Home » Case Note » Florida Fedral Court- Short, informal, instant message exchange can modify contract

Florida Fedral Court- Short, informal, instant message exchange can modify contract

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Instant messages (IM) are frequently used by business professionals to communicate ‘on the move’. It is generally used to send out an instruction or seek a request. However, these days the same is used by professionals to negotiate and discuss contracts that may have already been signed. Hence, the question rises as to the enforceability of such negotiations concluded in an informal chat between parties to a contract.

Contracts are agreements that are enforceable by law; they may either be oral or written. Written contracts are usually preferred by parties to a contract for two reasons, firstly, it reduces the possibility of any ambiguity about the roles, responsibilities and obligations of the parties to the contract and secondly, it is easier to enforce the contract before the courts in case of any dispute.

In recent times, most written contracts incorporate a standard term called the ‘Amendment Clause’, which allows the parties to a contract to modify the terms of the contract, in writing as and when mutually agreed, after execution.

The law that governs contracts in India is the Indian Contract Act, 1872 (“Contract Act”). The essential conditions inter alia to be satisfied to create a valid contract under the Contract Act are:

  1. Proper offer and acceptance[1]
  2. Lawful consideration[2]
  3. Parties competent to contract[3]
  4. Free consent[4]
  5. Consensus ad idem[5]

If two parties who are competent to contract, agree on the same thing at the same time and the same sense, of their own free will after proper proposal and acceptance for a lawful consideration, a contract has said to been formed.

The Federal court of Florida (“Court”) in a recent case[6] held that an informal IM conversation pertaining to a contract signed between parties can result in change the terms of the contract.

In the abovementioned case, CX Digital Media (“CX”) a provider of marketing services and Smoking Everywhere (“SE”) a manufacturer of electronic cigarettes had entered into a contract under which CX agreed to provide 200 referrals to SE’s commercial web – page. In return SE agreed to pay CX USD $ 45 for every sale of its electronic cigarette sold from the referrals made by CX.

On 2 September, 2009, CX and SE engaged in an IM chat and discussed issues relating to modifying of the referral URL’s and the volume of referrals made each day.

The IM conversation read as follows:

[CX] (2:50:08 PM): We can do 2000 orders/day by Friday if I have your blessing

[CX] (2:52:13 PM): those 2000 leads are going to be generated by our best affiliate and he’s legit

[SE]: is available (3:42:42): I am away from my computer right now

[CX] (4:07:57 PM): And I want the AOR when we make your offer #1 on the network

[SE] (4:43:09 PM): NO LIMIT

[CX] (4:43:21 PM): awesome!

Over the next several weeks, CX referred a much higher volume of sales to SE and invoiced SE for the sales generated by them from the referrals made by CX. SE refused to pay CX for those sales, claiming that the chat did not constitute an enforceable modification of the contract entered into by them.

Court’s opinion on modification of contract:

Various issues decided upon by the Court, but the key issue that was to be determined by it was:

“Whether CX could invoice SE for the multitude of referrals, despite the 200 sales per day limit in the initial contract?”

The Court held that the IM conversation between the CX and SE with respect to modifying the 200 sale per day limit was definitive. CX asks about whether CX can refer 2000 referrals per day and asks for SE’s “blessing.” In response, SE says “NO LIMIT.” The Court finds that CX’s suggestion of a 2000 sale per day limit was an offer of a new term. SE’s response of “NO LIMIT” was a rejection of the 2000 sale per day limit term offered and proposed a counter-offer to CX. CX accepted this counter-offer by replying “awesome!”.

SE argued that a term in the initial contract which provided that it could only be “..changed . . . by a subsequent writing signed by both parties..” barred modification of the agreement by the exchange of IM’s. However, under Delaware law, conduct or statements could modify a written contract with a signed writing clause, and therefore, an unsigned writing could as well.

Similarly, in India the Supreme Court has recently held[7] that where communication of acceptance is complete, the contract is said to have been formed and the terms can be ascertained from the various correspondences exchanged between the parties. It also held that once a contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialed by the parties would not affect either the acceptance of the contract so entered into or implementation thereof.

Therefore, it is highly probable that Indian courts could rule that a contract has been modified if there has been a proper communication of an offer and acceptance by the parties to change the terms of a contract. Additionally, Indian legal framework and courts have allowed for the admissibility of electronic media such as, short message service[8] (SMS) and electronic mail[9] (E-mail) as evidence.

Conclusion:

Written contracts are the currency of business dealings, and as a standard term, they contain provisions that say they cannot be modified without mutual agreement and signing of the contracting parties.  CX Digital Media, Inc. v. Smoking Everywhere, Inc, serves as a precedent to all business professionals who use electronic media as a medium to negotiate terms or commercials of an agreement, that the fact that the modification to a contract if proposed, accepted and recorded is sufficient to effect the modification of contract.


[1] Section 2(a) and (b) of the Contract Act

[2] Section 2(d) of the Contract Act

[3] Section 11 of the Contract Act

[4] Section 14 of the Contract Act

[5] Section 14 of the Contract Act

[6]; Case No. 09-62020-CIV-ALTONAGA/Brown

[7] Trimex International FZE Limited, Dubai v. Vedanta Aluminum, India, (2010) 3 SCC 1

[8]State (N.C.T of Delhi) v. Navjot Sandhu, (2005) 11 SCC 600

[9] Section 88A of the Evidence Act, 1872

Kaustabha Mani,

kaustabha.mani@pxvlaw.com

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