Do Text Agreements Hold Up in Court: Get to Know Your Digital Contracts

Emergence of Digital Contracts

As technology continues to permeate our daily lives, we are increasingly using digital communications to form almost all of our agreements, from simple provisions such as, "Hey wanna grab lunch tomorrow?" to major purchases of expensive products and services. While email is, for the most part, accepted as an appropriate medium for forming a binding contract, the use of other digital platforms such as short message service (SMS), social media applications, and web-based applications are becoming more prevalent for forming agreements in recent years.
The use of web-based applications, social media platforms, and messaging applications for contracting has become so popular that it is now a common feature of many of these platforms. For example, Snapchat and Kik both allow for payment or reward transactions and even have developed their own digital currencies, Bitmoji and Kin, respectively, the uses of which may constitute contracts. Discord, a web-based chat application for gamers, also allows for all transactions conducted through the platform to be registered on an Ethereum blockchain. This means that chats between users regarding a potential transaction and/or the terms of the transaction itself can be permanently recorded on blockchain, the global ledger outside regular record-keeping systems.
The popularity of using these platforms to form agreements has even prompted at least one court to address this issue. In Champagne v. Dropbox, Inc., No. C 17-cv-02171-EMC (N.D. Cal. Nov. 27, 2017), Dropbox argued that its terms agreement, which constituted an arbitration agreement, was binding on Champagne based on Champagne’s repeated use of the application. The court ultimately found that the arbitration agreement was binding on both parties because it was "readily available and enforceable against [Champagne]." Although in ITG Brands, LLC v. Reynolds America, Inc., No. 1:15CV799 (M.D.N.C. June 18, 2018), the court denied the defendant’s motion to compel arbitration, the defendant had also attempted to rely on the same Dropbox decision to affirm its position, which, as discussed above, the court instead narrowly construed . Nevertheless, it was clear in both of these cases that courts will turn to prior precedent to address an issue, such as whether an agreement is binding, when digital applications are involved.
It is clear that, especially in litigation, courts will routinely address the issue of whether a text actually constituted an agreement. For example, in Water Defense, Inc. v. Exelon Corp., No. 1:15-cv-5985 (N.D. Ill. July 13, 2016), Water Defense, Inc. sought to initiate discovery based on numerous text messages sent by Exelon Corp. and its CEO. In opposition to the motion, Exelon claimed that the texts were less persuasive than the emails sent by the CEO because, among other things, they were sent from the CEO’s personal cell phone, corroborating that "parole evidence" was needed to determine the CEO’s intent in sending them. Although the majority of the text messages and emails were not binding under the statute of frauds, the court found that several of the text messages did constitute an agreement and were binding. In New v. Freedom Mortgage Corp., 2019 WL 2271320 (D.N.J. May 28, 2019), the U.S. District Court of New Jersey recently held that the defendant lender could enforce an arbitration agreement entered into over text messaging. In rendering its decision, the court stated, "[c]ourts across the country have enforced arbitration agreements entered into electronically in a variety of forms, including by email, text messaging, and the clicking of a button." In response to an argument that the plaintiff never actually read the contents of the text message, the court stated that the plaintiff "had ample opportunity to read the Agreement. The existence of a valid agreement cannot be evaded simply because [the plaintiff] claims to have neglected to read the terms." Thus, it is clear that the issue of whether a particular digital communication is binding will be determined on a case-by-case basis, depending on the circumstances.

Fundamentals of Affirmative Agreements

For any agreement to rise to the level of a binding legal contract, certain elements must exist. There must be an offer, acceptance, consideration, and mutual intent to create a binding obligation. When conversations move to digital mediums, the question of enforceability often arises. Well-drafted contracts can entrap the unwary when squinting at a smartphone screen in the wee hours of the morning for an answer to a question like whether there is entitlement to a refund when the insurance policy is unclear.
As an aside, understand that there may be different applicable state laws based on where you live, but the legal elements of a binding agreement come from the common law of contract law, which is generally the same. But back to the four elements.
Offer: This element is self-explanatory and is satisfied by a written agreement (which can be considered the offer), an oral agreement, or an implied agreement by conducting the actions that would customarily be done in connection with the agreement. An offer is usually open for a limited time, so any offer that is open may not be valid after a certain passage of time.
Acceptance: This element means that the recipient (the offeree) accepts the terms of the contract as proposed by the other party (the offeror). It must mirror the terms of the offer for acceptance to occur, and it must be communicated to the offeror in order for it to be binding. Any deviation from the terms in the contract is considered a counteroffer, which terminates the original offer and makes a new offer with the new terms.
Consideration: Consideration is the payment required to support the contract, which can be money or the exchange of promises to do something in the future (like moving out of your mom’s house!). Generally speaking, with few exceptions, the parties to the deal make their own determinations about what consideration is required. The consideration does not have to be equal among the parties, but must be something of value.
Mutual Intent: This means that the parties must have an intent to enter into the agreement; it can be inferred by the words, actions, or conduct of the parties.
Essentially, a contract exists whenever the following circumstances are present: 1) an offer, 2) acceptance, 3) consideration, and 4) mutual intent to create a binding obligation. All of these elements are generally satisfied by the texts you send and receive. More recently, the judicial system has begun to recognize text messages occurring within a text thread as "an electronic record."

Text Messages as an Enforceable Contract

While most people may think some text exchanges between parties may be enforceable, the answer is not that clear and some courts are undecided as to whether the parties have formed a legally binding agreement or the parties were merely kidding or joking with one another.
Case 1: One New Jersey case involved a buyer and seller who were texting back and forth about the sale of a car. She told him several times she would pay him and he could pick up the car when he was ready. "Thanks again . . . for the good deal you gave me" etc. When he wrote her, "Can you screen shot your deposit in case someone asks you to see it," the Court held there was an enforceable contract.
Case 2: In another Maryland case, a Buyer sent a text message to the Broker which said: "What would you take for the property," to which the Broker replied back with the purchase price. The Broker replied back with a counter offer. The Buyer then sent a series of texts saying "let’s make it happen." According to the Court, "the buyer’s text ‘Let’s make it happen’ constituted an acceptance of the seller’s counteroffer and was therefore a binding amendment of the original contract." However, the Court also found the buyer was "excessively harsh" and the buyer was able to recover only the down payment of $50,000 because the counter offer which took away the "as is" language and added that the seller would paint the property black, a color the buyer never agreed to.
Case 3: However, while the aforementioned cases held the opposing text exchanges were enforceable, there are other cases where the Courts did not uphold the alleged text agreement. In another Maryland case, a husband sent a series of text messages to his wife saying "I [will] give you half of everything I have." However, the Court determined the negotiation intent simply was not there and there was no enforceable agreement between the parties.

Problems and Issues

Despite the prevalence of text message agreements, there are potential challenges and limitations in enforcing them for various reasons. For clarity, this section will address only the complete agreement between the parties and not the authority of a company to bind another company or a person via text message.
Identifying the Parties
For every dispute brought to a Judge, the Judge must first temporally determine if someone is able to find the nucleus of the dispute and decide if the Judge will continue to hear the matter or move it to another courtroom. For a contract dispute, the Judge should know immediately who the parties are; two people named as parties. Yet, with a text, identifying who received the text and the agreement can be difficult. The most obvious way to identify the parties is via the name on the receiver’s phone. However, not every phone shows the contact name, nor does every person save another’s contact information. Without identifying who received the text, it is going to be very difficult to prove who entered into the agreement.
Who Sent the Text Message
Similar to establishing who received the text, we also need to establish who sent the text message. Again, when texts are sent from one phone to another many phones or software programs will show the party’s name. Yet, when it comes to forward texts, it becomes troublesome to establish who origined the message.
Authenticating the Contract
Even if the parties are identified, the next step is authenticating the text agreement. Authenticating an agreement means the parties must acknowledge that the contract is theirs and they agree to the contract’s terms. Thus, both parties will need to authenticate that the texts that were exchanged convey an entire agreement. This means the parties will need to authenticate that the messages are the texts that were sent. Because of the limited space available for questions and responses, text agreements may be susceptible to parts of the agreement being left out or deleted. This may result in the case being decided based on an incomplete agreement.
The Completeness of Contracts
An additional issue with authentically text agreements is subsequent messages that can alter the agreement itself. For example, if the borrower sends a text stating "I had a great time, I can’t believe you sent me 50 roses." In response, the bank states "I loved how you were blushing when we were together. I can’t believe you called me the next day." At this point, both parties wanted to make sure the other knew they enjoyed their time together. Yet, when the text messages are examined the bank wants the borrower to feel special by having received on 50 roses. But the borrower was actually sent 10 roses. How can that issue be resolved? And if the agreement was for 50 roses, the borrower’s text actually binds them to that agreement then both parties will have to agree that the texts are inaccurate.

Guidelines for Effective Text Agreements

Follow these tips to help ensure that the text agreements you enter into are enforceable. Don’t rely on defaults and auto-populate features. Some programs provide default values for various legal terms, such as dates and persons or entities who will sign the agreement. Don’t simply rely upon the software to fill in the blanks; verify that the correct terms and information are being used. Use all the tools available to help establish an agreement. Programs often provide features that add additional information to the text agreement, such as stamps, page counters and warnings. Don’t overlook these types of tools, which can help establish a record of the text agreement and make it easier to authenticate. Confirm the agreement’s acceptance in the same manner in which it was offered . If an agreement was offered via text, the acceptance acknowledgement should be provided in the same way. For example, if an agreement is sent via text and the recipient responds via text that they accept the agreement, that acknowledgement will likely be sufficient. However, if the recipient emailed or phoned you to confirm their acceptance of the agreement, that response may not be enough to establish a text agreement. Keep a record of your text agreements. Be prepared to establish and authenticate the text agreements you enter into by maintaining thorough records. Retain the messages that you believe establish the terms of the agreement and any communications that demonstrate the other person’s acceptance of those terms.

Future of Digital Contracts

While the future of digital contracts may seem speculative, several emerging trends bear watching as technology-increasingly powered by AI, will almost certainly shape the landscape for digital agreements.
AI and smart contracts
The potential of smart contracts lies in the ability to dynamically adapt to compliance needs. One can imagine contracts evolving as conditions and risks change, triggering new clauses or changes to existing clauses that are mutually agreed upon. Ethics, privacy, security, and legal questions related to AI development and deployment will continue to loom large. So too will the need for human workers with the skills and competencies to ensure that these new technologies will function as intended. Thus, the successful adoption of AI will depend on the creation of a workforce capable of developing and operating these technologies.
Blockchain technology
A key element of a blockchain ledger is the consensus mechanism, which, in the case of public blockchains, means the verification of transactions and agreements by every participant. That is considered a key advantage of blockchain technology. However, this feature should not be considered an absolute when it comes to digital contracts. As previously discussed on this blog, the evolving regulatory framework around blockchain technologies and their practical applications can be complex and uncertain due to regulatory bodies’ varying approaches to these technologies. Blockchain ventures potentially may be ensnared by patent, trademark, intellectual property, and trade secret laws, in addition to industry-specific regulations that vary by jurisdiction. Cryptocurrency regulations may also affect blockchain startups, and industries such as healthcare may come under greater scrutiny. Such concerns are compounded by the lack of widespread understanding of blockchain issues, and its rapidly-changing nature.
An appropriate approach
Digital contracts have an important place in the business world, and their use will continue to increase. Given that they have equal validity to paper-based agreements, businesses that wish to take full advantage of the opportunities offered by digital contracts are well-advised to start their journey sooner rather than later. An appropriate approach will include a willingness to develop new skills to take advantage of advances in contracting technology.

Legal Consultation and Help

If you’re entering into an agreement via text, it’s a good idea to have the advice of legal counsel. An experienced attorney can help make sure you understand the terms you’re agreeing to and draft documents that clearly reflect your objectives. For larger transactions or contentious disputes, you’ll need a lawyer to advocate for you.
An attorney is also essential for enforcing your contract rights. Litigation over a simple text agreement is a tall order. For a case as straightforward as it seems, a court case can take much longer than a year and cost you tens of thousands of dollars. An attorney can help you increase your chances of a successful outcome, and you may also have grounds for recovering your attorney fees from the other side.
Seeking advice from legal counsel before entering an agreement will help you avoid common pitfalls. First, it’s important not to give binding consent unless you mean it. Even if the texting party doesn’t expressly state it intends the communication to be binding, courts will often enforce it as such. While it’s true that a text such as "Consider everything agreed" is typically only enforceable if it’s already implementing terms of an existing agreement, simply sending a text that states you’ve reached an agreement on a particular subject can turn out to be a binding contract.
So how do you avoid making a text agreement that you do not wish to be binding? It’s a good idea to expressly state in the text that the communication is for informational purposes only and does not constitute a binding agreement between the parties . Although this disclaimer may be honored by a court, it’s no guarantee. Again, a lawyer will help you know what to say.
Some people also mistakenly believe that the recipient can void the terms by word of mouth, but this is usually not the case. Even if the recipient acknowledges that the statement was made "for informational purposes only," the text messages, emails or other documentation still remain binding. When a disagreement arises, it is impossible to recall a text message that has already been sent, and the parties are generally bound by their prior written communication.
We’ve all heard that contracts can be oral, written, or even implied by the conduct of the parties. While this may be true, there are times when it’s worth the effort to create a legal document. If you’re texting about something that will change your financial status, such as buying a house or starting a business with someone, then it’s a good practice to work with an attorney at the very least to nail down the details the parties were discussing. And just because the law presumptively allows for oral contracts and contract modifications, doesn’t mean it’s wise to rely on that presumption. There are many times when a written agreement is a good idea, such as: If you’re uncertain about whether your text agreement is binding, consulting with an attorney can save you substantial amounts of money on subsequent litigation, time and heartache.