The “Statute of Frauds,” passed by the English Parliament in 1677, is an important part of the United States common law. Generally speaking, it doesn’t have so much to do with fraud, as it does the necessary formality of certain contracts. In order to be enforceable, some contracts—particularly those that deal with real estate (including leases), goods valued at more than a specified amount (e.g., $500), specified insurance contracts, and guaranties must be (a) memorialized in a writing, and (b) signed by the party to be charged. In Texas, can an exchange of email messages create a valid contract under the Statute of Frauds?
A recent decision from the Houston area [Khoury v. Tomlinson, No. 01–16–00006-CV, March 30, 2017) signals that, at least under appropriate circumstances, an email exchange may be sufficient to create a binding contract. The case involved an investor, Khoury, who purchased an interest in a company run by Tomlinson. The investment turned out to be worthless, at least according to Khoury, because of misrepresentations Tomlinson had made. Khoury contended that the two men met and Tomlinson apparently orally agreed to repay the money. After the meeting, Khoury sent Tomlinson an email message outlining their “agreement.” Tomlinson replied, “We are in agreement …,” but Tomlinson’s name never appeared in the email message.
Tomlinson subsequently refused to repay the money and Khoury sued. Tomlinson defended on the grounds that the alleged contract needed to be in writing and signed by virtue of the Texas version of the Statute of Frauds. Since his name never appeared in the message, he contended he had not “signed” any written statement or indication of agreement.
The First Court of Appeals held that Tomlinson’s name did appear in the email message—in the “From” field of the message itself. That was sufficient, under the circumstances, to constitute Tomlinson’s signature, said the court. The email agreement satisfied the Statute of Frauds.
Note, however, that the Khoury case conflicts, at least in some respects, with an earlier decision from the Second Court of Appeals in Fort Worth (Cunningham v. Zurich American Ins. Co. (No. 02–09–00177-CV, Sept. 15, 2011), in which the Court held that the signature line in an email did not constitute a signature because, in pertinent part, there was nothing to show that the words were typed by the sender and not generated automatically by the email software. In Texas, trial courts are bound by the decisions of the court of appeals that oversees the trial court’s district. It is possible, therefore, that an email exchange might create a contract in one part of the state and not another.
At least one practical point springs from the Khoury decision. Quite often, the parties to a negotiation engage in extensive email exchanges before the matter is turned over to an attorney to draft the contract. A message may even go so far as to say, “Now that we have agreed to the terms of our agreement, we’ll have our attorneys memorialize the agreement in a contract form. If the subsequent contract form merely memorializes the email deal, there is no need for it. The parties may already be bound. When a business person is engaged in email negotiations, it is usually a good idea to include in each message some sort of statement that there is no binding agreement between the parties until and unless all parties have executed a mutually acceptable written agreement.
Paul Romano & Kenny Sumner have more than 20 years of combined experience in business law. They have helped business owners maneuver through the complicated world of regulation, restriction, and law. They provide service that is appropriate, no matter what your core business needs. The attorneys at Romano & Sumner have drafted countless contracts and agreements. They know the pitfalls and can help you avoid them.
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