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Jul 11

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Court Concludes E-Mail Communication Indicates Binding Contract

E-Mails seem to be taking over as a primary source of communication.  They are a quick and efficient means of communication and many people are accessible via email no matter where they are (i.e. through their mobile/smart phones).  However, many probably do not think of e-mails as formal documents or binding contracts.  Shepard Davidson and Renee Inomata of Burns & Levinson LLP discuss in an article how a recent court decision demonstrates that such communications must be handled with due care as they may become enforceable.

In the matter Hansen v. Rhode Island’s Only 24 Hour Truck & Auto Plaza, Inc., e-mail correspondence described settlement terms surrounding $250,000 being held in escrow.  The article quotes Plaintiff counsel’s email as follows:

“Eric Hansen will accept Defendants’ settlement offer that the escrow funds … will be split as follows: $235,000 to Plaintiff and $15,000 to Defendants.  … I also understand that the settlement will include mutual releases from all parties and a dismissal of the pending action with prejudice and without costs. To move this along, I will send you a draft settlement agreement (and other settlement documentation) tomorrow.”

To which Defendant counsel replied:

 “Glad we were able to get it done.”

Apparently drafts of the settlement agreements were subsequently circulated, but the Defendant’s corporation was placed into receivership prior to obtaining final signatures from both parties.  The Receiver did not execute the settlement documents and instead rejected the settlement.  Plaintiff pursued the matter in Massachusetts District Court, where the Court ruled:

“An enforceable settlement agreement arises when the parties to be bound mutually assent to all material terms, even if those terms are not memorialized in a final writing. … In this case it is manifest from the email exchange that the parties entered into a valid settlement agreement.  Both parties clearly expressed mutual assent to the terms when plaintiff’s counsel wrote that ‘Eric Hansen will accept Defendants’ settlement offer’ and defendants’ counsel responded ‘Glad we were able to get it done.’”

Furthermore the article states,

“The District Court went on to explain its ruling by noting that the continued effort to obtain a signed document was not an attempt to create a settlement agreement.  Rather, it merely was a process designed “to formalize the agreement” that already existed and was binding upon the parties.”

Lots of negotiations occur over email these days and one should be careful that the content of such communication is treated with the same care as a more formal letter.  The article suggests including a statement in your emails such as “This email [is/is not] intended to create a binding settlement agreement” to ensure that your intention is clear.

About the author

Anand Khemlani

I am a founding member of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), a Certified Fraud Examiner (CFE) and am a licensed Real Estate Broker. I regularly serve as an expert witness involving results of my forensic accounting assignments and damage analyses. My resume is available on Fulcrum's website

Permanent link to this article: http://betweenthenumbers.net/2013/07/court-concludes-e-mails-communication-indicates-binding-contract/

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