As we discussed in a recent blog on the Statute of Frauds, buyers are usually not obligated to honor real estate agreements so long as they don’t sign a contract—albeit, there are important exceptions to the rule.
One of these exceptions has been catapulted into the news with a decision by the Massachusetts Land Court that text messages between two real estate brokers discussing the sale of a commercial building was sufficient, when read in context, to meet the requirements of the Massachusetts Statute of Frauds.
Specifically, if a text message identifies the subject of the parties’ agreement with reasonable certainty and bears some form of signature, it can be considered the legal equivalent of a written document with the same information. Granted this was just a matter of time before texts started to constitute a contractual binding agreement, but still a big step in catching up contract law and technology.
After discussing the deal in person, the terms of the agreement were reduced to a letter of intent (LOI). The LOI was revised and the deal, worth $3.232 million, was further negotiated via email to settle on the purchase price, due diligence period, earnest money deposit and closing date. One of the final texts stated the seller wanted the buyer to sign the LOI first. Once the buyer’s broker secure the requested signature, a text was sent to inform the seller’s broker that the LOI was signed, and the earnest money check was ready. Each text message included the sender’s name.
Rather than execute its part of the LOI, the seller’s principle ultimately accepted an offer from a third party to buy the building. The original buyer sued to enforce its rights under the binding letter of intent to purchase the property.
The Court Determination
When coming to a decision, the Massachusetts Land Court considered whether the text messages were substantial enough to create a binding contract for the real estate purchase. Without solid precedent on the matter, the decision was up in the air. The court found that the electronic communication conducted throughout the process evidenced an appreciation that the final exchange of text messages rendered the final LOI acceptable as an offer and acceptance.
Furthermore, the court found that the typed signature at the end of each text portrayed the sender’s intent to authenticate the messages. The fact that the brokers’ names were included in messages containing material terms, but were omitted from more informal discussions, was enough to authenticate electronically “signed” statements, according to the court.
Moving Forward; What Now?
As our methods of doing business evolve, courts must also modernize their interpretation of existing laws. This case should serve as a reminder to include qualifying language in electronic communications and, when possible, rely on more formal face-to-face interactions rather than less formal forms.
Final thought: So after you accept the terms of the agreement you are currently working on via SMS Text Exchange be sure to call World Wide Land Transfer for all of your title insurance needs!
For more information and a link to the court order on the case of St. John’s Holdings, LLC v. Two Electronics, LLC, click here.
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