What Does Legally Binding Mean in Real Estate
In order to make a text message legally binding, the terms of an offer must be sufficient to form the basis of an agreement, and the text must show an acceptance of those terms. Simply sending a text message cannot be considered legally binding. According to real estate attorneys, a legal contract has four basic requirements: an offer, an acceptance, some level of consideration, and the intention to create a binding agreement between the parties . To have a legally binding contract for the sale of real estate, three major requirements must be met: The terms of the offer must be must be sufficiently clear to form the basis of a real contract and in order to constitute a legal agreement, the acceptance of the terms must also be sufficiently clear (often verbal) so as to render the text message itself legally binding.
How Text Messages Serve as Evidence of a Contract
While there is no guarantee that text messages will qualify as evidence of an agreement between parties, the courts are increasingly lax about this. The Ontario Superior Court of Justice held that a series of text messages could be enough to form an agreement of purchase and sale. The recent case of 1908696 Ontario Limited o/a Pulp Studios v NPU Engineering Ltd. involved a company (NPU) which would occasionally send out requests for quotes to design and build a piece of machinery for a pulp mill. In response to one such request, the company Pulp Studios sent out its quote in the form of a text message. NPU reviewed Pulp Studios’ quote, asked for a revised quote via text, and received a revised quote via text. NPU accepted the revised quote in a text message the day after the quote was received. The Court concluded that there was an enforceable contract between the parties. It reviewed the test for formation of a binding contract: "…there must be a consensus ad idem i.e., a meeting of the minds on the same subject matter at the same time. Consensus ad idem requires an offer by one party to contract, acceptance of the offer by the other party, consideration and communication to the other party of the acceptance". In this case, the Court held that there was an offer by Pulp Studios, acceptance of the offer by NPU, consideration and communication to the other party of acceptance. In order for a text message to be found to form an agreement, it must be obvious who the text is from and to whom it was sent. This case is an example of a record keeper texting messages via an online program designed for that purpose. In other cases, the parties will have exchanged text messages from their respective phones. For example, if a realtor and a buyer send and receive text messages from their own phones which clearly identify by number each party, the Court would be likely to accept the text messages regarding an agreement between the two parties as evidence of an enforceable contract. While it can be advantageous to parties to negotiate terms of a real estate transaction via text messages that may later be admissible as evidence of an enforceable, binding agreement, it also poses some risk. Parties need to consider the terms of the contract, clarity of the text message formulation of the terms, time limits on agreement, whether the text message will be admissible in evidence at the time the agreement is attempted to be enforced, and whether the alleged agreement is suitable to be entered into via text message. If there are material terms of a contract that may require protracted discussion, alteration and negotiation, it may be better to reserve any discussions, agreement and acceptance of an offer in favour of a traditional form of contract e.g. a written agreement of purchase and sale. If the text relates to the acceptance of a previous offer, the parties should not in any way alter the previously communicated terms of that offer. If they do intend to do so, parties should treat the text message as a counter-offer which requires formal acceptance before it will constitute a binding agreement between the parties.
Case Studies: When Text Messages Were Considered Legally Binding
There are many court cases in Canada where text messages have been found to be binding agreements. Here are a few examples:
Brian Carter Enterprises Inc. v. A.T.B. Financial and T.C.B. et al. Brian Carter received a text from the Chief Risk Officer of ATB Financial stating "We are good for 2.7" The Honorable Madam Pro Tem Justice Michele Hollins ruled that this was an "unequivocal acceptance" of Mr. Carter’s offer for the debt. Justice Hollins further held that the text message was in writing as defined in the Alberta Statute Act.
Kwong v. Lecoq et al.. In this case, the sellers had accepted Mr. Lecoq’s offer to purchase their home but sellers were waiting for a home inspection report before their final acceptance. Mr. Lecoq sent a text to the sellers stating that Weston Home Inspections are booked for Saturday, and the offer to purchase would be amended to reflect a $2,500 holdback (if needed for repairs). The texts were sent at 10 PM and 11 PM on Friday evening and the home inspection occurred the next day. The court concluded that the amendment would be legally binding as the seller’s agreed to it and was supported by consideration.
In Nesi v. Carfrae, the couriers were instructed to pick up a parcel from the seller’s office and deliver it to the buyer’s office. Instead, they dropped it off at the garage instead of the office. The buyer found the contract on Monday and gave notice to rescind and sued for damages. The buyer argued that delivery must occur within business hours to be effective and that it was therefore ineffective and could not be relied upon. Additionally, they argued that if he had known about the acceptance sooner, he would have conditioned on a formal approval from his spouse. The court rejected both arguments and issued judgement in favor of the buyers. The court said that "the fact that the parties’ agents did not follow the strict schedule for delivery was less significant than whether the Delivery Clause was satisfied.
The Impact of Electronic Signatures in Text Messages
A topic that comes up quite often with my clients is that of electronic signatures. It should not be surprising, given that texts and emails have become the norm, but many people still mistakenly believe that to form a binding contract for the sale of real estate, the parties need to engage in the "old fashioned" method of face-to-face negotiation and hand written signature. On the contrary, the most common questions I receive in this regard are usually whether the text messages they have exchanged with their real estate agents, buyers and/or sellers are legally binding. My answer is simple: we should all remember that electronic signatures can be a valid and legally binding means of communication between parties.
An "electronic signature" is defined in the E-SIGN Act, a federal law, to be "an electronic sound, symbol, or process attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." The E-SIGN Act applies to contracts, documents, and signatures related to interstate transactions. The Electronic Communications in Global and National Commerce Act or "E-Sign Act" is not the only statute in which electronic signatures are recognized. In fact, most states in the US, including Florida, have adopted the Uniform Electronic Transactions Act ("UETA"), which defines "a signature" as "a ‘handwritten’ signature or an ‘electronic sound, symbol, or process attached to, or logically associated with, a record and executed or adopted by a person with the intent to sign the record."
So what does this mean in the context of text messages between buyers, sellers and their agents? The conventional wisdom here is fairly clear: courts will consider the senders’ intent, i.e. whether the messages exchanged reflect an agreement to the terms set forth in those messages and whether those messages were authenticated. The agreement and authentication of the persons involved are the key components.
So how is it that the parties make their intent clear? For example, an offer can be addressed to a seller as follows: "I am ready to accept your offer as conveyed. Please proceed to execute the purchase and sale agreement." To authenticate, the offer should contain the senders’ name at the end of the text or otherwise be signed with an electronic signature. An authenticated text message can then be admissible in evidence under Florida Statutes section 90.901, and a court may apply the rules governing the admissibility of email when evaluating the admissibility of text messages.
As a practical matter, authentication would typically be established through the use of a readily verifiable electronic signature, such as a scanned copy of an original paper signature, a digital signature, or a biometric signature, such as a finger or a handprint.
The Challenges and Limitations of Using Text Messages for Agreements
The challenges and limitation of text agreements
While texting has made it easier for both parties in real estate deals to communicate, there are still challenges to converting a simple text exchange into a binding contract. One of the first problems in relying on a text agreement are outside factors like whether the contract was made in a single state or between parties from different states and where the parties to contract were located at the time the text was sent. If you want to discuss a purchase agreement over text while in California, you should be aware that the California Civil Code requires real estate transaction contracts be in writing and signed by the party to be charged. Based on this law, text messaging may not be suitable for a real estate contract since it does not allow for the affixing of an actual signature . Furthermore, Texas only permits parties to be charged or represented by counsel to sign a real estate contract for the examination to be effective. So, unless you are the party charged, texting a friend results in a legal barrier. In addition to geographic factors, there are issues with the range of interpretations of various property laws governing enforceability. For example, the Statute of Frauds requires certain contracts be in writing to be enforceable and different jurisdictions have different interpretation of Statute of Frauds requirements. Some states require only the signature of the party to be charged, others require that all parties sign the contract for it to be valid. These differences can make text message contracts less desirable, due to the reliance on ethical principles and equitable remedies on a case-by-case basis.
Best Practices When Using Text Messages in Real Estate
In light of the uncertainty surrounding whether text messages can count as legally binding contracts and the legal pitfalls that can ensue, it is best to incorporate best practices when using text messages in real estate negotiations.
A best practice for all text messages is to draft them with intent. Consider the message to be more of a legal document than an instant communication tool. It is recommended to draft them carefully and think through each word, avoiding ambiguity and using clear and concise language. Senders should always evaluate if the content of the message is so essential or technical that the words are best communicated in writing (not just one or two short phrases but potentially an entire email) rather than on a text. If there is any doubt, err on the side of caution.
If an important text message is received, such as an offer, it is wise to issue a formal letter of intent (or similar document) thereafter acknowledging receipt of the message and confirming terms. This would create a paper trail documenting a clear discussion and mutual agreement of the negotiated terms.
Professional Guidance and Legal Counsel
Legally binding agreements made in text messages. The subject is worthy of further discussion with legal professionals. In fact, most businesses will be best served by their investment in legal advice before entering into or accepting agreements made over text messages. An experienced business as well as a budding entrepreneur will find issues and opportunities when communicating through text messages that should be addressed in consultation with legal counsel. A doggedly skeptical person will point out the obvious shortcoming of this advice….that not everyone has legal counsel or the ability to immediately obtain it.
So , pragmatically speaking, the author recommends:
- Involve your legal counsel even if only on the basis of a quick phone call or email to anticipate and perhaps address issues created by the increased use of text messaging for business agreements.
- Include email on the list of allowed options for formal communication.
- Consider contractual language that requires one of the parties to have a business address and electronic communication facilities that allow for pre-decided and documented methods of agreement that are reliable and sober.