Monday, January 30, 2017

Are Emails Binding?

Prentis Tomlinson is the President and CEO of PetroGulf, Ltd. Petro was formed to trade oil commodities from Iraq with regional markets. In 2009 Tomlinson met with John Khoury, seeking investment into Petro. Khoury invested $400,000.

Khoury, unhappy with the performance of his investment, met with Tomlinson in early 2012 to discuss Petro’s failure to disclose financial information. In that meeting, Tomlinson agreed to personally repay Khoury the $400k debt over a four or five-year period.

A week later Khoury sent an email to Tomlinson summarizing the meeting. Tomlinson replied by email with, in addition to other text: “We are in agreement.”

When Tomlinson failed to make the payments, Khoury brought a lawsuit. Tomlinson’s defense was that any recovery for breach of contract was barred by the Texas Statute of Frauds, which requires that many agreements must be in writing and signed to be enforceable.

At trial, Tomlinson admitted sending the email but claimed that his response of being in agreement referred to an agreement different from the terms identified in the email to which he replied.

The jury concluded that Tomlinson had obligated himself to repay the $400k investment, and that Tomlinson has breached that agreement. The jury found in favor of John Khoury on all claims and awarded him $400k plus attorneys fees.

Tomlinson then asked the trial court to enter a Judgment disregarding the jury’s verdict on the $400k breach of contract claim. The trial court, likely accepting Tomlinson’s position that emails do not satisfy the Texas Statute of Frauds, agreed and in doing so, gutted the jury’s verdict.

John Khoury appealed.

The Texas Appellate Court reviewed the Texas Statute of Frauds, providing that debt agreements must be written and signed. You can read it at TBCC 26.01(a)(1) and (2), and 26.01(b)(2):

Seems clear enough. The law requires a signed writing. There was no written paper agreement; there was no signature.

However, there was an email chain that basically ended with “We are in agreement.” The last email from Tomlinson does not contain Tomlinson’s name in the body of the text he wrote. But his name and email address do appear in the “From” field of the email.

The Appellate Court started by evaluating the Uniform Electronic Transactions Act as adopted in Texas at TBCC 322.001 – 021: UETA was added 10 years ago to remove barriers to electronic transactions by setting an expansive view of what constitutes electronic writings, records and signatures. The goal was to adopt our now-common practice of foregoing paper in favor of emails, texts and similar.

It took the Court three full single-line pages to analyze this one issue and conclude that a signature block in an email performs the same authenticating function as a “From” field. Consequently,  the Court concluded that the email satisfied the definition of a writing and signature; the Statute of Frauds could not be used to avoid enforcement of the agreement.

John Khoury won his appeal; Prentis Tomlinson owes him $400,000 plus attorneys fees. Whether or not Khoury will be able to collect his Judgment is an entirely different matter. See Khoury v. Tomlinson, Case No. 01-16-00006-CV, First District Harris County Court of Appeals, December 22, 2016:

Lessons learned:

1.      Our Texas Statute of Frauds has been hijacked. Writings and signatures are no longer strictly required. Emails can be sufficient to create binding agreements

2.      If emails suffice, then I suppose so do texts, social media, chat rooms, bulletin boards and similar e-platforms where one can identify who is communicating and agreements can be made electronically without paper or ink signatures.

3.      However – the Fort Worth Court of Appeals reached an opposite conclusion in 2011 and decided that an email was insufficient to serve as a “signature.” See Cunningham v. Zurich American Ins Co:

4.      The B/L: be careful with email agreements and instead, until we have more guidance from our legislators or Supreme Court, insist on old-fashioned, ink-signed contracts, leases, amendments, loan docs, release and settlement agreements, and everything else related to what we do. Don’t type “agreed” in an email or similar unless you are prepared to be bound.

                                                                                    Stuart A. Lautin, Esq.


          Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

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