Some Thoughts on Texts, Emails, and the Statute of Frauds

• Publication year: 2018
• Citation: Vol. 22 No. 03

Some Thoughts on Texts, Emails, and the Statute of Frauds

by James N. Duca

In the years before the digital revolution, lawyers wishing to send a written message or document would print it and, where necessary, sign and send it on by messenger, courier, or mail. Clients signing contracts would affix their names or their mark using a pen or similar writing instrument or, less frequently, a stamp.

Times have changed. Nearly every law office now has access to and uses email to communicate. Fax machines have been around for more than three and a half decades. Documents and records are often created and stored in digital form, and sometimes there is no hard copy at all. Although lawyers may be slower in adapting to this new technology, any teenager with a phone knows how to communicate by text, and many of our clients do as well.

This article examines four cases from other jurisdictions in which the legal significance of communications by email or text has been at issue. The primary issue in these cases was the application of the Statute of Frauds to the electronic communications and, in particular, the requirement that a sufficient memorandum be signed by the party against whom contractual enforcement is sought. As yet, Hawaii has no reported decisions in this factual context, although Hawaii does have two statutory provisions that bear upon the analysis, namely Hawaii's version of the Statute of Frauds,¹ and Hawaii's version of the Uniform Electronic Transactions Act ("UETA"), Chapter 489E of the Hawaii Revised Statutes "HRS").²

In contexts not involving electronic records or signatures, Hawaii courts have addressed the effect of the Statute of Frauds on many occasions, frequently applying its requirements in a way that denied this defense. For example, in Nelson v. Boone,³ involving a specific performance suit by a buyer, the court declined to apply the Statute of Frauds to invalidate an agreement for the sale of property that was signed by the seller's attorney who had actual authority to do so, even though there was no writing authorizing the attorney to enter into the agreement. It reasoned that "the statute was not intended to allow parties to avoid the consequences of bargains fairly made."⁴

When the question of the effect of the Statute of Frauds arises in the context of an electronic record or document, the court must also consider the provisions of HRS Chapter 489E. The Chapter affects only transactions in which the parties have each agreed to conduct the transaction by electronic means.⁵ With certain exceptions set forth in its Section 3, Chapter 489E applies to any electronic record or electronic signature created, generated, sent or communicated, or received on or after June 28, 2000.⁶ Section 7 of Chapter 489E has four subsections. They state that a record or signature shall not be denied legal effect or enforceability solely because it is in electronic form;⁷ a contract shall not be denied legal effect or enforceability solely because an electronic record was used in its formation; if the law requires that a record be in writing, an electronic record meets that requirement; and if a law requires a signature, an electronic signature satisfies the law.

Before addressing the selected cases on controversies involving email and texts; and, for the benefit of law professors who may wish to bedevil their students with some vexing questions, it is useful to have a hypothetical fact pattern in mind.

Seller S has listed her residence for sale with Broker Sal at a price of $ 1 million. Broker Bob, representing Buyer B, has prepared a written offer to purchase on a widely used pre-printed form, including all of the customary terms to such an offer. The price in the purchase offer is $960,000. B signs the written offer and Bob delivers it to S's broker, Sal. S rejects the offer but Sal suggests a counteroffer in which the only changed term is the purchase price, which Sal changes to $980,000. Sal tells S that he will prepare the written counteroffer for signature by S on the next day. In the meantime, following S's instructions, Sal tells Bob, by text that S will be presenting a counteroffer at $980,000 tomorrow but is not changing any other terms. The text concludes with "I hope your client will agree to the price adjustment. Ma-halo, Sal." When Bob advises B of the counter, B tells Bob to advise Sal that B agrees to the $980,000. Bob does so, informing Sal by a text whose full content is "$980,000 is acceptable. Please deliver the counteroffer as soon as possible." The next day, Sal responds that the seller has accepted a full price offer from another person and will not be proceeding on a transaction with B. B consults a lawyer about a specific performance lawsuit. The lawyer ponders (i) was a contract formed; (ii) is there a sufficient memorandum to make the contract enforceable under the Statute of Frauds; and (iii) is the memorandum signed by the party to be charged?

St. John's Holdings

Although there are several cases in which the interplay between the Statute of Frauds and electronic communications have been discussed, a recent and instructive one is St. John's Holdings, LLC v. Two Electronics, LLC.⁸ The seller, Two Electronics ("TE"), was represented by a broker named Timothy Barry. The prospective buyer, St. John's Holdings ("SJH"), had a broker named Gefalo. In January, Barry received by email a written "Binding Letter of Intent ("LOI")" sent by Gefalo containing the terms on which Gefalo's client, SJH, would buy the property, including the purchase price, the due diligence period, the deposit, and the closing date. This document was not signed by SJH.

Two days later, Gefalo sent Barry a second "Binding Letter of Intent," containing the same terms with the exception that the nonrefundable deposit was increased from $128,000 to $168,000. This also was not signed by SJH. After Barry discussed the second LOI with TE, Barry sent an email to Gefalo, indicating that TE was "ready to do this" if three items were changed. The next day, Gefalo sent Barry a third LOI, also unsigned by SJH, that included some but not all of the changes requested by Barry in the prior day's email. In response, on February 3rd, Barry sent Gefalo a text message ("the Feb. 3rd text") stating that his client, TE, wanted SJH to sign first, include a check, "and then he will sign." The text concluded with Barry's nickname, Tim. SJH then signed the third LOI, gave Gefalo the deposit check, and instructed Gefalo to deliver them to Barry. Gefalo then texted Barry and advised that he had the check and LOI and asked where they could meet to deliver the check and signed LOI. Later that day, Gefalo and Barry spoke by telephone and agreed that Gefalo would bring the check and signed LOI to Barry's office for signing by TE. SJH signed the third LOI. TE, however, had signed a sale contract with a third party and refused to sign and deliver to SJH the third LOI.

SJH filed a complaint to enforce its rights as buyer, and TE filed a motion to dismiss.⁹ In denying the motion, the court addressed whether a contract was formed, whether Gefalo's email of the third LOI and Barry's text message in response constituted a writing sufficient to satisfy the memorandum requirement of the Statute of Frauds, and whether there was a signature sufficient to bind the seller under that statute. On all three issues, the court ruled for...