Construction may seem like a sleepy industry, but the construction landscape has been rapidly changing with the adoption of new technology. From credit management, to handling lien waivers, all the way to utilizing drones in construction, construction businesses are embracing tech to solve their problems.
One of the areas most improved by technological advancement is communication. On a construction site, there are plenty of moving parts, so clear correspondence is especially important. Unfortunately, a lack of communication is the root of many of the payment problems faced by the industry. By utilizing email best practices, companies can sure up communication lines and promote efficiency. It’s always important to draft emails carefully, though, as many courts have held that emails create contracts under certain circumstances. A recent Texas case found that even an email with no signature could create a binding contract.
In December, a Texas appellate court decided Khoury v. Tomlinson. While the contract may not directly be tied to construction, the implications of the decision should certainly be noted by members of every industry.
Prentis Tomlinson is the president and CEO of PetroGulf, a company formed to trade fuel and crude oil internationally. John Khoury was one of PetroGulf’s investors. After a few years, Khoury grew dissatisfied with his investment and was looking to recoup the $400,000 he had put into the company. After meeting with Tomlinson, Khoury was promised the debt would be repaid over the next several years. Following the meeting, Khoury sent Tomlinson a recap of their discussions which included a detailed schedule of repayment. Tomlinson replied, stating: “Were are in agreement and I am working on producing the financial documents you requested. My goal is to have completed by weeks end and forward to you.” The email did not include a signature.
Khoury never received payment from Tomlinson. As a result, Khoury filed suit alleging breach of contract, securities violations, and fraud. Tomlinson admitted to sending the email, but claimed that Khoury’s breach claim was barred by the Statute of Frauds. The trial court found in favor of Khoury, and Tomlinson appealed.
Appellate Court’s Analysis
The Statute of Frauds sets the basic rules for contracts nationwide. Under the Statute of Frauds, a promise to pay the debt of another is not enforceable unless the agreement is (1) in writing and (2) signed by the person who agrees to pay the other’s debt. Tomlinson argued that because there was no signature on the email, the agreement to repay Khoury could not stand as the basis for a breach claim. The court did not agree.
The court first established that an electronic record fulfills the “in writing” requirement under Texas law. The court never doubted that emails could create contracts in certain situations and moved on to the second issue: whether Tomlinson’s name in the “From:” section of the email qualified as a signature.
While Khoury did not sign the email, the headline included “From: Prentis Tomlinson.” Tomlinson’s name did not otherwise appear on the email. The court went into a lengthy discussion about the definition of the word “sign” in the email context, but eventually arrived here: “A signature block in an email performs the same authenticating function as a ‘from’ field…Accordingly, we hold that the evidence is sufficient to establish that Tomlinson signed the email and that the signed email satisfies the Statute of Frauds.”
This holding certainly doesn’t mean that all emails create contracts, and the opinion also made it clear that the law on email communications is still developing. However, we can take away that parties must take special care in how emails are drafted. It is easy to see how a misunderstanding could occur via email, and in an industry where decisions must be made and communicated on the fly, the danger only multiplies. When entered into court, whatever can be assumed or gleaned from the text of an email is fair game, and as Murphy’s Law informs us, whatever can go wrong will go wrong.
Having an email create a contract is just the tip of the iceberg. For more tech developments, check out the Construction Technology tag on the blog.