When Does a Text Message Become a Contract?

Group Chats, Emoticons, and Breach of Contract: When Does a Text Message Become a Contract?

New Technologies, Established Obligations

New media and technology have transformed the way we do business as compared not only to twenty years ago, but even as compared to ten or five years ago. Emails, social media posts, and even text messages were important tools for marketing and negotiating before the COVID-19 pandemic upended the ways in which we conduct business. Now, electronic communications are indispensable for doing business.

If you are conducting business largely by email and by text, you may not think of these messages as documents, let alone legal documents. A text message or an email might constitute a legally-binding document, one that could lead to serious legal and financial consequences for you and your business if not honored.

In this article, we will discuss what constitutes a contract, existing Massachusetts law on the point that an electronic communication becomes a contract, and what you can do to limit your legal liability when conducting business virtually.

What’s in a Contract?

An agreement requires three things to become an enforceable contract:

  1. An offer: Party A makes an offer. Party B may or may not respond with a counter-offer.
  2. Acceptance: One party agrees to the other’s offer or counter-offer. For example, Party B does not like Party A’s initial offer, but suggests a counter-offer. Party A verbally agrees to the counter-offer.
  3. Consideration: in legal terms, “consideration” is a thing of value given up by each party and exchanged with each other. For example, Party A exchanges money for the service offered by Party B.

A contract may also be distinguished by a fourth element: the intention by the parties to create a binding relationship.

In Massachusetts, both verbal and written contracts are enforceable, though the Statute of Frauds requires certain contracts to be written. This includes real estate transactions, for instance.

The Legacy of St. John’s Holdings V. Two Electronics, LLC

It was a text about a real estate deal that led to a precedent-setting lawsuit, decided in November 2017. In St. John’s Holdings V. Two Electronics, LLC, the Massachusetts Appeals Court decided that a text message about a real estate transaction did constitute a legally-binding contract. To summarize the facts of the case:

  • the seller invited the buyer to sign a letter of intent to purchase a property by text message
  • the buyer signed the letter of intent and delivered a check to the seller
  • the seller reneged the offer after receiving the buyer’s check, and instead sold the property to a third party

The court decided in favor of the buyer, ruling that the seller had violated an enforceable contract.

What Does This Mean for You?

How can you protect your business from breach-of-contract allegations stemming from texts, emails, or other electronic communications?

One option is to provide clear guidelines to your staff not to conduct aspects of business related to closing, for instance, over informal means of communication. Stick to email and text for general inquiries and communications, but save negotiations for face-to-face or video conversations.

Additionally, you can include a disclaimer on every text message that it does not constitute a contractual offer.

As always, preserving your electronic communications in case of future litigation is crucial.

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