The Texas legislature adopted the Electronic Transactions Act 10 years ago with little fanfare. The ETA governs electronic contracts, such as a signature on a card reader at a retail store or a “point and click” online purchase. However, the ETA also applies to casual e-mail exchanges between parties with surprising results.

The ETA was originally codified in Chapter 43 of the Texas Business and Commerce Code, but was recently moved to Chapter 322. The purpose of the ETA is to expand the use of computer transactions (§ 322.006). However, the ETA does not apply to wills, testamentary trusts, or most provisions of the UCC (§ 322.003).

The gateway into the ETA is a requirement that parties agree to conduct business by electronic means (§ 322.005). The comments indicate that an e-mail exchange will meet this requirement. While many attorneys still include contractual language authorizing fax, e-mail or other notice, the ETA appears to apply to any electronic exchange, even if the documentation does not contain the express authorization. The ETA cannot be waived by an agreement.

Section 322.007 is the most important section of the ETA. It broadly declares that a contract cannot be denied legal effect merely because it is an electronic record. An electronic record is the same as a paper record and an electronic signature is the same as an ink signature. Like all uniform acts, the ETA contains technical definitions that must be carefully reviewed. A.

An “electronic record” is any information stored electronically that is retrievable in a perceivable form. Examples include an e-mail message, a recorded phone call or a text message. “Signature” is defined very broadly. An “electronic signature” is “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 the record” (§ 322.002(8).  Some might argue that an e-mail has to have a name at the end to be a signature (in a logical sense) but the inclusion of the “process attached to” the electronic record could mean that merely hitting the send button is sufficient. The definition requires a proponent of the contract to prove that the sender had contractual intent in signing the contract.

However, § 322.005(e) provides that merely having an electronic record and electronic signature will not over-ride any additional legal requirements for a contract. For example, a contract to sell real estate must contain a sufficient legal description and price. If the e-mail exchange does not include price, then the contract fails under substantive law, despite the ETA’s establishment of a “paper/signed” contract.

Also, the ETA does not over-ride the requirements of proper authority to execute a contract. If a junior employee of a real estate company accidentally exchanges e-mails that give rise to a contract but he is not an authorized signatory, and the seller, a limited partnership, has not taken the necessary vote to approve the sale, then the contract will fail.

While certainly not the best practice, the ETA authorizes an electronic signature to be notarized with an electronic notary signature that is attached to or associated with the record (§ 322.011).

The ETA expressly provides that an electronic record or electronic signature may not be excluded from evidence in a trial merely because it is electronic (§ 322.013). The court may exclude the electronic record on other procedural or evidentiary rules.

The following footer may be helpful: “This communication does not constitute an intention by the sender to conduct a transaction or make any agreement or contract by electronic means.” But, given the broad purpose of the ETA, if the body of the e-mail contains the necessary elements of a contract and expressed the required intent, the footer might be disregarded

Another concern is that that transmitting a document could be construed as signing a final contract, even though the unexpressed intent was that it was merely a draft. Suggestions for preventing an unintended contract included adding “draft” as an electronic watermark across the pages and clearly stating the document is a draft or subject to final approval.

The only relevant Texas case on the ETA is Brooks v. Metiscan Technologies, Inc., 2009 WL 3087258 (Tex. App.-Dallas, 2009), an employment case where parties disputed whether there was a binding settlement. The Court concluded that the e-mail exchange did not contain all of the essential terms and, therefore, was not a contract. However, it serves as a warning that any e-mail exchange can, under the right circumstances, become an unintended contract.