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Apr 18 2017

So Easy to Make a Contract in the Digital Age

April 18, 2017 (Houston)

James SmithBy James Smith – “Environmental Alert” (Schirrmeister, Diaz-Arrastia, Brem LLP)

Email exchanges can create binding contracts, even when a formal document (which both parties expected to have prepared) is never signed, and even when all contract terms are not addressed in the emails, according to the judge in Neurovision v Medtronic.

Executives Exchanged Emails

Neurovision had sued Medtronic for patent infringement.  While the suit was pending, executives exchanged emails, which indicated agreement on terms to settle the case.  Prior to the completion of the formal settlement contract for both parties’ signature, a development at the Patent and Trademark Office caused Medtronic to claim that it would not sign the formal contract, because of new circumstances.

Emails Can Create a Contract

Neurovision requested that the judge enforce the agreement that the email exchange demonstrated.  Medtronic objected, saying that the parties anticipated a formal written agreement, which was never signed.  Further, Medtronic argued that the emails did not address certain settlement terms.

The judge rejected Medtronic’s arguments, and ruled that the emails created a binding contract to settle the case.  Even emails showing an expectation that a formal agreement would follow do not preclude determination that the parties reached an enforceable contract through the emails.  Moreover, parties need not agree on all terms; they only must agree on all material terms; the judge ruled that the terms not addressed via email were not material.

If You Want to Insist on a Formal Contract, Be Clear in Your Emails

In order to insist that only a formal written contract could bind the parties, Medtronic should have stated this in the email exchange.  Failing to do so allowed the judge to determine that the parties had created a binding contract in the emails.

It may have been a factor that the emails exchanged in this case were between executives, and not the trial lawyers in the case.  Medtronic’s lawyers might have better appreciated how electronic communications can create a binding contract; their emails might have included statements that only a formal writing signed by both parties will be legally enforceable.  The case shows how exchanges of emails, text messages, and other electronic communications can form a legally binding contract, even if the parties expect the contract to be reduced to a formal written document, but never do so.

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