Ohio Practical Business Lawyer & Attorney : Teri Rasmussen : Lane Alton & Horst Law Firm : Commercial Law, Creditors, Business Formation : Columbus, Central Ohio

Perhaps you remember the Saturday morning cartoon The Jetsons featuring poor George Jetson and his trials and tribulations in a future filled with all manner of technological conveniences.  (Click here if you've just been hit with a wave of nostalgia and want to relive episodes.)  George's job at Spacely Space Sprockets mostly consisted  of pushing a button at his computer, sorta like all of us do now. 

While George may have intended to make contracts with the push of the button, we don't always realize that's exactly what we've done.  Sometimes it's not "just" e-mail - you just made a binding contract.

Most of us think of e-mail as an informal casual form of communication.  As a result, we tend to be much less careful about what we say than when we put it in an old fashioned letter. And that could be trouble when sending e-mail about the terms of a business deal you think you're still "just" negotiating.  I've posted before about how a series of letters exchanged between two parties can sometimes result in a contract being formed.  The same thing can happen with e-mails, or even voicemail.

Uniform Electronic Transaction Act. Ever heard of the Uniform Electronic Transaction Act (UETA), codified in Ohio in 2000 as Ohio Revised Code Chapter 1306?  It takes contracts into the 21st century by expanding the meaning of what it means to be the time honored "written agreement" and "signature" needed to form a binding contract enforceable against the parties to it. 

The UETA defines an "electronic record" in such a way as to include both e-mail and voicemail.  In addition, an "electronic signature", defined as "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted  by a person with the intent to sign a record", can easily include something as simple as typing your name at the end of an e-mail or even just saying your name when leaving a voicemail. 

The provisions of UETA apply whenever the parties have agreed to conduct negotiations by electronic means.  Importantly, no formal agreement to use these channels is necessary - it can be implied from the surrounding situation and circumstances, including the conduct of the parties.  So... if you use e-mail to work out and close a business transaction, you are potentially at risk for creating a binding contract before you may have intended to do so. 

Real Life Example.  Is this really a potential problem or is it just another of any number of "parade of horribles" that never actually happens in "real life"?  Consider the following e-mail exchange in a recent case (Klebanoff et al. v. Haberle et al., 978 So.2d 598 (La. App, 2008)) regarding the purported settlement of a dispute involving a mineral lease:

• Phillips: "If you want, you can just propose [the plaintiffs} pay me for what I have in the deal and I will convey my interest to them."
• Scott: "We agree to this proposal of settlement."
• Phillips: Demands payment in full, saying "I will not finance.... would expect to be paid for what we have invested at which point we would convey the interest over."
• Scott: Offer accepted, but also says, "Now it seems as if the only issue that we do not have a complete meeting of the minds with respect to is how much your aunts will 'finance' this transaction/compromise and how much time you will allow them to do it."  Includes other comments, including gratuitous comment that plaintiffs had been "coerced" into signing over the interest at stake.
• Phillips: "I wll no longer try to work with you, your clients can either pay $56,136,10 in two weeks or I will have my attorney contact you.... Please let me know how you would like to proceed."
• Scott: Indicates "thrown for loop" by demand for immediate payment instead of payment plan, but says, "Nevertheless, subject to working out the financing aspect, we have a compromise.  I will do what I can do to scrounge up some financing for Carla and Melinda."
• Phillips: "If I don't receive the money before the logging of the 30-3 the deal is off and you will have to resume litigation....  Expect a letter outlining our conversation and my proposal from my attorney.  I will have [the accountant] include the information you requested below."
• Scott: "I am pleased we have a deal.... I look forward to hearing from your attorney so we can get this matter concluded." 
• Phillips: "What deal do we have?  The 33% back in after payout or the payment of the un-recovered funds before logging the Frierson 30-3."
• Scott: Inquires why hasn't gotten the documentation "to close our settlement of a return assignment of yours and Haberle's interest in the Yarber lease for the unrecovered amount of $56,000."
• Phillips: "The 33 percent back-in is the current structure....  However, I would rather just get the money I have in it back and move on....  We can make the deal effective Feb 1 and any additional funds received will be forwarded to your clients."
• Scott: Advises that $$ ready to be transferred and requests assignment documentation to be executed.
• Some back and forth e-mails about the assignment and preparation of a general release.  Scott eventually files with the Court to enforce the settlement.

>>>>> Court determined that the parties had indeed reached a binding agreement, saying:

the parties'positions were clearly expressed in writings which are recognized under the [UETA].  The object of their communication was never anything other than a compromise,  We find no presumption of an intent not to be bound until the execution of a contract in a special form. 

So what should you do?  Stop using e-mail and voicemail?  Well maybe yes if you want to be super safe.  But for the rest of us who can't imagine how we ever did business without e-mail and voicemail, the best answer is to be just a little more careful in using e-mail and voicemail.

• If you're frequently using e-mail to reach a deal with someone, it may be a good idea to add a standard disclaimer below your signature line indicating that the message is not intended to form a binding contract until ultimately reduced to a single document signed by both parties.  If you don't want to include this sort of disclaimer on all your e-mails, at least mention something early on, and perhaps later as well, about how of course everything needs to be reduced to a separate written agreement and reviewed by your attorney before it becomes binding. 
• When leaving a voicemail, don't get so specific on all the terms unless you really are at the point that you're ready to have a deal.  Sometimes it might just be better  to leave a short "call me" message.

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If you are like most businesses, you have your very own "Terms and Conditions" printed in tiny print on the back of your purchase order or invoice form.  So do your suppliers, vendors, and customers.  Suppose your customer's form says nothing about warranties or remedies if the contract is broken, but yours specifically disclaims certain warranties or explicitly limits damages to a full refund of the purchase price and nothing more.  What if your form says Ohio law applies, but your vendor's form says arbitration in New York is the only way disputes may be resolved?  If a problem arises, whose terms will be applied?

The answer depends on how adamant each side has been about insisting upon their own terms and whether the terms in question are deemed to be "different" or merely "additional" by the court.  Courts look at three criteria:

• Has either party clearly insisted that they will do the deal only on exactly their terms?

• Are the forms in direct contradiction with one another on a particular point?

• If only one preprinted form includes terms about a particular issue such as warranties or arbitration, do those terms "materially alter" the nature of the transaction for the other party?

Battle of the Forms Defined.  The problem - known by lawyers everywhere as the "Battle of the Forms" -- arises because pure contract law requires a "meeting of minds" before an enforceable agreement can exist.  This means that an acceptance must be a "mirror image" of the original proposal without even the smallest variation.   Then and only then will a contract exist.    

Under pure contract law, if a supplier's response was even slightly different from the purchase order of a buyer, it would be considered only a counteroffer and not a confirmation of the deal.  No enforceable contract would exist unless the buyer subsequently accepted delivery.  As a result, whoever got the "last shot" in before goods were delivered would benefit by having only the terms in their canned form enforced, often to the surprise and misfortune of the other party.  So if the "last shot" response excluded warranties, no warranties would apply to the transaction regardless of what the other party thought the deal was.

To minimize the "last shot" ability to take advantage of the other party to the contract, all states have enacted law preventing what would reasonably be regarded as an acceptance and confirmation of the deal from being treated as a counteroffer simply because of minor variations appearing in a boilerplate response, but which were never really discussed or negotiated.  In Ohio, these provisions are found in Ohio Rev. Code §1302.10 and are similar to the law in other states.  Today the question is whether terms in one form are merely "additional" terms to be included or should be considered a "material difference" to be excluded from the agreement enforced by the court.  

Rules of the Road.  If either side has made it unambiguously clear that the only way they are willing to do the deal is if, and only if, all of the terms and conditions in their canned form are included and no others come in, he will be in a strong position.  Anything not in complete agreement in the other side's response or canned form will be ignored.

In most cases, however, both sides have tried to insist on their terms and their terms only.  Suppose one side includes the following language in its quotation to a customer:

THIS ACCEPTANCE IS CONDITIONED EXPRESSLY ON BUYER'S ASSENT THAT ANY OTHER TERMS AND CONDITIONS SHALL HAVE NO FORCE OR EFFECT AND SHALL NOT CONSTITUTE ANY PART OF THE AGREEMENT BETWEEN SELLER AND BUYER.

In response, suppose the confirming purchase order sent by the buyer after the goods have already been shipped on the basis of a verbal acceptance states:

SELLER'S COMMENCEMENT OF WORK WILL CONSTITUTE SELLER'S ACCEPTANCE OF ALL TERMS AND CONDITIONS AS SET FORTH IN THE PURCHASE ORDER'S WHICH ARE INCORPORATED HEREIN BY REFERENCE.  ACCEPTANCE IS LIMITED TO SUCH TERMS AND CONDITIONS.

Now what?  Has each side insisted on their terms?  Assuming they have (and that's a big assumption as explained below), and the canned or preprinted forms directly contradict one another on a particular point (e.g. warranties or arbitratioon) -- i.e. they are "different" in the lingo of the statute -- typically they will cancel each other out.  Neither form's provision becomes a part of the contract.  What happens then?  Certain "gap-fillers" derived from prevailing practices in the industry, the course of dealing between the vendor and its customer, and applicable law as default provisions, will now come into the contract.  In general, this is more likely to favor the purchaser than the vendor or supplier because of warranties and other "defaults" favored by the law.

If one canned form addresses a certain issue and the other does not, courts focus on whether the provision truly changes the nature of the deal.  If not, the extra provisions become part of the enforceable contract because they are deemed "additional" rather than "different" terms.  If the essence of the bargain struck is changed by the extra provision, it is judged a "different" term and will not be enforced.  Whether a particular extra provision will be included is determined by whether, on an objective basis, its inclusion would cause undue surprise or hardship.

Practical Application.  So much for the academic rules.  How does this really work?  Consider  SST Bearing Corporation v. MTD Consumer Group, Inc., 1004 Ohio 6435, 2004 Ohio App. LEXIS 5944 (Hamilton County 2004) in which the seller and buyer used the disclaimers shown above. The Court first had to decide whether it in fact had a situation in which both sides were insisting on their own terms.  Looking at both the language used by the buyer and the buyer's conduct, the Court held that the buyer had failed to properly make its acceptance conditional on the inclusion of its additional term requiring arbitration.  The Court said:

Here, the purchase order merely stated that the acceptance was "limited to" the added terms and did not state that SST's assent to the added terms was necessary for the contract to be formed.  The purchase orders certainly did not expressly state that MTD would have been unwilling to go forward with the transaction unless SST assented to the additional terms.  The purchase orders' language therefore did not make acceptance conditional on the inclusion of the arbitration clause.

Moreover, the parties' course of performance militated against MTD's position.  As we have already noted, MTD often accepted SST's offers by telephone and would not send a purchase order until a considerable time after shipment.  There is no indication in the record MTD ever mentioned the arbitration clause or other conditions of acceptance in its verbal assent to SST's offers.  On the contrary, MTD's willingness to go forward with transactions based upon the terms of SST's offers indicated that its acceptance was unconditional.  The evidence thus fails to support MTD's assertion that it had accepted SST's offers conditioned upon SST's assent to additional terms.

The Court also analyzed the nature of the arbitration clause in MTD's form, but not in SST's form, concluding that because it would result in surprise and hardship to the other party by requiring it "to forgo its right to a jury trial on a potentially complex and wide-ranging lawsuit and to submit to arbitration in the Cleveland metropolitan area", the arbitration clause constituted a "material alteration" of the contract and would not be enforced.    

Bizpointers.  To get the most benefit out of your "Terms and Conditions":

1. Make it absolutely clear that the transaction is contingent upon your terms -- and your terms only - being accepted, regardless of whether the other party later sends you an invoice or other confirmation or documentation with other terms. Be very unambiguous about this.

2. Specifically state that no other terms or conditions will be acceptable.

3. Make sure to include detail regarding provisions such as warranties (or limitations thereof) which are important to you to lessen the likelihood of terms being deemed "additional' rather than "different".

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In Seawright v. American Gen Fin Servs., Case No. 07-5091, the United States Sixth Circuit handed down a contract case this week in the context of an employment law issue. At issue in the case was whether an arbitration clause contained in a written employee policy whereby any disputes between the employee and the company were required to go to arbitration was enforceable. The Court, applying Tennessee law, framed the issue as whether the employee's continued employment at the company constituted assent and held that it was. Ross Runkel provides an excellent overview of the facts and holding in the case in his Ross' Arbitration Blog, as well as links to other blogs commenting on the case.

Much of the attention in the case has gone to a particularly witty footnote penned by Judge Boyce Martin in his dissent which aptly illustrates his point that it is difficult to know if the offeree has truly accepted when the absence of a signal is taken as assent:

Homer Simpson talking to God: " Here's the deal: you freeze everything as it is, and I won't ask for anything more. If that is OK, please give me absolutely no sign. [no response] OK, deal. In gratitude, I present you this offering of cookies and milk. If you want me to eat them for you, please give me no sign. [no response] Thy will be done."

Comments to Jon Hyman's posting in his Ohio Employer's Law Blog on the case suggest that the case might come out differently under Ohio law and reference the 2001 unreported case of Strasser v. Fortney & Weygant, Inc. out of Cuyahoga County (2001 Ohio App. LEXIS 5738). (Interestingly, while the case easily came up on a LEXIS search, I could not find it at all on the Ohio Supreme Court's public website of Ohio appellate court opinions.) Strasser involved a terminated employee who had received an employee handbook containing an arbitration provision regarding any employee disputes with the employer.

In Strasser, the Ohio Court of Appeals spent a large portion of its opinion discussing the disclaimer the employer had included in the handbook specifially to avoid making the handbook become an enforceable contract, eventually holding "An employee cannot be held to accept the guidelines of a handbook that an employer is not bound to keep." The Court also focused on the fact that the arbitration provisions were not conspicuous.

Seawright and Strasser can be harmonized by distinguishing between a policy which binds both employer and employee as in Seawright and one that does not as in Strasser. However, dicta in the more recent unreported Franklin County case of Corl v. Thomas & King, 2006 Ohio 2956, 2006 Ohio App. LEXIS 2828 suggests that Seawright might very well come out the same way under Ohio law. That case involved an employee who voluntarily terminated her employment with Applebee's after being attacked as she exited the restaurant after her shift when the company refused to provide her with a police escort going forward.

Although there was some disagreement as to the precise date the promotion occurred, the employee in Corl had recently been promoted to being a restaurant manager and had signed indicating receipt of a manager handbook containing an arbitration provisions. While the decision turned on the fact the employee had signed and initialed the arbitration provisions, the Court also stated, "even if plaintiff were promoted to manager prior to October 1, 2002, plaintiff's continued employment with Applebee's and Applebee's forbearance from discharging plaintiff served as consideration needed to form an agreement."

In an employment context, the result in this case may well make sense. Employers frequently adopt new policies affecting employees in everything from health insurance and reimbursement procedures to more important substantive employee conduct policies. Most people expect and accept this to happen.

Of greater concern is how this might work in other contractual situations. For years, the "battle of the forms" has raged in transactions as each side tries to impose its terms on a particular deal. In this context, it is the acceptance of delivery that mirrors the continued employment as manfesting consent to the new terms. Courts have tried to prevent the "last shot" type of offer and acceptance the concept advanced by Seawright might encourage. Thus one hopes that the case will remain limited to its facts or at least its factual context.

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