Court Finds Text Message Exchange Was Sufficient for Contract Formation

Under California law, mutual agreement or assent is a necessary element of contract formation. That is, without an agreement, there can be no contract. Under case law and under the California Civil Code, assent may be “manifested” by written or spoken words or by conduct. This is one reason that most contracts are signed. This is also the reason that online clickwrap agreements are valid because the website user must click on a box that says, “I agree” (or something to that effect). Clicking on the box indicates agreement. Furthermore, assent may be implied through action or inaction. This is the reason that online browsewrap agreements are deemed valid for many purposes. The website user’s use of the website is conduct that implies consent to the Terms of Service Agreement. Performance is also another example where the conduct of performing is evidence of implied assent to the terms of the agreement.

On the other hand, if assent is being implied based on conduct, California courts tend to require that the provisions being enforced be conspicuous. In general, a person is not bound by inconspicuous contractual provisions of which he was unaware or under circumstances in which it is not obvious that the document in question is of a contractual nature. This is why many courts have refused to enforce mandatory arbitration provisions in various consumer and employment contracts. The courts have variously held that the parties did not consent by clicking or signing to obscure and inconspicuous provisions.

A recent decision from the US federal court here in California illustrates some of these legal principles. In Starace v. Lexington Law Firm, Case No. 1:18-cv-01596-DAD-SKO (US Dist. E.D. Cal. June 27, 2019), the provision being litigated was a mandatory arbitration provision that also banned class-arbitration. The plaintiff — Martin Starace — contacted the Lexington Law Firm (“Lexington”) to help him repair is bad credit rating. The plaintiff gave his bank account debit information to Lexington and, according to the lawsuit, Lexington then began debiting various amounts from the plaintiff’s account without authorization. This, it was alleged, violated the Electronic Funds Transfer Act. See. 15 U.S.C. § 1693 et seq.

In response, Lexington sought to compel arbitration based on an Engagement Agreement. After the first telephone consultation between Starace and Lexington, Lexington texted to Starace the Engagement Agreement. That Agreement stated, among other things:

“You agree to arbitrate all disputes and claims between you and Lexington on an individual basis only and not as part of any class.”

Starace responded to Lexington’s text on that same day by typing the word “Agree.”

In his lawsuit, Starace attempted to argue that he had not agreed to the arbitration provision. However, the court disagreed. The text message response “Agree” was sufficient for the court to hold that a contract had been formed. The original text message included the whole Engagement Agreement and Starace had the time and opportunity to read it before responding. The Agreement contained the arbitration language and the court granted Lexington’s request to compel arbitration and dismissed the class action.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters and proudly serves business owners and residents in San Diego and in the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard. Like us on Facebook.

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