Here’s another story in the “It never gets easier” file.
The Massachusetts Land Court recently decided a case that perhaps we should have all guessed was coming.
This is the above the fold headline: Text messages may now create binding contracts. Specifically, a text message can constitute a signature sufficient to satisfy the Statute of Frauds and form a binding contract for the purchase and sale of land.
The case is St. John’s Holdings, LLC v. Two Electronics, LLC, available here. Briefly, buyer and seller, through their brokers, were negotiating the purchase and sale of a commercial building in an industrial park in Danvers, Massachusetts. After some back-and-forth on the terms, buyer’s broker emailed seller’s broker a letter of intent as an attachment. The LOI was unsigned. Seller’s broker texted buyer’s broker, asking for a LOI signed by the buyer and a deposit. Specifically, the text said,
“Steve. [Seller] wants [buyer] to sign first, with a check, and then he 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 [buyer] sign today and get it to me today? Tim.”
Buyer signed the LOI and cut a check, both of which were dropped off with seller’s broker. The same day, though, seller accepted and countersigned a third party’s offer for the property. Seller refused to countersign buyer’s LOI, and buyer sued.
The essential issue the court focused on was whether the emailed LOI and the text message, together, constituted a writing sufficient to satisfy Massachusetts’ Statute of Frauds and therefore create a binding contract enforceable against the seller for the sale of land. The court held that, between the LOI, which set out the terms of the deal in sufficient detail, and the text message “signed” by Tim, the seller’s broker, there could be an enforceable contract.
Take note. This court was deciding only a motion to dismiss. So it didn’t hold that there was an enforceable contract, only that, viewed in the light most favorable to the non-moving party (i.e., the buyer) there could be an enforceable contract and therefore the motion to dismiss was denied. (It will be interesting to see whether this case settles, goes to trial, or comes to some disposition in between.) Some might also be wondering how signing the LOI created an enforceable contract, since letters of intent usually disclaim any binding effect. In this case, the parties pretty clearly intended to make the LOI binding: the document was titled “Binding Letter of Intent.” Your Basic Oxymoron. Also, the LOI did not contain any of the disclaimers you might typically see in a term sheet for a large commercial real estate deal. Finally, because the buyer and the seller stipulated that their brokers were duly authorized agents acting on their respective behalves, the court found that the broker’s signature was sufficient to bind the seller.
Without getting into too much detail about the case overall, the most interesting line of reasoning was the one regarding Tim’s “signature” at the end of his text message. Sometimes the brokers signed their names at the end of text messages and emails; sometimes they didn’t. When they didn’t, the text messages tended to be briefer and more informal. The court reasoned that adding their names to the end of certain (material) messages and not to other (more informal) messages evidenced an intent to be legally bound by the signed text messages. Is it possible that Tim intended his signature to form a legally binding contract? Yeah, sure. Is it likely? Based on personal experience, no. It’s more plausible that it was a polite way of signing off the text message, probably even force of habit.
It’s understood that “bad facts make bad law.” What the seller did, running two buyers in parallel negotiations, wasn’t illegal. Good heavens, it wasn’t even particularly shocking as a business matter. It began to look a tad sharp, however, when the broker made it sound like it was a done deal. So perhaps it’s not surprising that the court bent some facts in unnatural angles to fit them into a narrative and come out in favor of the buyer. Unless there was some sort of exclusivity agreement (and there’s no evidence that there was), he could negotiate two deals at the same time and take the better one. But it wasn’t exactly above-board, either, especially given the broker’s message which made it sound like it was a done deal. There’s a slight tinge of … not dishonesty, not even bad faith, but something that leaves an unpleasant taste in your mouth.
Obviously, the Land Court decision broadens the types of communications that can serve as signatures for purposes of the Statute of Frauds in Massachusetts, but I don’t think anyone should be very surprised by the holding. As technology and our means of communicating evolve, St. John’s Holdings is probably one of many cases that will touch on the use of text messages in deal-making contexts. Statutes of fraud and rules on text messages and other electronic communications will differ from state to state, though, and those differences are what will make this issue particularly challenging. It appears that very few states have had an opportunity to yet decide whether a text message can satisfy the statute of frauds. California, in particular, expressly excludes electronic messages “of an ephemeral nature,” such as text messages and instant messages, from forms of writing that can satisfy the statute of frauds. In fact, that legislation was proposed by the California Association of Realtors, which suggests that situations like the one in St. John’s Holdings may not be uncommon.
In any event, the takeaway here is pretty simple. When you’re negotiating a deal, and particularly when using electronic communications, think before hitting send. E-mails, text messages, instant messages, whatever – they all matter (just ask Team Clinton). It is so easy to send a document containing a great deal of detail about a proposed transaction and then covering it with an e-mail that says something along the lines of “this looks good”, “I think we’re just about done,” etc. etc. If you’re committing proposed deal terms to writing, make sure there is a written disclaimer in the body of the document. It probably is neither useful nor effective to stick something into your signature block along the lines of “Anything I said I don’t really mean and if I meant it, you misunderstood it and if you understood it, I revoked it before you received it.” But you start thinking that’s about what we have to do to avoid the inadvertent creation of legal liabilities these days.
Anyway, heads up, we live increasingly in an electronic world of bits and code. Who needs fusty old paper? As apparently us millennials can conduct an entire romantic relationship by text (although the procreation bits might be a little hard to envision), I guess we should not be surprised that texts might create contracts. There’s now more ways to make mistakes and for some reason we all seem way less cautious about smacking the send key with our thumbs than we do about licking an envelope. Since disclaimers in text messages are not practical, perhaps consider using a disclaimer at the end of your emails that includes all writings, including text messages, or even consider not texting about professional matters at all. Who wants their thumbs to get that tired, anyway?