TWO WORRYSOME LEGAL ISSUES THAT MAY AVERSELY AFFECT THOSE IN BUSINESS

A CLIENT ALERT by Tripp Scott's Charles Tatelbaum, David Ray and Ryder Gaenz

In the last several months, in the course of representing our business clients, we have been made aware of two separate legal issues that may have a negative and adverse impact on business executives no matter the size or scope of their businesses.

THE USE OF TEXT MESSAGES AND EMOJIS

As most business executives are aware, for the sale of goods, for the sale of real estate and in many other instances, in order for a contract to be created and be enforceable, the contract needs to be in writing and signed by the parties. Traditionally, these writings have been in the form of documents that have been prepared by attorneys, and then negotiated and signed by the parties to the agreement. However, with the proliferation of the use of text messages on mobile devices, a number of courts have now held that an exchange of text messages can constitute a binding contract, even though none of the parties have designated the substance of the text messages as being terms of a binding agreement and have not signed the text messages with an electronic signature.

Thus, those in business, especially those involved with sales or finance, must be very cautious when using text messaging to speak about the terms of a contemplated agreement. If the exchange of text messages can be read to demonstrate and evidence an agreement as to the terms of those messages, the substance of those messages can be read together to create an enforceable and binding written agreement, even if the parties had intended to make other changes, make additions, or memorialize the understanding by a formal written document.

Of recent and significant note is emerging case law which holds that the use of an emoji can be a substitute for written language. This holds particularly true with the use of a “thumbs-up” emoji which can mean either agreement with the prior text message or acknowledgment of receipt of the prior text message. A recent case held that a farmer who sent a thumbs-up response to a grain broker in response to an offer to buy the farmer’s entire corn crop constituted a binding and enforceable agreement on the farmer to sell the corn crop to the broker, even though the farmer claimed that the use of the thumbs-up emoji only meant to acknowledge receipt of the proposal.

There are other instances of late where the use of emojis instead of written language has created substantial legal issues for those participating in text messages where the emojis can be subject to various interpretations.

The bottom line is that text messaging should not be used as a substitute for contract negotiations.

RESTRICTIVE ENDORSEMENTS ON CHECKS

It has long been the law in every state that a check, being a negotiable instrument, is similar to a contract where the parties are bound by the writings on the instrument. This is particularly true when it comes to endorsements where the recipient of the check either endorses the check to his/her/its bank for deposit or if the check is transferred to a non—bank party.

Of late, we have seen a resurgence of the long dormant scheme where an entity or an individual that is disputing the debt will send a check for less than the amount claimed to be due with a restrictive endorsement on the check indicating that acceptance of the check constitutes payment in full of the disputed debt.

Since many business entities utilize a lockbox arrangement with their banking facilities, there is no one to review the restrictive endorsement when the check is deposited by the lockbox bank as agent for the payee, and then the counterparty will claim that the disputed account has now been satisfied in full.

While there are defenses that can be raised to this type of shenanigan, it does necessitate the creditor commencing litigation and reaching the stage of an evidentiary hearing or trial in order to convince the Court that there was no accord and satisfaction in connection with the attempt to satisfy the debt for the amount claimed.

As a result, when negotiating the resolution of a large disputed debt, it is wise to obtain competent legal counsel to help create language in the settlement communications so that it will preclude this type of attempted subterfuge which is gaining in popularity.