Tuesday, March 1, 2011
Recently, in an action seeking to enforce an alleged right of first refusal to purchase real property, New York's Appellate Division (First Department) held that an email from the seller's broker may satisfy the statute of frauds. Not too shocking in the 21st century. Perhaps the real shocker is that the New York Times covered the case in last Sunday's Real Estate section. The article begins:
BE careful when clicking “send.” That is essentially the message to brokers and their clients from a state court, which ruled recently in a real estate dispute that e-mails can carry the same weight as traditional ink-on-paper contracts.
“Given the vast growth in the last decade and a half in the number of people and entities regularly using e-mail,” handwriting and e-mail should now basically be considered one and the same, according to the decision in Naldi v. Grunberg, which was handed down on Oct. 5 by the Appellate Division, First Department of State Supreme Court in Manhattan. The ruling, which attracted little public notice when it was announced, was appealed on Monday to the Court of Appeals, the state’s highest court.
“As much as communication originally written or typed on paper, an e-mail retrievable from computer storage” is proof of a deal, according to the court’s opinion, which was written by Associate Justice David Friedman.
Though the case involved accusations of breach of contract in a commercial real estate transaction, the decision applies to residential deals as well. Lawyers says the ruling expands the state’s Statute of Frauds, a law with roots in 17th-century England that requires all property deals to be agreed to in writing.
True, real estate brokers (or anyone, really) should be careful what they write in an email because it may later serve as proof of a contract. But, with all due respect to the Gray Lady, the more interesting part of Naldi v. Grunberg is the formation issue. The court held that the email may satisfy the writing requirement of the statute of frauds; however, it nevertheless dismissed the plaintiff/buyer's breach of contract action because "the complaint itself, together with plaintiff's admissions and undisputed documentary evidence in the record, establish, as a matter of law, that there was never a meeting of the minds between the parties on the terms of the proposed right of first refusal set forth in the . . . e-mail sent by . . .defendant's broker." The court explained:
[T]he [seller's] e-mail, in response to plaintiff's prior offer to purchase the property for $50 million, made a "[c]ounteroffer" to sell the property for $52 million and, during the period of plaintiff's anticipated pre-contractual due diligence, to subject the property to a "first right of refusal on any legitimate, better offer during a 30 day period" (emphasis added). Thus, the offer of a right of first refusal was inextricably linked to the proposed purchase price of $52 million; without at least an agreement in principle on price, the words "better offer" would be meaningless.
In essence, the court held that the parties were still negotiating price and, therefore, no contract was formed. We'll keep an eye out for the Plaintiff/Buyer's motion for leave to appeal to the N.Y. Court of Appeals.
Naldi v. Grunberg, 80 A.D.3d 1 (N.Y. App. Div. 1st Dep't Oct. 5, 2010).
[Meredith R. Miller]