Clicking or e-mailing can create a binding contract

A company in Indiana filed an insurance claim for storm damage, and the insurance company denied it, saying the damage had occurred outside the policy period. After some e-mail negotiations, the company and the insurer agreed on settlement terms. A company official sent an e-mail saying, “Agreed. Go ahead and draft the paperwork.”

A short time later, the company changed its mind and reneged on the deal.

But a federal judge said the e-mail agreement was valid and could be enforced by the insurer, because the two sides had agreed to all the terms.

The case is an important reminder that you should be very careful with e-mail in any business negotiation. Many people think of e-mail as an informal means of communication, but it can create a binding contract just like a written document.

In another case, a New York company ran a loan-application website. As part of the application process, users had to click a box to get from one screen to the next. Above the box it said, “Clicking the box below constitutes your acceptance of … the borrower registration agreement.”

The borrower registration agreement wasn’t on the page, but the words “borrower registration agreement” were a hyperlink to another page that included the complete contract. In fine print, the contract said that disappointed borrowers couldn’t sue in court and had to take all claims to arbitration.

Was this binding?

Yes, said a federal court. Even though the agreement wasn’t visible and could be accessed only via a hyperlink, it was still a valid contract, and clicking on the box meant that borrowers gave up their right to sue.