Be careful about informal communications with counterparties to your contracts. That’s the key lesson from a case decided by a federal court in Florida last month. In CX Digital Media, Inc. v. Smoking Everywhere, Inc., the court held that a short, informal instant message exchange between two parties to a contract modified the contract—to the tune of about $1.5 million. And the contract contained a provision that required changes to be made in writing.
The Written Contract
Smoking Solutions and CX Digital had entered into a written contract. The contract authorized CX Digital to refer internet traffic to Smoking Solutions’ e-commerce site to purchase Smoking Solutions’ products. For each referral who purchased a product, Smoking Solutions was obligated to pay a $45 commission to CX Digital, but the contract limited the commissions to 200 customers per day.
The IM Conversation
Pedram Soltani, an account manager at CX Digital, and Nick Touris, a vice president for advertising at Smoking Solutions and the company officer who had signed the contract with CX Digital, held an IM conversation that lasted intermittently throughout the course of a day. Much of the conversation covered technical issues, but at one point in the discussion, Soltani advised Touris, “We can do 2000 orders/day by Friday if I have your blessing.” Touris responded that he was away from his computer, and, an hour later, replied “NO LIMIT,” and Soltani quickly responded “Awesome!” Smoking Solutions failed to pay CX Digital’s invoice, and CX Digital sued for breach of contract.
The court considered whether the IM conversation between Soltani and Touris served as a modification of their written contract and came to the following conclusions:
- Soltani’s initial message constituted an offer to modify the contract to raise the daily limit to 2,000.
- Tourin’s response of “NO LIMIT” constituted a counter-offer to remove the daily limit altogether.
- Soltani accepted Tourin’s counter-offer with his response “Awesome!”
- The IM conversation operated as an enforceable (under Delaware law) unsigned writing containing an agreement to modify the contract.
- Even if the IM conversation did not constitute an enforceable modification, Smoking Solutions was prevented from asserting the “signed writing” provision of the contract as a defense (due to promissory estoppel) because CX Digital relied on the IM conversation to its detriment.
- Tourin had apparent authority and could thus bind Smoking Solutions even if he was not actually authorized to modify the contract.
The Key Lesson
Be careful with your informal conversations about contract terms with vendors and customers. Next to text messaging, instant messaging is one of the least formal means of communication, yet it was sufficient in this case to modify a contract that contained a provision stating that it could only be modified by a writing signed by both parties.
This is also a great reminder to all of us who negotiate settlements via email and text messages. Though “flippant” is one of my favorite mediums, this court’s decision reminds me that it does not mix well with technology and business.
Love the nom de plume!
Brian, this is an awesome story. I’m going to use this as a “case study” when talking to clients. Nice way to illustrate detrimental reliance, too!
Thanks, Bill. It’s certainly a little unnerving when you think about how folks communicate in the rough and tumble of the business world.
More than a little unnerving… I handled an acquisition a while ago where founders and the acquiring company had all kinds of IM and e-mail communications. Very unsettling.
ESIGN and UETA further add to the mix. It’s pretty easy to sign on the dotted line these days.