#Caution! Text Messages May Serve as LOIs or Other Binding Agreements
People often view text message, e-mail, and social media as informal communication. However, under some circumstances, these seemingly casual communications may form binding agreements.
In St. John’s Holdings, LLC v. Two Electronics, LLC, a Massachusetts court held that a series of text messages could constitute a writing sufficient under the Statute of Frauds (which requires certain contracts to be in a signed writing) to create a binding agreement for the purchase and sale of land.
The case involved two real estate brokers negotiating on behalf of their respective clients for the purchase and sale of real property. In the course of negotiations, the buyer’s agent e-mailed the seller’s agent several versions of a document called “Binding Letter of Intent” (LOI), containing essential terms of the proposed transaction.
The last version of the LOI emailed was not signed by the buyer, but included a provision under which the seller could accept the offer by signing and returning the LOI to the buyer. The next day, the seller’s agent (Tim) sent the following text message to the buyer’s agent (Steve):
“Steve. [Seller] wants [buyer] to sign first, with a check, and then he will sign…Can [buyer] sign today and get it to me today? Tim.”
Later that day, the buyer gave its agent signed copies of the LOI and a deposit check, and the buyer’s agent sent the seller’s agent the following text message:
“Tim, I have the signed LOI and check it is 424[PM] where can I meet you?”
They agreed the buyer’s agent would bring the LOI and check to seller’s agent’s offices for execution. The buyer’s agent did so, but there was a problem. That same day the seller accepted a written offer from a different party to buy the property and, accordingly, refused to sign the LOI.
The buyer filed suit to prohibit the sale to the third party. The seller filed a motion to dismiss, arguing that its agent’s text message did not satisfy the Statute of Frauds. In denying the motion to dismiss, the court made four key determinations:
1. The text message could be a writing for Statute of Frauds purposes.
2. When viewed together, the e-mail attaching the LOI, the text message from seller’s agent (which implicitly incorporated the LOI), and the conduct of the parties during negotiations contained sufficiently complete terms and an intention to be bound by those terms.
3. In the context of the negotiations, writing “Tim” at the end of his text message amounted to an electronic signature by seller’s agent, who had authority to bind the seller.
4. There was an offer that had been accepted. Even though the LOI itself was never signed by the seller, the text message from seller’s agent requiring buyer to sign first and deliver the LOI to the seller was a material change to the terms of the buyer’s offer (which required a different method of acceptance). That change made the text message a counteroffer, which was accepted by the buyer when its agent tendered delivery of the signed LOI and deposit check.
Using technology in the negotiation of transactions may be beneficial and sometimes even essential to the parties’ ability to get a deal done. As technology like the smart phone continues to develop and rapid communication becomes more prevalent, courts undoubtedly will face an increasing number of conflicts about which communications are binding, and, as a result, conversations between parties using technology will increasingly become a focal point of discovery in litigation. Parties involved in transactions and their agents would be wise to exercise discretion in all communications during negotiations, even seemingly casual text messages.
David Kay is a corporate attorney who advises businesses and individuals regarding business transactions, commercial lending, real estate transactions, real estate finance, commercial leasing, and entity formation. For more information, contact David at (301) 657-0724 or firstname.lastname@example.org.