We have received a lot of questions lately about a legal article written where it was alleged that a purchase contract can exist in the form of text messages between the buyer and seller.  The initial reaction from investors is, “can this be true?”  The legal answer is yes, text messages may form the basis of a purchase contract but it will definitely be subject to attack in any lawsuit.

The very basic understanding of contract law provides that to form an enforceable contract, there must be: (1) offer; (2) acceptance; and (3) consideration.  In terms of real estate purchase contracts, the contract must have sufficient material terms so that the court can enforce what the parties intended.  Amongst other terms, this usually means that the contract must identify the property being sold, who the parties are, the purchase price, the date of sale, any contingencies or other requirements.

The next major legal hurdle that must be address is the statute of frauds.  A.R.S. § 44-101 says that for the sale of real property there must be a written memorandum of the agreement signed by the party to be charged.  The obvious question then is whether a text message is a written agreement signed by the party to be charged.  There is a case from the 1960’s wherein it is held that, “Generally, a writing or memorandum is “signed” in accordance with statute of frauds if it is signed by person to be charged by any of known modes of impressing a name on paper, namely by writing, printing, lithographing or other such mode, provided same is done with intention of signing.”  In other words, any way that a person indicates or intends that they are signing, may constitute a signature even though it is not in the traditional sense a signature.  Given this, almost anything may be a signature, but it will be up to a judge.

With this framework, it is conceivable that if a buyer and a seller are texting back and forth, they could meet all of the necessary elements to form a contract for the sale of real property, provided that the text messages are clear as to the necessary terms and there is an indication that they intend to bind themselves to a contract, via a “signature.”  The agreement and the “signature” would have to be very clear.

Remember, though, an agreement to contract in the future is not a binding contract.  Therefore, if there is negotiating back and forth with the indication that a contract must be signed at a later time, that is not a binding contract.  Rather, the text messages must be clear that the parties are actually binding themselves immediately via text.  In a lawsuit over ownership to a property, when it is based upon text messages, it can be expected there will be lengthy litigation because there are a litany of potential defenses that will be raised regarding the sufficiency of the text messages.

We strongly recommend that clients use formal purchase contracts to avoid these issues.

by Mark B. Zinman, Zona Law Group