The Supreme Court of Texas took up a pair of cases tackling whether a string of emails can form a contract. Both cases involved negotiations in which the parties might have formed a contract by email. In each case, the Court held that no contract existed. But the Court was quick to warn that emails—though informal—may create legal obligations.
The cases serve as a cautionary tale to all who negotiate by email. As the Court warned, contracting by email is a “developing area of contract law.” The cases help highlight some of the perils and ways to avoid them.
Copano Energy v. Bujnoch
In Copano, the Supreme Court of Texas held that a string of emails “surely contain an offer and an acceptance,” but failed to spell out the deal’s “essential” terms.
The deal was between a landowner and an energy company, Copano Energy. Copano needed an easement across the landowner’s property. An agent for Copano shot an email to the landowner offering to pay $70 per foot of easement. 25 minutes later, the landowner responded by email “in reliance on this representation we accept your offer.”
Later, a second Copano agent tried to walk back the deal. In an email, the second agent stated that there was no way Copano would pay more than $40 per foot of easement. The first agent chimed back in, again by email, affirming the original agreement. There he stated, “the deal still stands.”
Copano backed out and never made good on the agreement. The landowner sued to enforce the $70 per foot deal.
The Supreme Court of Texas held that no contract existed. While the emails, taken together, contained offer and acceptance, they did not say what was being offered and accepted. Other than the price per foot, the emails failed to contain the “essential terms of the agreement,” which might include the location of the easement and other basic information necessary to consummate the deal. For that reason, under the statute of frauds, the emails did not constitute an enforceable contract.
The Court also noted the prevalence of emails, hinting that this will remain an issue for many years to come.
E-mail is a ubiquitous feature of modern life. It is used by nearly everyone for nearly every type of communication, from the flippantly inconsequential to the bindingly formal.
The Court followed up this opinion shortly after with Chalker Energy. There too the Court held that emails failed to create a contract; but again, the Court was quick to warn that may not be true in cases to come.
Chalker Energy Partners III v. Le Norman Operating
In Chalker, the Supreme Court of Texas spotlighted the use of a “No Obligation Clause” to conclude that no contract existed through emails.
Chalker was selling millions of dollars in interests in oil and gas leases. To facilitate the bidding process, Chalker opened an online system to exchange offers and emails. One of the buyers, Le Norman, sent an offer. Chalker soon responded they were “on board” with the offer, subject to a mutually agreeable purchase and sale agreement.
Chalker then backed out of the deal with Le Norman after getting a higher offer from another buyer. Le Norman sued to enforce the deal.
The Court held that the email exchange failed to reflect a meeting of the minds necessary for a contract to sell millions of dollars of assets in oil and gas leases. Key among the holdings was the effect of a “No Obligation Clause.” Before entering negotiations, the parties agreed that a definitive written agreement was a condition precedent to contract formation. This “No Obligation Clause” provided the parties the freedom to negotiate without fear of being bound. The Court held that the parties were doing just that, and so, no contract existed.
Again, though, the Court cautioned that even though no contract existed by email, that may not be so in the future. The Court noted the growing use of email negotiations and warned that the unwary may bind themselves without knowing it.
The common law has long recognized that an agreement can be expressed in multiple writings exchanged between the parties. Emails are such writings. Email can be a convenient way to reach an agreement, but it is also a distinctly conversational, informal medium. Hitting send may be deliberate; it may be hasty… [W]e must begin to give certainty to this developing area of contract law.
Cobbling together a deal by email is possible, so long as the writing contains the essential elements of a contract. And as the Court was quick to note, with more communications happening electronically, the number of cases will continue to rise. Whether by email, text, or Facebook messenger, think twice before firing off that hasty reply. And for prolonged negotiations, consider using a no obligation clause.
If you’ve got a case like this, shoot me a message at email@example.com