Greg: Steph, we’re back. One more episode of our podcast. How are you doing?
Steph: I’m doing wonderful.
Greg: I have a question. I always hear people talking about what actually counts as being a contract. What counts as being valid? Can I write something on a piece of paper or a napkin in a bar, does that count as a legit offer in real estate or law? What actually counts or doesn’t count, or is there one piece of this question you want to tackle, as far as being binding or not binding?
Steph: Well, it’s getting very interesting in this area, as more and more folks are using what we call electronic means to conduct business. The question comes up, and it actually is becoming the subject in the courts system, because people are suing to enforce contracts that they believed were entered into and bound via e-mail, so no, what I’ll call, wet signature has occurred, like we normally think of a signed contract, but what has occurred is an e-mail acceptance. Somebody e-mails back with some verbiage that can imply that they’ve accepted it, it can actually be binding.
There was a case last year that came down in Massachusetts, because there are laws, like Kentucky has a law, KRS 369.101 to 369.120, but in this Massachusetts, they had a similar law. The subject of the case, it’s kind of interesting. In a brief summary, basically the buyer and the seller exchanged a series of e-mails about the deal, and the last one attaching a revised but unsigned offer to purchase, and when the seller pulled out of the deal, the buyer sued, claiming the deal had been sealed in the last e-mail. They were bringing out emails that showed that potentially the seller had agreed to the contract, and the words were something like, we’re almost there. I guess I’d say common sense seemed to differ from what the courts held. The courts held that according to the Massachusetts Uniform Electronic Transaction Act, that an e-mail signature block, or even the from portion of an e-mail, may constitute a valid electronic signature.
Greg: Wow, so you can include an offer, like an attachment, that’s not signed, but in the body of the e-mail say something that counts enough towards acceptance that that would actually be binding?
Steph: Yeah. Basically, the court said that an e-mail exchange could very well prove to be binding.
Greg: Kentucky has similar laws, so that that would-
Steph: We do. It was interesting with the case, it wasn’t a binding case, because the parties ended up settling. The seller did settle that case, so that means that in a sense there could have been some validity there, or there was enough evidence there that they settled instead of continuing on. I just think what it shows, in Kentucky, is that we need to take steps to protect yourself, but also if you’re a realtor or a loan officer, you want to make sure that you’re not inadvertently binding your client to a deal.
Greg: Wow. That is some serious implications in there. I have another question, in the case you’re talking about, the buyers and the sellers were contacting each other directly?
Steph: Yeah. The Kentucky Electronic Records Act, it applies to transactions between parties, each of which has agreed to conduct transactions by electronic means. What that means is, you have to look at the context and surrounding circumstances of whether that’s occurred. If you have e-mails going back and forth, or if you’re using some kind of electronic signature, meaning your name is underneath your e-mail, that could be. The other things that you’re looking for is whether it was actually sent. In Kentucky, an electronic record is sent when it is addressed properly, directed properly, to an e-mail recipient for the purpose of them receiving it, and the recipient is able to receive it. As long as you had … It is deemed to be sent, if it was sent to an e-mail that was valid, and then it’s deemed received, the e-mail would be received, even if no individual is aware of it’s receipt. If you provide-
Greg: If it went into a spam box or junk mail, that counts as received.
Steph: Yeah. If your providing e-mail address on your contract, for example, and then they use that e-mail address-
Greg: Even if I don’t check it.
Steph: Correct. The recommendation is … There are two. The subject line of your e-mail, when you’re going back and forth, if you intend to actually use wet signatures and not e-mail, because if that’s what your broker and your realtor would prefer, or if you’re an individual and your client doesn’t want to worry about being bound, there is a suggestion that in the subject line you would put: negotiation only, no final agreement until formal contract is hand-signed.
Steph: To do something like that. If you want to negotiate via e-mail, you have to make it really clear. Or, in your e-mail signature … Realtors, and you do see this with financial advisors, you do see it when you call financial advisors or brokers, that there is a disclaimer on their voice mail, and you can do the same thing in your e-mail signature, it could say, “E-mails sent or received shall neither constitute acceptance of conducting transactions via electronic means, nor create a binding contract unless a written contract is hand-signed by the parties.”
Steph: There’s a couple suggestions that they give if you’re concerned about being bound.
Greg: The example that you discussed, the seller and the buyer were communicating directly. If there’s a realtor involved, does that change the dynamics in that the realtor is acting as an agent for one of the parties? Can the parties than say, “Look, there’s a third party involved, I’m not necessarily bound.” Or because the realtor is a professional and bound by their own set of ethics and rules, the realtor can rope their client in and get them bound as well if they don’t word it properly.
Steph: Greg, I mean, that’s what you’ve hit it right … What is the phrase? You’ve hit the-
Greg: The nail on the head.
Steph: The nail on the head. As an agent, you could be binding your client by your act, because you are acting as the agent for your client. You want to be very, very careful. If you’re representing the seller, for example, you might want to say that the terms of the deal must be approved by the seller and that negotiations are preliminary until an offer of contract is signed.
Conversely, if you’re representing the buyer, it’s prudent to push for confirmation that a deal has been reached, to avoid a situation like what’s happening in this Massachusetts case, in which the seller jumps at a higher offer at the last minute.
Greg: Right. Okay. Now, this is a little bit different issue than whether or not an electronic signature counts as a signature, that’s pretty settled by now, correct?
Greg: Okay. What about texting? Does that-
Steph: Yes. It can, and that’s why texts are such an awful way of trying to negotiate a deal, because you’re looking at screen shots, and believe it or not, I have heard of realtors going to mediation and arbitration using-
Greg: Over texts?
Steph: Over texts.
Greg: So maybe the old fashioned way might be a little safer here.
Steph: Yes. Using DocuSign and some of the actual … If your client is agreeing to use an electronic signature, remember you don’t want to be in a situation if you are a realtor, or a client having a realtor bind you in inadvertently. If you’re agreeing to use an electronic signature as the same as a wet signature, it wouldn’t be valid until there’s that actual signature hooked up to a counter offer. Make sure that if you’re not going to use the disclaimer, either in the subject line, which in a text, it would be hard to do.
Steph: It’d be very difficult. You really need to not-
Greg: You have to be really clear about what you’re saying in your e-mails, and maybe change your signature box to say some of the verbiage that you described early. The vagueness of an e-mail sounds like it could really get you in trouble.
Steph: Well, the old saying goes, is to watch what you say in an e-mail, and remember that your e-mails can come back to haunt you and could ultimately become an exhibit in court.
Greg: Wonderful. Well, I’m going to go back and scour my e-mail inbox and outbox. Okay. Something to chew on. I appreciate the information. That’s a little scary.
Steph: Well, it’s starting to happen in our area where screenshots of texts are being pulled up as evidence in mediation and arbitration, or in court cases.
Greg: Say what you mean, and mean what you say. Okay.
Steph: Yes. Yes.
Greg: I appreciate the warnings. I guess we’ll come back for the next episode and you can scare us with another story from somewhere. Good to see you.
Steph: Thank you!