Caveat E-Mailer: New York Court Holds E-Mail May Be Binding in Real Estate Transaction

Acknowledging the widespread use of electronic communications in commercial transactions, courts and legislatures have recognized e-mails as binding legal documents. The Appellate Division of the Supreme Court of New York recently reinforced this trend by holding that an e-mail from a real estate broker could satisfy the writing and subscription requirements of the New York statute of frauds. In Naldi v. Grunberg, the plaintiff sued the owner of a commercial property in Manhattan claiming that the owner breached the plaintiff’s right of first refusal when the owner sold the property to another buyer. The plaintiff had offered through his broker to purchase the property for $50 million. The owner’s broker responded three days later with an e-mail that included the following statements:

Counteroffer: $52 million

DD: No due diligence period although complete unfettered access and first right of refusal on any legitimate, better offer during a 30 day period

Notwithstanding the $52 million counteroffer, the owner’s attorney sent the plaintiff’s attorney a draft contract for sale of the property at $50 million. The draft contract did not reference any right of first refusal. The plaintiff later learned that the owner was negotiating a sale of the property to another buyer for $52 million. The plaintiff sought to exercise a right of first refusal, but the owner rejected his efforts and completed the sale to the other buyer.

Reversing the trial court’s denial of the owner’s motion to dismiss, the Appellate Division held that there was no meeting of the minds with respect to the right of first refusal because the e-mail from the owner’s broker included a counteroffer of $52 million which was not accepted. The court, however, expressly rejected the owner’s argument that the broker’s e-mail did not satisfy the writing and subscription requirements of the statute of frauds. Citing prior court decisions as well as acts of Congress and the New York legislature, the court held that under New York law electronically memorialized and subscribed contracts should be given the same legal effect as contracts memorialized and subscribed on paper. Thus, the court ruled that the terms “writing” and “subscribed” in the statute of frauds “should now be construed to include, respectively, records of electronic communications and electronic signatures . . . .” The court reasoned that an e-mail serves the purpose of the statute of frauds “by providing some objective guaranty, other than word of mouth, that there really has been some deal.” The court also explained that the statute of frauds had previously been held flexible enough to recognize other innovations in communications such as the telex and the fax. The court concluded such flexibility justifies similar treatment of e-mails and other electronic media.

Although the decision in Naldi does not break new ground, it serves as a stark reminder to anyone involved in commercial transactions that e-mails should be treated seriously and carefully because they can have the same legal effect as written documents.

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