“But we were just negotiating: ‘Understanding when a series of communications (even emails) can establish a binding contract | Ward and Smith, Pennsylvania
Technical law: Parties negotiating the terms of an agreement need to understand when the negotiation stops and a binding contract has been created, even if it’s just a series of emails.
The first draft agreement is rarely accepted and signed by both parties. After the release of an initial draft, the other party generally offers revisions on which it conditions its acceptance of the offer. The negotiation between the two parties can take some time. These may include multiple annotated drafts of the agreement and revisions to the agreement shown in the change tracker, as well as phone calls, emails, and letters regarding the material terms of the agreement . The ultimate goal for both parties is to come to an agreement and sign a “final” version of a contract containing all of the agreed terms and conditions. However, if the parties are not careful, their correspondence alone may establish an enforceable contract under fraud law. Courts in North Carolina have imposed email chains negotiating material terms in circumstances where a formal “final” version was never signed.
All states have laws that require certain agreements to be in writing and signed by any person or entity against whom the agreement will be enforced. The purpose of these laws dates back to the original Frauds Statute passed in 1677 in England to prevent “fraud in court by perjury and subornation of perjury”. The Statute of Frauds has been adopted into American law and has very modern implications despite its historical roots.
If the subject matter of a contract triggers the protection of a law against fraud, the law will prevent a party from enforcing the terms of a contract against another party who has not agreed to those terms in writing.
The various fraud laws aim to prevent the creation of a binding contract until both parties agree to the terms in writing and “sign” a contract, but due to developments in contract law, the handwriting need not consist of a single copy of the document signed in pen by both parties.
What types of agreements should be written?
In North Carolina, a fraud law requires that all contracts or agreements for the sale or transfer of land or any interest in or relating to land, including easements, options to purchase, rights of first refusal and certain leases, must be in writing and signed by any party against whom performance is sought. However, many people don’t realize that more than just contracts and agreements involving real estate must be in writing and signed to be enforceable. For example, the following types of agreements must be in writing to be enforceable:
- Generally, contracts for the sale of goods with a price of $500 or more, except:
- When the goods are specially manufactured goods;
- When payment or delivery of goods has been made and accepted; Where,
- If the party against whom performance is sought acknowledges in court that a contract has been concluded;
- An agreement which, by its terms, cannot be executed within one year;
- An agreement to pay another’s debt is sometimes called a “guarantee”;
- A prenuptial agreement;
- An agreement by a debtor to pay a debt that has been discharged by bankruptcy;
- Commercial loan commitments by a bank, credit union, or credit union for loans over $50,000; and,
- Contracts related to boxing matches or exhibitions organized or to be organized in North Carolina.
When is the contract created?
A written agreement does not need to be formal; a handwritten agreement on an index card or napkin may suffice. Nevertheless, a handwritten agreement is assessed on the substance rather than on the form and must:
- Evidence of a “meeting of minds”; and,
- Contain all terms and conditions necessary to enforce the particular agreement.
To determine whether there has been “agreement of minds”, the courts examine the intention of the parties. Although there are no magic words, if the writing in question clearly establishes an offer by one party and an acceptance of that offer by the other party, there has been a meeting of minds.
In addition to a meeting of the minds, the agreement must also contain all material provisions and cannot leave any material provisions open for future agreement. For example, a call option contract must contain a purchase price or a definitive method for determining the purchase price. If the option provides that the landlord and tenant can each hire an appraiser to determine the value of the property and that the average of these two appraisals will be the purchase price, the option is valid and enforceable. If, however, the parties simply promise to agree on a purchase price later, the option will be considered void due to uncertainty and indefinite duration. Such agreements are referred to as unenforceable “agreement agreements”.
What constitutes a “written contract” under fraud law?
We generally think of a contract as a more or less “formal” document signed by all parties to the agreement, but the Statutes of Frauds do not require that all the terms of the contract be set out in a single document. Courts in North Carolina have held that a series of emails and letters between two parties regarding the negotiation of the purchase of land can, when taken together, create a written contract under the applicable fraud law. As long as the correspondence is from a person authorized to enter into the contract and contains a convergence of views and all of the material terms of the agreement (offer and acceptance), a legally enforceable contract can be created without either other party signs a single document containing all of these terms.
For example, two parties work out the terms of a settlement agreement regarding the purchase of land. The parties and their attorneys exchange letters and emails which identify the parties and contain a description of the property, the purchase price and the date the sale is to be completed. The correspondence also contains language that evidences offer and acceptance on the basis of the terms contained in the various written communications. Although a single formal contract containing all agreed terms is never signed, a written contract may have been created and will not be void under the Fraud Statute.
How can the agreement be signed?
Traditionally, the use of a written signature would have been required before a contract could be deemed enforceable. A signature is defined as the affixing of one’s name with the purpose or intention of identifying it or giving effect to it as a personal act. An actual handwritten signature is no longer required, the standard for what is considered a signature continues to change and a signature can come in many other forms, especially with the use of email and other devices such than Docusign.
A valid electronic signature includes any sound, symbol, or electronic process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record. This vague definition of what constitutes a signature does little to protect those who trade over email.
For example, in a recent case in North Carolina, an auto-populated auto-signature box at the end of an email qualified as an enforceable signature for purposes of the Statute of Frauds. The court concluded that as long as the electronic signature resulted from the action of a person, it was attributable to that person.
The use of an automatic signature, usually pre-filled and not visible to the sender, may give rise to a claim under fraud law. However, the sender must have the proper authority to sign the agreement, which brings us to our final point below.
Who can sign the agreement?
The appropriate parties must also sign a written agreement for the agreement to be binding. Although it may seem simple, problems usually arise when someone other than the actual party to the contract signs it.
In an example given above regarding email communication (based on an actual case in North Carolina), the correspondence that led to the creation of a contract was primarily between the parties’ attorneys and not the parties themselves. themselves. Under the Statute of Frauds, a contract can be signed by a party’s agent, and in North Carolina there is a presumption in favor of an attorney’s authority to act on behalf of a client. This means that the party trying to assert the status of frauds as a defense will have the burden of proving that the party’s agent, the attorney, did not have actual authority or “apparent authority” ( authority appearing to a reasonable third party to exist based on the facts and circumstances, even if the attorney/agent has no actual authority) to act for that party. This can be quite difficult to prove.
Other officers who may or may not have “apparent authority” (even if they have no real authority) may be, for example, a vice president, controller, sales agent, purchase, etc. It is often very advantageous for a party to the negotiation to specifically state who has authority and who does not, to bind the party in order to protect themselves from agreements “signed” by a person with only apparent authority. , but not real.
In most cases, the Statute of Frauds will provide a defense to the enforcement of agreements that have not been agreed to in writing and signed by the parties to be charged. But what constitutes a written contract and a signature has expanded beyond the traditional concept of a signed written contract.
The next time you find yourself negotiating the terms of a contract, be sure to establish early in the negotiations that no agreement will be valid and enforceable unless and until both parties sign a contract. writing containing all the terms of the agreement and who has the authority to sign a contract for you or your company.