Source: https://www.alblawfirm.com/articles/email-contracts/
Timestamp: 2019-04-19 21:14:48+00:00

Document:
In Stonehill Capital Management v. Bank of the West, 28 NY3d 439 (2016), the New York Court of Appeals held that an agreement to sell a distressed loan, in the auction loan trading market, was enforceable without the execution of a formal written contract. While Stonehill may simply reflect the court’s pragmatic acknowledgement of the trading practices that prevail in fast-paced loan trading, there has been concern expressed by some real estate attorneys that the decision may adversely impact longstanding practices in the negotiation of real estate contracts. The authors of this article do not share that concern, but we do believe that the decision does highlight points that real estate attorneys should consider when advising their clients. This article discusses when emails will be deemed a real estate contract and how to prevent or create such a binding contract.
Stonehill held that, in an auction sale of a syndicated distress loan, the parties entered into an enforceable contract when the seller “agreed” to accept the auction bidder’s bid in an email that set forth all material terms of the deal (i.e., the sale price, the specific loan to be sold, the timing of the closing, and the manner of payment and wire transfer information), despite seller stating that its acceptance was “subject to mutual execution of an acceptable [loan sale agreement]” which was never executed.
The court acknowledged that “if the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed.” (See Stonehill, supra at 451 citing Scheck v. Francis, 26 NY2d 466 ). Nevertheless, in holding the contract “enforceable” despite the seller’s “subject to” language, the court noted that “[t]here is a difference between conditions precedent to performance and those prefatory to the formation of a binding agreement.” Noting further that the material terms of the sale were “preset” in the seller’s offering memorandum, the court found that the auction bid form “did not unmistakenly condition assent on execution of a definitive agreement at some later juncture.” The inclusion of “formulaic language” that the parties are “subject to” some future act or event was not a “forthright signal” that the seller intended to be bound only by a formal written agreement.
The New York Statute of Frauds (General Obligations Law, Sections 5-701 and 5-703). makes it clear that contracts for the sale or lease of real estate are not enforceable unless the essential terms of the sale or lease are set forth in a written agreement signed by the parties to the deal. Nothing the court said in Stonehill alters these prescribed requirements.
A contract for the leasing for a longer period than one year, or for the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing. (Emphasis added).
The statute of frauds does not require the “memorandum ***to be in one document. It may be pieced together out of separate writings, connected with one another either expressly or by the internal evidence of subject matter and occasion,”and “the signed and unsigned writings [may] be read together, provided that they clearly refer to the same subject matter or transaction.” Id. at 55.
The court acknowledged the possibility “that, by fraud or perjury, an agreement never in fact made may occasionally be enforced,” but nevertheless explained that “it is better to run that risk,…, than to deny enforcement to all agreements, merely because the signed document made no specific mention of the unsigned writing.” Id. at 56.
All of the above principles that apply to real estate contracts formed through traditional written communications apply with equal force when generated through email exchanges. New York courts have held that “an email will satisfy the statute of frauds so long as its contents and subscription meet all requirements of the governing statute.” Naldi v. Grunberg , 80 AD3d 1, 908 NYS2d 639 (1st Dept. 2010).
Accordingly, whether or not a court will enforce an agreement for the sale or lease of real estate, negotiated through email exchanges, requires finding (a) that the emails constitute undisputed documentary evidence of a meeting of the minds between the parties as to all essential terms of the contemplated contract, (b) that the party to be charged can be said to have “subscribed” one or more of the emails referring to the transaction, (See Jimenez v. Yanne, www.nycourts.gov/reporter/3dseries/2017/2017_05677.htm; Appellate Division, First Department, 2017 NY Slip Op. 05677), and (c) that the emails relied upon by the plaintiff do not “unmistakenly” leave for future negotiation essential terms of the contemplated contract. (See Saul v. Vidokle, supra, n. 10).
There is no defined list of the “essential terms” that constitute a real estate contract. However, in addition to price, identity of the parties, and the parcel of real estate to be sold, which are generally agreed to be “essential,” the courts have held that “those items which must be set forth in a writing are ‘those terms customarily encountered’ in a particular transaction,'” such as a specified closing date, the quality of title to be conveyed, adjustments for taxes, and risk of loss. Nesbit v. Penalver, 40 AD3d 596, 598, 835 NYS2d 426 (2d Dept. 2007).
Whether emails are sufficiently “subscribed” by the party to be charged appears to be the issue that has generated the most number of appellate decisions involving email negotiations (for both real estate and non-real estate cases).
Where an email is programmed to automatically imprint a sender’s signature block at the end of the email text, as is almost uniformly common practice, a court might very well decide that the pre-programmed “signature block” is akin to the automatically imprinted name of the sender at the top of every page transmitted by a fax machine. In Parma Tile Mosaic Marble v. Estate of Short , 87 NY2d 524 (1996), (a case that involved such automatic imprinting by a fax machine), the Court of Appeals held that “[t]he act of identifying and sending a document to a particular destination does not, by itself, constitute a signing authenticating the contents of the document for Statute of Frauds purposes,” and plaintiff’s argument that such an inference is warranted was rejected.
More recently, the First Department, in Jimenez, supra, n. 11, held that a settlement agreement was enforceable where (a) it was negotiated in a series of emails between the parties’ respective counsel, and (b) counsel for the party to be charged “typed his name at the end of the email accepting defendants’ offer, which satisfied CPLR 2104’s requirement that settlement agreements be in a “writing subscribed by him or his attorney…thus creating a binding settlement agreement.” The counsel in Jimenez signed the crucial email by typing his name “Steven” after typing his clients’ acceptance of the defendant’s settlement terms.
Stonehill’s holding is most relevant where the email exchanges between the parties show that they may have reached an agreement “in principle,” but still leave for future negotiation essential terms of the contemplated contract. In Saul v. Vidokle, supra, n. 10, the Second Department found that “[t[he emails relied upon by the plaintiff to establish the alleged agreement among the parties for the purchase of the defendant’s apartment were insufficient to satisfy the statute of frauds,” because the amount of the down payment, the closing date, the quality of title to be conveyed, the risk of loss during the sale period, and adjustments for taxes and utilities, were subject to the execution of a more formal contract of sale. In such cases, unlike in Stonehill, where all essential terms were pre-set in the seller’s offering memorandum, it cannot be said that the parties have reached a meeting of the minds. Therefore, their “agreement,” such as it is, “unmistakenly” calls for later “subscription” of either a formal contract or additional emails setting forth all “essential terms” sufficient to bind the party to be charged.
Of course, where the parties’ mutual intention for the later execution of a formal written agreement can be clearly perceived in their communications, whether in letter or email form, such express or perceived intention presents the “forthright signal” Stonehill requires to preclude a party from being bound to a contemplated contract even though all of the essential terms have been set forth and subscribed “informally” by the party to be charged. (See, e.g., DCR Mortgage VI SUB I v. Peoples United Financial, 148 AD3d 986, 50 NYS3d 144 (2d Dept. 2017)).
the terms “writing” and “subscribed” in [General Obligations Law] §5-703 should now be construed to include, respectively, records of electronic communications and electronic signatures,***[and] [a]s much as a communication originally written or typed on paper, an email retrievable from computer storage serves the purpose of the statute of frauds by providing “some objective guaranty, other than word of mouth, that there really has been some deal” Naldi, supra, n. 9.
All of the principles set forth above in this article apply with equal force to the use of electronic signatures. Their use is likely to eliminate many potential disputes that would otherwise ensue over whether or not a particular email agreement is held to be “subscribed” sufficiently to bind the party to be charged.
As made clear in this article, real estate attorneys need to be very attentive to how their email negotiations are conducted. Unless attorneys are self-disciplined in the manner in which they communicate contemplated contractual terms through email exchanges, they run the risk of either (a) binding their client to an unfavorable and unwanted deal, or (b) failing to ensure that their client secures a deal that the client wants and that would otherwise be consummated, but for the failure to “subscribe” their emails correctly. At the same time, for those practitioners wishing to create a contract using email exchanges, the guidelines above should assist in navigating this whole new world of doing business with traditional real estate contracts which remained relatively unchanged going back to before the Dutch’s West India Company cultivated New Amsterdam and parceled its land.
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