2020 Texas Supreme Court – When Email Communications Are Enough to Establish an Enforceable Contract

by | Jun 12, 2020 | News | 0 comments

Given the prevalence of electronic communications during commercial transactions, questions about contract formation are bound to arise. In two cases decided in 2020, the Texas Supreme Court tackled the issue of when email communications are enough to establish an enforceable contract. The first case, Copano Energy, LLC v. Bujnoch,1 deals with the sufficiency of a series of emails to satisfy the statute of frauds, which requires the conveyance of an interest in real property and certain other agreements to be in writing. The second case, Chalker Energy Partners III, LLC v. Le Norman Operating LLC,2 considers whether emails can establish a binding contract when the parties have indicated that a more formal agreement is required.

In Copano Energy, the Court found that a series of emails between Copano’s landman and the landowners’ attorney did not constitute a written agreement for a pipeline easement sufficient to satisfy the statute of frauds.  Email communications can constitute a written agreement. In fact, multiple email communications may be read together to establish the terms of the agreement. But if oral testimony is required to establish what was agreed to, then the email communications will not satisfy the requirement of a written agreement. The Copano Energy opinion demonstrates the pitfalls of relying on a string of emails to satisfy the requirement of a written agreement. Several of the emails between the landman and the attorney clearly indicated an offer by the pipeline company to pay the landowners a certain price for the easement and the landowners’ acceptance of that offer. However, because those emails did not refer back to other emails containing more detailed terms establishing exactly what was being agreed to, the Court found that the emails, even when read together, did not constitute a written agreement sufficient to satisfy the statute of frauds.

The lesson here is that it may be difficult to satisfy the statute of frauds without considerable precision in your email communications. If a transaction requires a written agreement and you have doubts about whether your emails constitute a written contract, you should refer to all previous communications that might contain essential terms and indicate that the parties are agreeing to those terms. This will more likely indicate offer and acceptance of any terms required to form the agreement.

The second case, Chalker Energy, involved the sale of oil and gas leases worth several hundred million dollars. The sellers, represented by Chalker, instituted a bidding process for 100% of the assets. Potential buyers had to execute a confidentiality agreement which included a “No Obligation” clause providing that “unless and until a definitive agreement has been executed and delivered, no contract or agreement providing a transaction between the Parties shall be deemed to exist.”

Le Norman participated and was the high bidder. That deal fell apart, and the sellers then decided to sell a 67% interest in the assets. Without referring to the previous bidding process, Le Norman emailed the seller’s representative and made a non-negotiable offer to purchase the 67% interest in the assets for $230 million, subject to the execution of a purchase and sale agreement (PSA) and other conditions. The sellers agreed and Chalker emailed Le Norman that they were “on board to deliver 67% subject to a mutually agreeable PSA.” Additional emails were exchanged referring to the sale. Before a PSA could be executed between the sellers and Le Norman, another company made a higher offer. The sellers accepted the higher offer and entered into a PSA with the new buyer.

Le Norman sued for breach of contract and claimed the email exchange constituted a binding agreement. The trial court granted summary judgment for the sellers, and the court of appeals reversed.3 The Texas Supreme Court found the language of the confidentiality agreement established that execution of a PSA was a condition precedent to contract formation and that emails indicating an agreement as to the assets being sold, purchase price, closing date, and “other key provisions” did not establish a contract or a waiver of the requirements of the “No Obligation” clause.

The Texas Supreme Court provided a roadmap showing how to avoid inadvertently contracting by email communications. To avoid this problem, request a “no obligation” agreement during negotiations using the language interpreted in Chalker. If that is not feasible, then include similar language in early email communications clearly establishing the transaction requires a definitive agreement to be executed and delivered.

Although the Texas Court indicated it is firmly committed to “Texas’s strong public policy favoring freedom of contract” and reaffirmed multiple documents may be read together to find an agreement, it seems clear that it is directing lower courts to examine email exchanges with a fairly critical eye before finding electronic communications establish a binding contract—especially when there are indications the parties contemplated a more formal agreement. In light of these decisions, emails showing agreement to specific terms may well be considered only preliminary agreements rather than final binding contracts, depending on the circumstances.

1 593 S.W.3d 721 (Tex. 2020).

2 595 S.W.3d 668 (Tex. 2020).

3 Le Norman Operating LLC v. Chalker Energy Partners III, LLC, 547 S.W.3d 27 (Tex. App.—Houston [1st Dist.] 2017), rev’d, 595 S.W.3d 668 (Tex. 2020).