Bar News - May 17, 2017
Real Property Law: OMG: Real Estate Deals and the Binding Nature of Texts
By: Stephen Zaharias
If negotiations for the purchase and sale of real property – commercial or otherwise – occurred through text messages, could a binding contract be created? Given the brevity of text messages, their typical lack of punctuation, and the rampant use of “emojis” and acronyms in texts, you might consider this instantaneous form of electronic communication to be too informal to create a contract that satisfies the Statute of Frauds.
Remember, the Statute of Frauds generally requires contracts for the sale of land to be in writing, contain the agreement’s essential terms, and be signed by the party against whom enforcement is sought. The Massachusetts Land Court in St. John’s Holdings LLC v. Two Electronics LLC (Mass. Land Ct., Apr. 14, 2016) grappled with the above-mentioned question in the context of a commercial real estate transaction, and, surprisingly, it answered the question in the affirmative.
In St. John’s Holdings, two real estate brokers engaged in negotiations for the purchase and sale of certain commercial real estate on behalf of the buyer and seller, and the negotiations occurred through various forms of communication, including emails and texts. Eventually, after receiving the final binding letter of intent from the buyer’s broker via email that contained the material terms of the deal, the seller’s broker sent the buyer’s broker the following text:
“[Seller] wants [the buyer] to sign first, with a check, and then [the seller’s representative] will sign. Normally, the seller signs last or second. Not trying to be stupid or contrary, but that is the way it normally works. Can [the buyer’s manager] sign today and get it to me today? Tim[.]”
“Tim” was the first name of the seller’s broker. The buyer’s manager then executed the letter of intent and provided a deposit check; however, because the seller had, in the meantime, accepted a third-party buyer’s offer for the purchase of the property, the seller refused to execute the letter of intent. The buyer filed a complaint. In response, the seller argued that no contract existed because the above text message and other electronic communications did not satisfy the Statute of Frauds, and, therefore, there was no enforceable contract.
The Court disagreed with the seller and concluded that the text message was a writing that, when read in the “context of exchanges between the parties,” contained “sufficient terms to state a binding contract,” as it “implicitly incorporated” by reference the binding letter of intent. The Court, therefore, rejected the seller’s argument – based on a prior Land Court decision – that emails between real estate agents did not satisfy the Statute of Frauds. The Court reasoned that the other decision was rendered more than 10 years earlier, and since then, “the use of electronic communications, particularly in the legal field, has advanced immensely and become commonplace.” The Court analogized the present case to more recent decisions that determined that email exchanges could, and often did, satisfy the Statute of Frauds.
The Court also determined that the text message from “Tim” contained a valid electronic signature by the seller’s broker that bound the seller. The Court explained that, unlike other more informal texts between the brokers, this particular text evidenced the “intent” of the seller’s broker to “have the writing be legally binding.” The Court further found that the text message constituted a counteroffer that the buyer accepted when it executed the letter of intent. (A later decision by the Massachusetts Land Court in this same case found that the seller’s broker did not have actual or apparent authority to bind the seller; nonetheless, this decision did not alter the original takeaway that texts can bind parties.)
Bottom line: As stated by Donius v. Milligan (Mass. Land Ct., 2016), “[t]ext messages and emails can potentially satisfy the Statute of Frauds, provided that they, like other writings, contain the essential terms of the transaction and are signed by the parties to be bound or their authorized agents.”
What About NH?
Although it does not appear that the New Hampshire Supreme Court has addressed this precise issue, a New Hampshire court may find persuasive the Massachusetts decision. This is especially so given that the New Hampshire Supreme Court has held in prior cases, such as in Huot v. Janelle (NH, 1948), that the writing or memorandum necessary to satisfy the Statute of Frauds can be “informal,” as the “controlling factor is the substance of what the memoranda states rather than the form in which it appears.” Thus, according to Briand v. Wild (NH, 1970), that writing or memorandum can be “in any form provided the substance contained the essentials of an agreement.”
Although Huot and Briand were decided well before electronic communications like text messages entered our lives, the decisions remain good law. Those decisions, combined with the fact that the New Hampshire Supreme Court has recognized in other cases, such as in Winecellar Farm Inc. v. Hibbard (NH, 2011), that the Statute of Frauds should not always be strictly enforced, suggest that a New Hampshire court would likely agree with the Massachusetts Land Court if presented with the same question.
Accordingly, St. John’s Holdings serves as an important reminder to those involved in real estate transactions in this state to be careful. Although texting and other forms of electronic communications can make conversing easier and more efficient, potentially unintended consequences – such as a binding contract – may follow. Thus, parties and their agents should exercise caution when texting, sending emails, or communicating via other electronic means during negotiations for the purchase and sale of real estate.
Steps can be taken to reduce the chances of creating an unintended contract. For example, disclaimers could be used. Additionally, parties could explicitly state in writing at the beginning of negotiations that any electronic communications, without a formal writing signed by both parties, will not be binding. These and other safeguards should be considered so as to avoid the type of outcome in St. John’s Holdings, and to avoid your very own OMG moment when you realize that a binding contract has been created.
Stephen Zaharias is an associate at Wadleigh, Starr & Peters, where he is engaged in a variety of practice areas. Zaharias is a former law clerk at the New Hampshire Supreme Court.