Text Messages Can Form Binding Contracts, Court Rules

In the fast-paced world of business, agreements can be made in various forms, including email and text messages. But are these digital exchanges legally binding? A recent case in New York shed light on this issue, highlighting the potential for text messages to create binding contracts, albeit with certain conditions.

The case involved a lease dispute where a property owner sought around $200,000 in unpaid rent from a tenant. The crux of the matter lay in a series of text messages exchanged between the property owner’s representative and the tenant. The messages confirmed a “settlement amount” of $143,000, with the security deposit to be credited against it. Additionally, the tenant expressed readiness to prepare a settlement agreement, while the property owner’s representative indicated a desire to inspect the apartment.

Despite these seemingly clear communications, the court found that the text messages did not constitute a binding agreement for two key reasons. First, the exchange did not encompass all the “material terms” necessary for a settlement agreement. The property owner’s mention of inspecting the apartment implied that further terms might be added, such as obligations for the tenant to address specific issues within the property.

However, it is worth noting that the court could have interpreted the inspection request as a standard procedure, not requiring additional terms, thereby potentially upholding the text messages as binding. The court’s decision to view the inspection as potentially material highlights the importance of clearly defining all terms in digital agreements to avoid ambiguity.

The second reason for the non-binding nature of the text messages was the acknowledgment by both parties that a formal agreement would be drafted to memorialize the settlement. This implied that the text messages were not intended to stand alone as a binding contract but rather as a precursor to a more formalized agreement.

Nevertheless, the court could have construed the future formal agreement as a mere formality, suggesting that the text messages themselves constituted a binding agreement. This ambiguity underscores the need for clarity in digital communications to avoid potential disputes over the binding nature of such exchanges.

Ultimately, while the court ruled that the specific text messages in this case did not create a binding contract, it did not establish a general principle that text messages cannot be binding. Instead, the case suggests that under certain circumstances, text messages can indeed create legally binding agreements.

For individuals and businesses seeking to ensure the binding nature of their text message agreements, it is advisable to avoid any language suggesting that further documentation is required. On the other hand, those looking to avoid binding agreements should clearly state that additional steps are necessary before a contract is considered binding.

In conclusion, the case serves as a reminder that the binding nature of text messages depends on the specific circumstances and the clarity of the messages themselves. It underscores the importance of carefully crafting digital communications to avoid misunderstandings and legal disputes.