By Elizabeth J. Goldstein
Special to the Legal
You think texting while driving can be dangerous. Well, one employee’s two-word text cost his company more than $1 million in contract damages. This is because his text was found to amend the original contract.
The case, CX Digital Media v. Smoking Everywhere Inc., 2011 WL 1102782 (S.D. Fla. March 23, 2011), centered on a contract between an Internet lead generation company and a company that sold electronic cigarettes. The original contract was a standard written contract with an amendment clause providing that the contract could only be changed “by a subsequent writing signed by both parties.” The contract provided that the cigarette company would pay the lead generation company $45 for each sale of a free trial kit for a maximum of 200 sales a day.
Pedram Soltani, the account manager for the lead generation company contacted the vice president of advertising of the cigarette company, Nick Tairis, via text message, about increasing the number of leads per day.
Soltani (2:50:08 p.m.): We can do 2000 orders/day by Friday if I have your blessing.
Soltani (2:52:13 p.m.): Those 2000 leads are going to be generated by our best affiliate and he’s legit.
Tairis (4:43:09): NO LIMIT
Soltani (4:43:21 p.m.): Awesome!
On the same day as the above text, the lead generation company started to substantially increase the number of leads funneled to the cigarette company. During the month of the text, the average sales increased by more than 1,000 from the previous month.
The lead generation fee for the two months after the ceiling on the number of leads was lifted was $1,339,419. The cigarette company refused to pay this amount, arguing that the original contract limiting leads to 200 a day was still in effect, and that the text did not modify the limit because no amendment had been signed by both parties. However, the court disagreed. It found, applying Delaware law, that the parties had implicitly agreed not to require that the amendment be signed by both parties. Even if the texts were not seen to modify the amendment provision, the court determined that since the lead generation company materially changed its position based upon the agreed-upon amendment by providing more leads, the cigarette company would be estopped from raising the amendment prohibition.
This case illustrates an intractable drafting problem. No matter how you beef up your no-amendments provision, the court can always find that future conduct amends the provision. Some commentators have suggested providing that a specific person must sign the amendment, that the amendment must be labeled as such, or that the amendment must be accompanied by a corporate resolution approving the amendment to be effective. Nevertheless, all of these requirements can later be held to be amended by conduct, so they do not provide a completely effective solution.
New York and California have enacted statutes that enforce no oral modification provisions in contracts. See Cal. Civ. Code §1698; N.Y. Gen. Oblig. L. §15-301. However, courts have found that the contracts can still be orally modified in violation of the written contract and, seemingly, the statute. See Weschler v. Hunt Health Systems, 186 F.Supp. 2d. 402 (SDNY 2002).
With no way to draft around the subsequent modification provision, we need to warn our clients to be careful about texting about contract terms. Otherwise, they may find after a couple of key strokes or a short chat with Siri that their contract has been significantly changed.
This posting is for informational purposes and should not be construed or interpreted as either legal advice on any matter or as in any way creating an attorney-client relationship.