Beware of eMail where contracts are concerned

eMail is a wonderful invention. It requires none of the messy soot stains on the smoke signal blanket, and no nasty aftertaste from licking stamps. Just type in what you want someone else to read, press the “send” button, and voila—instant communication! And there are so many wonderful uses for eMail. In the 21st-century world of business and education, it’s hard to remember what it was like in the old days, when the phrase “you’ve got mail” was uttered by the mail clerk as he dropped off your daily stack of correspondence in your wooden or plastic letter in-box.

The speed-of-light capability of eMail servers and the global mailbox of the internet have changed how everyone does business. The ability to ask questions and get answers quickly, transmit draft documents for review and exchange comments, and share almost any document that can be digitized in a matter of minutes rather than days has transformed how we handle everything from homework assignments to international megadeals.

But like most success stories and efficiencies associated with progress, there are the inevitable caveats. That’s usually where we lawyers rear our nasty heads, and eMail is no different. There are some cases where eMail just doesn’t work very well, and foremost among them is contracts.

While eMail can be a fabulous tool in the negotiation phase of any deal, the use of eMail in the context of contracts should be limited. Other than the narrow context where electronic signatures have been prearranged and a secure system for exchanging them is in place, we all understand that a valid contract requires a hard copy of a signed document that contains the signatures of authorized representatives of both parties. But the temptation to make clarifications or modifications via eMail is often overwhelming, especially when the clock is ticking.

I remember one problem software purchase where everyone involved with my client’s side of a growing dispute swore up and down there was a $750,000 penalty clause in the contract that we could use to reduce the damage done by nonperformance. “Great!” I said, “Show me the penalty clause.” After some running around and file searching, the clause was produced. It was an eMail message from the vendor saying it would agree to a penalty for nonperformance.

Beyond the contractual niceties, it was not signed by the parties. Sure enough, the signed contract had a clause that required all “amendments or modifications” to be executed by both parties. Scratch three quarters of a million dollars that everyone was sure could be collected if things went sour.

The lessons are tough ones. When a contract (as well as procurement rules that apply to government contracts) require the parties to sign on the dotted line, eMail messages, voice mails, and oral directives and assurances are virtually worthless. This is especially true when a formal contract exists and you are trying to prove that some outside document amends or clarifies the contract.

Implementation of a contract also might require more than an unsigned eMail. When you need to make a formal request in writing or receive written confirmation or instructions, eMail is not a proper vehicle. Formal or “on the record” requests should be sent in writing on letterhead and signed. If there is a need for quick communication, sending a fax of the signed memo or letter and following up by mailing the memo or letter via first-class letter through the post office is a much safer procedure. Most contracts and subcontracts include a clause that specifies how (and to whom) formal notice must be sent to be legally effective under the contract.

Similarly, when you give an important contractual notice to a vendor, such as instructions to proceed on a task or other authorization (like a change order request), an eMail message is simply not acceptable. It has little or no legal value as a contract document. You need to obtain a written document on official letterhead that is signed by an authorized representatative of the other party.

If you are a government customer who sends directives via eMail or orally instructs vendors to go forward, you should always be willing to provide written, signed documentation to memorialize your understanding of the direction or other instructions.

Following these few simple rules for proper use of eMail will help ensure that you’ll be able to use eMail for another one of its most beneficial uses—the congratulatory message that all is going smoothly!

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