Instant Message Banter or Contract Formation?

Contract formation tends to be misidentified as a tedious process with lots of drafts, exchanging paper and signing of a final deal. However, it’s not as formal as most people think. As a ruling by a federal court in Florida demonstrated you can make or modify a contract with a few words transmitted by instant message (IM).

Because a signed formal document isn’t essential for a legally effective contract parties must be cautious about exchanging promises and the discussions they engage in outside of formal negotiations. Only certain kinds of contracts need to be in writing. Other contracts can be formed orally or through a course of dealing or exchange of forms. Contract formation requires: one party to make an offer, the other party must accept the offer, and consideration (something of value, must be exchanged). That’s it! That combination of requirements can happen orally or in writing. Not to mention, that as technology evolves, the definition of a writing expands to include all forms of communication such as emails, text messages and instant messages.

iChat Crazy

In the case at hand, Smoking Everywhere Inc. sells electronic cigarettes. It contracted with CX Digital Media Inc., in August 2009, for Internet advertising, agreeing to pay $45 for each completed sale it obtained through CX Digital’s Internet ads, for up to 200 sales per day.

One month later, Smoking Everywhere’s vice president for advertising engaged in an instant message conversation, during the course of a full workday, with an account manager at CX Digital. Toward the end of the day, after discussing the testing of new ads and new URLs, these messages were passed back and forth, within a stream of IMs over a two-hour period:

Account manager: We can do 2000 orders/day by Friday if I have your blessing.
Advertising VP: NO LIMIT.
Account manager: awesome!

Following this dialog, CX Digital stopped using the 200 sales/day limit, and began making an average of 1,200 referrals per day. When CX Digital billed Smoking Everywhere for the higher volume, however, Smoking Everywhere refused to pay.

The court held that the IM exchange demonstrated the clear intent to remove the prior daily referral limits, and thereby modified the contract:

A close reading of the instant messages and careful consideration of the behavior of the parties during the conversation indicate clear assent on the part of both parties to stop sending traffic to the ‘old’ ecig link and to begin sending the traffic to the two new URLs.

This two-word contract change resulted in $1,235,655 in damages.

Bottom line: Be careful with all informal communications such as text message, instant message, tweets, Facebook comments, etc. You can easily form a binding contract through the course of conversation.

Written contracts are the currency of business dealings, and although many companies insert clauses that say contracts cannot be modified without a signed writing (signed by authorized representatives). Business representatives increasingly engage in informal communications, in the short time after their conversation, CX acted in reliance of the modification, and as a result Smoking Everywhere ended up in a binding agreement.

Both in your professional and personal life be careful every time you engage in an exchange of “promises.” The last thing you want to do is bind yourself or your employer to an agreement. Employees with positions that are easily perceived to have decision-making power should be especially careful. If you are discussing terms of an existing contract or a potential sale or service be very clear that you are not forming a contract and that you are merely negotiating potential terms.

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