments pertaining to a transaction may be read together to ascertain the parties’ intent, even if they were executed at different times and did not expressly refer to each other. Whether multiple documents comprise a written contract is an issue of law for the court, not for a jury.

The Chalker dispute arose when a seller of oil and gas leases put them up for sale with a deadline for bids. Shortly before the deadline, a buyer made a firm offer by email and the seller accepted it. Another bidder got wind of the deal and made a better offer, which the seller then accepted. Upon learning of that deal, the first bidder demanded that the seller honor the alleged contract entered into through the email exchange.

The court ultimately decided that the exchange did not constitute a binding contract, and explained that was because there was a clause in the confidentiality agreement that all bidders had signed which said, “Unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the parties shall be deemed to exist.” It should be noted that the court specifically said that the Seller’s statement in the acceptance email — that it was “subject to a mutually agreeable PSA” — was not what made the email exchange non-binding. It was the “no obligation” clause that was a condition precedent to contract formation.

 

Emails and Enforceable Contract

Following Chalker, in Shirvani v. Celebrity Healthcare Management, LLC, the Dallas Court of Appeals found a series of emails to be a valid enforceable contract, despite language that the parties “intended to work toward documenting the transaction in the next few days.” The attorneys discussed some draft documents, but none were signed. The court found the emails were a binding contract because the material and essential terms were contained within them.

These two cases provide guidance for parties’ transactions. There are many necessary provisions in a written contract that people do not incorporate into emails. They may make fun of their lawyers for putting all of the “legal mumbo-jumbo” in contract documents, but it is in there for a reason, and it is often very important in litigation. The effective language in Chalker was in a separate agreement before the parties began exchanging emails. Including similar language at the bottom of negotiation emails would likely be effective to prevent a finding of a binding contract. It will not be enough to say you’ve “reached an agreement that you will document afterward.” Suggested language is: “no contract between the parties shall be deemed to exist unless and until a definitive agreement has been executed and delivered.”

By Published On: October 1, 2020Categories: Business LawTags:

About the Author: Julia Pendery

Julia Pendery is an attorney in the Cowles and Thompson Appellate Law section.