When do email exchanges create a contract?—The Texas Supreme Court Clarifies

Originally published by Robyn Balaban.

Email is fundamental to almost every business. It is used to communicate, invoice, develop business, and, increasingly, to contract. Contracting through email exchanges presents unique complications, however. Most notably, given the conversational, informal manner of the medium, it is increasingly difficult to determine whether there has been a meeting of the minds required to create a binding contract. Recognizing the need for certainty in this area of contract law, the Texas Supreme Court has already taken up the issue twice in 2020.

Chalker Energy Partners III, LLC v. Le Norman Operating LLC

In an opinion delivered on February 28, 2020, the Texas Supreme Court evaluated whether a chain of emails contemplating an agreed sale of working interests constituted a binding contract obligating the seller to ultimately follow through with a sale.

In Chalker, an interested buyer placed a bid on a package of working interests in various oil and gas leases in the Texas Panhandle. In conjunction with the bid, the buyer executed a confidentiality agreement which included, among other things, a No Obligation Clause specifying that no contract existed between the parties “unless and until a definite agreement [had] been executed and delivered.” The No Obligation Clause went on to state “[f]or the purposes of this Agreement, the term ‘definitive agreement’ does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and signed by both Parties.”

When the seller rejected the buyer’s initial bid, the buyer sent an email delineating the terms of its counteroffer. The seller responded via email informing the buyer it was agreeable to the sale “subject to a mutually agreeable PSA.” A few days later, however, the seller had a change of heart and executed a PSA with a different party without notifying the buyer. The buyer sued for breach of contract, arguing the email exchanges between the parties created a binding agreement to sell the interests.

Reversing the court of appeals, the Supreme Court held the email exchanges did not establish a written contract. In doing so, the Supreme Court characterized the No Obligation Clause as a condition precedent to contract formation. Because the email exchanges did not constitute a “definite agreement” for purposes of the No Obligation Clause, the parties failed to satisfy all conditions precedent and therefore, no contract existed.

The Court also noted the strong public policy in Texas favoring freedom of contract which allows parties to stipulate through agreements the conditions upon which they will be bound. By including the No Obligation Clause in the confidentiality agreement, the parties provided themselves with the freedom to negotiate without fear of being bound by a contract. Ignoring such an agreement would discourage written negotiations for fear they would result in a binding agreement.

Copano Energy, LLC v. Bujnoch

Issued less than a month before the Chalker opinion, the Texas Supreme Court’s opinion in Copano similarly highlights the complications of entering into a contract via email exchanges. Copano involved a purported written agreement to extend a previously granted pipeline easement. In short, a Copano representative sent the landowners’ law firm an email stating “Copano agrees to pay your clients $70.00 per foot for the second 24 inch line it proposes to build.” The landowners accepted the offer in an email response (the “Offer/Acceptance Emails”). When Copano decided not to purchase the easement, the landowners brought suit, alleging the parties had entered into a contract to sell an easement for $70 per foot.

The landowners conceded that Offer/Acceptance Emails did not contemplate essential terms such as the location of the easement, but pointed to an earlier email exchange (“Terms Emails”) in an attempt fill that void. The Court rejected the argument for two reasons. First, the Terms Emails did not reflect a current agreement to be bound by the terms they described. Instead, the Court explained, the repeated use of futuristic language (“[i]t will be a 24 inch gas line”; “we will be laying the line generally on the North side”) constituted an anticipated offering of those terms; not an actual offering of them. The Court also noted that nothing in the Offer/Acceptance Emails reflected an intent to be bound by the terms included in the Terms Emails.

Because the email exchanges did not clearly set forth the parties’ intent to be bound by essential terms, the Court found there was no written agreement to satisfy the Statute of Frauds.

Key take-aways from Chalker and Copano

  • While at times conversational and informal, email exchanges can constitute an enforceable agreement if the formation requirements are met.
  • Courts will hold parties to the agreements they sign—i.e. the No Obligation Clause in Chalker.
  • Conditions precedent matter.
  • A clear showing of a meeting of the minds is essential for contracts based on email exchanges.
  • To constitute an enforceable agreement, email exchanges must show a present intent to be bound by essential terms.

Lessons Learned from Chalker and Copano

  • Be careful with your emails because they can bind you. To avoid unintentionally entering into an binding contract, consider the following:
    • Utilize a No Obligation Clause or other language that makes clear there will be no binding agreement absent an independent, definitive agreement signed by the parties;
    • Avoid language demonstrating a present intent to be bound (i.e. “I agree”);
    • If merely negotiating, make that intention clear.
  • When attempting to enter into a contract via an email exchange, consider the following to ensure you are entering into a binding agreement:
    • Be sure the exchange includes an offer, acceptance, and essential terms.
    • If the essential terms will be incorporated from another email conversation or document, clearly indicate such.
    • Avoid futuristic language (i.e. “I will agree”);
    • Ensure emails evidence a meeting of the minds by clearly communicating the parties’ intent to enter into a binding contract and avoiding conversational tone.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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Texas Easement Not Modified By Email

Texas Easement Not Modified By Email

Originally published by Charles Sartain.

Co-author Trenton Paterson

Copano Energy, LLC v. Stanley Bujnoch, Life Estate, et al. asked whether an enforceable easement had been established by email. The trial court and court of appeal said yes (here is our report), holding in favor of  landowner the Bujnochs. The Texas Supreme Court reversed.

How to almost create a contract by email

December

  • James for Copano approaches the Bujnochs for an easement to construct an additional 24-inch pipeline over an existing easement.
  • Schwartz, counsel for the Bujnochs, sends emails, typing his name below the message.
  • James creates a plat reflecting the second easement.

January

  • James emails Schwartz, agreeing to pay $70 per foot for the second line, typing his name below the message.
  • Schwartz accepts and requests advance notice of survey activities.
  • James emails Schwartz, agreeing to pay a Bujnoch party $88 per foot, again typing his name above a signature block that has his job title and contact info.
  • Schwartz, through his secretary, proposes a formal amendment to the original easement modifying the description consistent with the parties’ communications.
  • James replies “I’m fine with these charges”, typing his name.
  • Goolsby, another Copano rep, mails letters offering to pay no more than $25 per foot. No one accepts.
  • Eubank, also for Copano, offers Schwartz $20-$40 per foot for the second easement.
  • Schwartz replies, “This is not our deal.”
  • Eubank replies, “Sorry for the confusion.”

Copano fails to honor the agreement. Bujnochs sue. Copano asserts the Statute of Frauds.

How to satisfy the statute

  • There must be a written memorandum which is complete within itself in every material detail, and which contains all of the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony.
  • The memorandum need not always be a single document, and courts may determine, as a matter of law, that multiple documents comprise a written contract.
  • Where multiple writings are proffered as a single contract, the “essential elements of the agreement” must still be evident from the writings themselves, without resorting to oral testimony.

Why there was no contract

The January emails contained an offer and an acceptance, but failed to specify what is being offered and accepted. Other than the price per foot and the pipeline’s size, the emails had none of the essential elements of the agreement. The text indicated that other terms of the deal may have been discussed in an earlier conversation, but none of the writings give insight into that conversation.

The other essential terms of the alleged agreement were not found in the December emails. This is for two reasons:

  • The emails themselves reflected no agreement to be bound by the terms they describe.
  • No later writing evidenced an agreement to be bound by the terms stated in the emails.

The chain of December emails was part of James’s request for a meeting between with Schwartz on a later date at which they would discuss a new easement. James merely described what he intended to offer at the meeting. The thread anticipated a future meeting where negotiations may or may not occur.

The future-tense phrasing of the December emails further confirmed the absence of an agreement to be bound by the terms stated therein. James used language such as “Copano will be asking for …”, Copano “will be buying …” . These were not present-tense offers of terms. Writings couched in futuristic language contemplating later negotiations do not satisfy the statute. There was no agreement to be bound in any of the December emails.

Nothing in the January emails reflected an agreement to the terms described in December. The only mention of earlier conversations was that they occurred. There was no evidence of what was discussed, or what terms the parties settled on. The December and January emails did not show with certainty and clarity that the January “acceptance” by Schwartz included the acceptance of terms described in the December emails.

The emails failed to create a written memorandum, complete within itself in every material detail. Copano’s future-tense language illustrated no intent to be bound. The January emails, although evidencing an “acceptance” of some terms, failed to establish what those terms were.

You deserve a musical interlude having nothing to do with email. Apologies to the White Stripes.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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