Can Sending a Text Bind You to a Contract?
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UPDATED: Jul 30, 2016
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A text message (or SMS) is an informal method of communication often used to communicate emotions (OMG, LOL) and simple directions (get milk). But texts, like other forms of communication, can have legal significance.
Statute of Frauds
The concept of a “statute of frauds” dates back to an act of the British Parliament in 1677. Many common-law jurisdictions (the UK, US, Canada, Australia, etc.) and US states have a version of such a statute.
Under such a law, in order for a buyer of land to get a seller to honor an agreement to sell land, the contract must be in a written document signed by the seller. (There are some exceptions, but this is the general rule.)
This 17th century law was applied to 21st century technology by a recent Massachusetts court decision.
SJH and Two Electronics are both Massachusetts companies. Two Electronics owned a one-story commercial building. SJH reached out to Two Electronics and expressed an interest in buying the building.
Representatives of both companies met several times to discuss the details of the potential sale. The representative of the building owner requested that SJH present a written offer.
The seller’s real estate broker received an email with a “Binding Letter of Intent” from the buyer’s broker. It stated a purchase price of $3.2 million along with other details. The letter wasn’t signed by SJH.
More negotiations and revisions followed. A final Letter of Intent (LoI) told Two Electronics that it could indicate agreement with the terms by signing and returning the letter. However, the same day that LoI was received, Two Electronics also got an offer to buy the building from someone else.
The seller’s broker sent a text message to the buyer’s broker saying that the buyer should sign first and send a check, and that then the seller would sign. The seller’s broker “signed” the text by typing his first name at the end of it.
The buyer then signed the LoI and gave it to the agent to deliver to the seller. However, the seller then accepted the offer from the other party and refused to sign the LoI from SJH.
SJH sued to enforce its right to buy the building under the terms in the LoI. It argued that the LoI was binding based on the exchange of emails and text messages between the parties.
The court had to decide the following issue: were the parties just negotiating, or did they have a binding and enforceable contract for the sale of the property?
The court noted that a valid contract requires:
- an offer
- an acceptance of that offer
- consideration (something of value being exchanged)
- enough details on what the parties are actually agreeing to
The court also needed to determine whether a text message can qualify as a “writing” under the statute of frauds and whether the “buyer signs first” text in particular qualified.
The court noted that in Massachusetts an informal writing can qualify to form a contract under the statute of frauds. State courts had already held that emails could be writings that satisfy the statute.
The court then concluded that the text also satisfied the statute. The parties had already negotiated extensively and the terms of the deal were in the LoI. The real estate agents were authorized to act for the buyer and seller.
The “signature” requirement of the statute of frauds is minimal. The court found that a typed name on a text could be enough to show a party’s intent to authenticate the communication and thus act as a signature.
The court found it significant that the parties typed their names at the end of certain messages with material terms, but not at the end of more informal communications.
When you’re buying or selling real estate, it’s important to get the agreement in writing, as an oral agreement probably won’t be enforced.
But as this case shows, a “writing” doesn’t just mean ink on paper.