Be Careful What You ‘Text’ For – Statute of Frauds Applies to Text Messages

July 2019

In Tayyib Bosque, Corp. v. Emily Realty, LLC, No. 17 CIV. 512 (ER), 2019 WL 2502494 (S.D.N.Y. June 17, 2019), the New York District Court for the Southern District ruled on whether a text message exchange between a real estate broker and a seller could satisfy the writing requirement of the New Jersey Statute of Frauds when the seller did not “sign” the texts.  The court granted the seller’s motion for summary judgement, denying the broker recovery of a commission because the text messages, absent any showing that they were signed in some way by the seller, did not constitute an adequate writing.

Under the New Jersey Statute of Frauds (New Jersey Statutes Annotated (N.J.S.A.) Section 25:1-16(c)), a commission agreement for a real estate broker must (i) be agreed in writing, (ii) be signed by the seller or buyer or authorized agent, and (iii) state the amount or rate of commission.  Pursuant to the N.J.S.A., electronic records can satisfy the writing requirement [(i) above] and electronic signatures can satisfy the signing requirement [(ii) above].  The purpose of the Statute of Frauds is to ensure the parties clearly and mutually intend to create or modify an agreement.  The issue in the Tayyib case was whether the text messages exchanged by the parties satisfied the signing requirement.

In Tayyib, the seller (Defendant) retained the broker (Plaintiff) to sell three businesses plus the real property on which they were located.  Plaintiff knew that Defendant also hired other brokers to sell the businesses and property.  One of Plaintiff’s potential buyers offered $5 million for the purchase and agreed to pay an additional $50,000 in exchange for Plaintiff to cut the other buyers out of the deal.  Plaintiff alleged that he and Defendant reached a valid, written agreement through his text messages to Defendant claiming Defendant owed him $500,000 in commission and the $50,000 that he negotiated for cutting other buyers out: Plaintiff texted Defendant, “And I’m drawing up a fee agreement between you and I, in the amount of $550k.”  Defendant responded, “500k like we agreed. Don’t be greedy.”  The potential buyer sent Defendant a $250,000 deposit and requested documents pertaining to the property.  However, the Defendant and potential buyer could not agree on final terms, and the Defendant ultimately sold the property to a different buyer through another broker.

The district court ruled that the broker/Plaintiff was not entitled to a commission because the text messages showed no indication by the parties to sign and thus failed the signing requirement (and even if the court found the Statute of Frauds satisfied, the court noted that Plaintiff failed to prove he earned a commission on a sale he did not cause).  The court cited Debellis v. Hollahan, No. CV 16-382 (RBK/AMD), 2017 WL 2482865, at *3 (D.N.J. June 8, 2017), where a series of text message exchanges were found not to satisfy the signing requirement since the parties did not include their names at the end of the messages or otherwise “sign” any writing.  The court also relied on CAM Tr. v. Revere High Yield Fund, LP, No. A-1250-17T3, 2018 WL 5810296, at *4 (N.J. Super. Ct. App. Div. Nov. 7, 2018), where the court found an email exchange did fulfill the signing requirement of the Statute of Frauds despite one party ending his email with his name, title, and contact information and the other party ending his email with only his first name.

Notwithstanding the Tayyib opinion, grey areas remain about what exactly constitutes an electronic signature in New Jersey.  For instance, it has not been settled whether each party ending their text with their first name would suffice—and courts in other jurisdictions have already ruled that it could.  In St. John’s Holdings, LLC v. Two Electronics, LLC, 2016 WL 1460477, at *11 (Mass. Land Ct. Apr. 14, 2016), for example, the court found the deliberate decision of each party to include their first name at the end of text messages containing material terms of acceptance or rejection to be a sufficient indication of their intent to be bound, thus satisfying the Statute of Frauds, especially since subsequent texts that did not contain material terms remained unsigned.  This decision underscored a key difference between texts and emails: texts do not typically have a signature function that automatically attaches a name to the message, as emails often do.  Thus, a party deliberately adding their name to a text might indicate their intention to be bound.  Accordingly, the St. John’s court considered only the signed texts to be part of the agreement, excluding the subsequent unsigned texts.  However, a first name alone may not be sufficient in cases where facts suggest alternative reasons for adding the name, such as identification of the sender in their first message to the recipient.

Considering how rapidly technological advancements in recent years have changed societal norms and how people interact, it is important to recognize the legal risks in electronic communication and to implement appropriate control practices.  Although most states have adopted the Uniform Electronic Transactions Act (UETA), which treats electronic writings and signatures as equivalent to physical ones, not every state permits text messages to satisfy the Statute of Frauds.  In California, legislation was passed in 2014 barring texts from satisfying the Statute of Frauds in connection with the conveyance of real property, despite California’s adoption of the UETA.  California Civil Code Section 1624(d) states that “an electronic message of an ephemeral nature that is not designed to be retained or to create a permanent record, including, but not limited to, a text message . . . is insufficient under this title to constitute a contract in connection with the conveyance of real property.”  To minimize ambiguities, a party should either refrain from texting other parties, refrain from inserting names at the end of text messages, or take great care in distinguishing the messages they intend to include in the agreement from those they do not, such as by signing the end of each text they intend to include in the agreement with their respective full name, contact information, and title, but excluding such information in all other texts.