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Land Court Rules No Binding Agreement Where Broker Lacks Authority to Bind Seller

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by Robert P. Rudolph

In this fast-paced world, where many people are more likely to send a text message than an e-mail or handwritten letter, a case before the Massachusetts Land Court, St. John’s Holdings, LLC v. Two Electronics, LLC, reminds us of the perils of doing so. A potential purchaser of real estate was interested in buying property in Danvers from the owner to use as a medical marijuana facility. Both parties had real estate brokers.

An initial meeting between the parties occurred in December 2015. At the end of the meeting, the owner instructed the buyer to go through his broker for discussions about the property. The brokers communicated by telephone, e-mail and through text messages concerning the proposed sale of the property. Two subsequent in-person meetings between the buyer and the seller occurred at the request of the buyer. At the end of both meetings, the seller directed the buyer to “work through” his broker.

Negotiations continued and the buyer sent several unsigned letters of intent (LOI) to the seller through the brokers. The sale price was more than $3.2 million. Between the second and third versions, the seller sought three changes and instructed his broker to have the buyer submit a signed final LOI with a check and he would respond. The seller testified he did not consider anything to be an offer until it was signed.

The following day, unbeknownst to the buyer, the seller received a signed offer to purchase the property from a third party. That evening, the buyer sent the seller his final LOI but failed to sign it. The seller’s broker texted the buyer’s broker saying, the seller “wants you…to sign first, with a check, and then he will sign. Normally, the seller signs last or second. Not trying to be stupid or contrary, but that is the way it normally works.”

Several days later, the seller informed the buyer he would be selling the property to the third party. The next week, the buyer filed suit for breach of contract and sought specific performance of the agreement and a restraining order blocking the sale to the third party buyer. Under the Statute of Frauds, contracts for the sale of land are enforceable only if they are supported by a writing signed by the party against whom enforcement is sought – in this case, the seller. The Land Court held that “a text message may constitute a writing under the Statute of Frauds” if sent with actual or apparent authority to bind the parties.

The issue before the court was whether the text sent by the seller’s broker was sent with actual or apparent authority to bind the seller to the deal. Actual authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him. It can be express or implied. Apparent authority is determined based on how the person dealing with the agent interprets the agent’s authority.

The Land Court found no actual or apparent authority bestowed upon the seller’s broker, holding “[a]t no time did [Seller] explicitly direct [Seller’s Broker] to accept, reject, or even negotiate offers from [Buyer] on his behalf….” He was simply an intermediary. Based on the meetings between the parties and e-mails exchanged, the court ruled that the buyer did not believe the seller’s broker had the authority to bind the seller and the buyer believed any acceptance of an offer would have to come directly from the seller. Therefore, the broker’s response and signature in the text message did not constitute a binding counteroffer.

The buyer appealed the Land Court’s decision and the appeal is currently pending, but this case sends a clear message – be careful what you text. Although texting may feel informal, modern courts are treating texts as formal writings sufficient to bind parties to a deal.