New England Biz Law Update
A series of emails between a buyer and seller of real estate containing the material terms of an offer to purchase and indicating an acceptance of those terms was sufficient to create a binding contract, a Superior Court judge in Massachusetts has ruled.
The defendant seller, who backed out of the deal before it was memorialized into a single written document, argued that the email exchange was insufficient to satisfy the statute of frauds.
But Judge Douglas H. Wilkins disagreed, finding enough evidence of a binding agreement to grant the plaintiff buyers’ motion for endorsement of a memorandum of lis pendens.
“[T]he courts have not yet set forth rules of the road for the ‘intersection between the seventeenth-century statute of frauds and twenty-first century electronic mail,’” Wilkins wrote, while noting that the Uniform Electronic Transactions Act, G.L.c. 110G, attempted to do so by recognizing transactions between parties who have both agreed to conduct the transaction electronically.
“The parties’ conduct here in using e-mail to conduct the negotiations in this case arguably constitutes an agreement to conduct transactions by electronic means,” the judge continued, finding that the plaintiffs had a reasonable basis in fact and law for their underlying contractual claim.
The parties ultimately settled that underlying claim out of court, forestalling any need for further litigation in the matter.
The 12-page decision is Feldberg, et al. v. Coxall.
Important guidance
Plaintiffs’ counsel Alan E. Lipkind of Burns & Levinson in Boston categorized the ruling as “another in the string of cases” under the line of McCarthy v. Tobin, the 1993 Supreme Judicial Court decision holding that the controlling fact in determining whether parties to a potential real estate transaction have an enforceable agreement is their intention to be bound.
“If there’s a writing with all material terms of the deal in which the parties expressed an intention to be bound, the court can find it enforceable regardless of the lack of a signed purchase-and-sales agreement,” Lipkind said.
Feldberg is particularly significant because it shows that you can have an enforceable agreement not only without a manually signed purchase-and-sales agreement, but also without a manually signed offer to purchase, Lipkind added. “Here there was just an exchange of emails, and the court held that to be enforceable.”
Michael C. Fee of Pierce & Mandell in Boston, who argued on behalf of the defendant, said he did not disagree with Wilkins’s conclusion regarding the potentially binding nature of email communications.
“The existing wisdom is that there’s really no good guidance regarding where the intersection lies between this ancient statute of frauds and modern electronic means of communication,” he said.
As a result of the ruling, Fee said, “you will see practitioners become more aware of the fact that email exchanges can be binding, and lawyers will start advising clients to be a lot more careful and formal when they’re in what could be construed as a sensitive point in negotiations.”
Thomas O. Moriarty of Marcus, Errico, Emmer & Brooks in Braintree, Mass., who co-chairs the Real Estate Bar Association’s residential conveyancing committee, said the issue has cropped up in trial court before. In fact, Moriarty said, he himself has had such a case in Land Court, in which the judge reached a similar conclusion.
“The mere fact that it’s email communication does not prevent parties from satisfying the statute of frauds,” Moriarty said, noting that he was speaking on his own behalf, not REBA’s. “It really comes down to whether there is sufficient demonstration of the essential or material terms of the undertaking and there’s … no poison pill regarding the fact that those writings are electronic.”
Moriarty said the situation that occurred in Feldberg is not unusual.
“It happens all the time when the fur starts flying in connection with a real estate deal. There are things going on. People want to keep a prospective buyer on the hook, and the buyer doesn’t want to risk the seller going elsewhere. They’ll act like they want to be bound until it’s too late not to be bound. … And they’ll sometimes assume risk that, in hindsight, they wish they hadn’t,” he said.
In light of Feldberg, real estate lawyer Richard D. Vetstein said he plans to add a disclaimer to his email signature stating: “Emails sent or received shall neither constitute acceptance of conducting transactions via electronic means nor shall create a binding contract in the absence of a fully signed written contract.”
Email exchange
Defendant Harold Coxall owned two adjoining lots of undeveloped land in Sudbury, Mass. Plaintiffs Ian Feldberg and Michael Rogers each owned residential property abutting the lots. Both plaintiffs hoped to keep Coxall’s lots undeveloped.
At some point, the plaintiffs approached the defendant about purchasing the two lots.
Through a series of emails in April, the parties allegedly entered an agreement under which the plaintiffs would purchase the defendant’s property for $475,000.
The defendant was purportedly aware at all times that plaintiff Feldberg would need to finance his portion of the purchase and agreed in the email exchange to a mortgage contingency under which Feldberg would use the bank of Coxall’s choice, Village Bank.
Through a series of several emails, the material terms remained unchanged with the exception of a deposit reduction from 10 percent to 5 percent of the purchase price, which was apparently agreed on in the emails as well.
On the morning of April 19, Coxall purportedly accepted via email the terms of the offer subject to a commitment letter from Village Bank regarding Feldberg’s mortgage.
The next afternoon, commitment letter in hand, Donald Vaughn, the lawyer representing Feldberg in the transaction, emailed the defendant and his lawyer, Donatos Lallos, with alternatives for memorializing the agreed-on terms in writing and for delivery of the executed offer and deposit funds.
The defendant responded by confirming that as long as Lallos had signed copies and the deposit the next day, “we will be ok,” adding that he thought they could finalize by noon.
At that point, the parties had apparently agreed on the land, the purchase price, the June 1 closing date and the financing contingency for which the defendant already had a commitment letter.
Nonetheless, the defendant and Lallos apparently began to question why a mortgage contingency would still be necessary and requested that it be eliminated from the offer.
Vaughn agreed to do so and emailed a revised offer reflecting the change. Lallos allegedly approved that and directed that the executed checks and documents be delivered to his office on Saturday, April 21.
But from that point, according to the plaintiffs, neither Coxall nor Lallos responded to Vaughn’s attempts to reach them in order to get a countersigned copy of the offer to give to Village Bank.
The following Tuesday, Coxall informed the plaintiffs that he was backing out of the agreement and selling the property to a third party with a May 7 closing date.
The plaintiffs subsequently filed suit in Superior Court alleging breach of contract by the defendant and requesting damages, specific performance, a temporary restraining order preventing the defendant from going through with the third-party sale and endorsement of a memorandum of lis pendens.
Electronic validity
Wilkins rejected the defendant’s argument that the plaintiffs’ claim was frivolous in light of the lack of a final document executed by both parties.
“Coxall falls short of proving that the plaintiffs’ claims lack any arguable support and basis in fact or law,” Wilkins said.
Under the SJC’s 1999 McCarthy decision, the judge said, an enforceable agreement simply requires that terms be sufficiently complete and definite and that the parties intended to be bound at the time.
If such conditions are present, “‘it may be inferred that the purpose of a final document … is to serve as a polished memorandum of an already binding contract,’” Wilkins said in quoting McCarthy.
The plaintiffs’ legal arguments conformed to those principles and thus had ample support in the law, the judge found.
Turning to what he described as the “most difficult” question in the case, Wilkins rejected the defendant’s argument that an email exchange could not satisfy the statute of frauds.
“Existing authority, such as it is, suggests that the plaintiffs have a plausible position,” said Wilkins, noting that in a 2004 decision, the Appeals Court had alluded to the role of an email exchange in a plaintiff’s successful opposition to a statute of frauds defense, “though the [Appeals Court’s] acknowledgement falls well short of a holding (and perhaps falls short of dictum as well).”
In reality, the courts had not established “rules of the road” for reconciling the statute of frauds with the realities of 21st century technology like email, Wilkins said.
However, the Legislature had attempted to do so through the Uniform Electronic Transactions Act, which applies to transactions between parties that have agreed to conduct transactions by electronic means, he observed. Whether there has been such agreement is determined from the surrounding circumstances and conduct of the parties.
In Feldberg, Wilkins said, the parties’ conduct in using email to negotiate arguably constituted such an agreement.
“It is also true that they contemplated a traditional signed, hard copy offer at the end of their electronic negotiations,” he said. “That may not be fatal because [Chapter 110G] recognizes that the parties may choose to conduct transactions by electronic means up to a certain point, thereafter switching to hard copy.”
Meanwhile, Wilkins added, under the statute, an electronic signature suffices where a signature is required. “The parties’ email ‘signature block’ may well meet that test. So may the ‘from’ portion of the email.”
All those arguments provided a “reasonable and supportable” response to the statute of frauds defense, Wilkins concluded, denying the defendant’s motion to dismiss.
