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My parents sold their house but they breached a part of the contract. As a result, the other party sued my parents in California small claims court. The court date is in 2 weeks.

We've contacted the party and arranged an agreement/compromise via text to drop the lawsuit for 2 actions: cash payment and signature of escrow papers. After the other party offered this, we agreed via text. The next day we completed half of the agreement, the signature, and we're in the process of completing the second part, the cash payment.

That same day, the other party decided to increase the payment my parents would do. All this is in text messages, both the offer and agreement on both sides, word by word, and agreement. My question is, is the other party allowed to do this even after coming to an agreement?

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I’ll answer the headline question: yes, text agreements are binding if they meet the requirements of a contract. See What is a contract and what is required for them to be valid?

As to the specific details: that’s asking for legal advice and we can’t help you.

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Are text message agreements legally binding in CA small claims court?

Yes.

is the other party allowed to do this even after coming to an agreement?

A party has to abide by the new agreement unless the other party violates the terms thereof.

Two facts support your parents' position that the new agreement should be maintained:

  1. Your parents promptly complied with some of the conditions (signing the escrow papers); and
  2. Unless explicitly stated otherwise in the new agreement, it is generally unreasonable to expect a payment to be made within the next few hours or the very next day from reaching the new agreement.

Depending on what "signing the escrow papers" entails, the contract would have to upheld (except in the event of clear or persistent failure to pay) insofar as rescinding it might no longer be possible.

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    Thank you for the more clear answer. Much appreciated. – Alex Vargas Jan 13 at 23:26

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