Mike Brown, Partner, Bradley
You have worked hard and you now have in your hand a signed purchase and sale agreement (“PSA”) for your client. Closing is set in 45 days but there is still a lot of work to be done. During the 45 day time period, the Buyer sought to modify the PSA (1) orally; (2) by a signed amendment; and (3) by an email. You wonder if any of the attempted amendments are effective.
As an initial matter, whenever faced with a question regarding the interpretation of a contract such as the PSA, first look to the contract itself. Hopefully your PSA has an Integration or Merger Clause or perhaps an Amendment Clause. If so, the terms of those clauses will govern whether, and how the PSA can be modified. If there is no such clause, the state law that governs your contract will determine whether the modification is effective.
An example of a typical merger clause in a Purchase and Sale Agreement might be as follows:
“Entire Agreement. This Agreement represents the entire agreement between Purchaser and Seller and supercedes any other agreements or understanding whether written or oral and may not be changed unless in writing and fully executed by both Purchaser and Seller.”
This looks good right? It says this is the full agreement of the parties and it also says that the agreement cannot be changed unless that change is (1) “in writing” and (2) fully executed by both Purchaser and Seller.” That all seems clear until someone sends an email or text message. Aren’t those writings? What does it mean to be a “fully executed” document?
The interest of the drafter of this PSA seems to be fairly clear – he or she wanted to ensure that any modification be in the form of a written contractual-type document signed by both parties. However, case law and various federal and state statutes may lead to a different conclusion.
First, what constitutes a “writing” is not as straight forward as you might think. A writing can be an email or even a text message. The actual purpose of a “writing” has long been to avoid disputes over oral agreements or alleged oral modifications because oral agreements are subject to the foibles of memory, and the never ending dispute of “he said/she said.” Because of the many issues surrounding oral agreements, most states have some version of the Statute of Frauds which generally requires certain type agreements to be in writing. Specific among these are contracts for the sale of land. Whether a writing meets the requirements of a statute of frauds will vary from state to state. In general, a writing need not be a formal contract, but must be sufficiently complete and definite and reflect the intentions of the parties. The writing must contain the essential terms of the parties agreement. With such a general definition, emails and even text messages can constitute a writing.[1]
Second, a fully executed contract might not mean exactly what you would think in all situations. One might be able to review an email or text message and clearly see a “writing;” however, can an email or text message function as a “signature” or an “executed” writing?
In June 2000, President Bill Clinton signed into law the Electronic Signatures in Global and National Commerce Act. That Act set a single national standard for using electronic signatures in legal documents. As a general matter, the Act allowed people to “sign” documents without actually physically signing a hard copy.
Many states, including Alabama, have passed their own state law version of the electronic signatures act. Ala. Code § 8-1A-1 et. seq. Under most versions of this sort of act, an “electronic signature” is, in fact, a “signature.” So, when a document has an electronic signature block or something denoting an intent to “sign” the record, it may be a signature.
“Electronic signature” has been defined to include the use of an electronic symbol or process with intent to sign or authenticate.[2] The details of just what is needed in terms of the requisite symbol or processes has been left to the states and courts. Some courts have found that an email or even a text identifying the sender’s name, along with the affirmative step of sending the email or test is enough. Other courts have looked for a “signature block,” some looking for an automated signature and others allowing a manually typed name. The Alabama statute says that “[T]he effect of an electronic signature attributed to a person…is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if any, and otherwise as provided by law.” Ala. Code § 8-1A-9.
So, with so many variables as to what constitutes an executed writing, what should you do? First, be as clear as possible – if you want “writing” or “executed” to mean “not an email” or “not a text,” then clarify that within the body of the PSA or, state within the body of the electronic communication that the email or text is not meant to bind, nor can it bind your client. Second, make sure you keep your client apprised of all correspondence you receive from or send to the other side. That will enable the client to participate in the decision making without ending up being bound by your text or email that was not intended to be anything more than confirmatory.
[1] St. John’s Holdings, LLC v. Two Electronics, LLC, No. 16 MISC. 000090 (RBF), a Massachusetts Land Court held that text messages between two real estate brokers may be sufficient to constitute a finding contract for purchase of a commercial property.
[2] Ala. Code § 8-1A-2 defines “Electronic Signature” as: “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.”
