By: Thomas S. Tripodianos Published: July 2008

E-mail & Condo Fraud

Question. Since we’re all coming back from our summer break and did not have a newsletter to supplement our summer reading last month I’ll present two simple questions this month.

1. Are E-mail exchanges between a prospective purchaser of real property and a prospective seller sufficient to constitute a "signed writing," for purposes of the statute of frauds?
2. Does the Martin Act bar common-law fraud claims by condominium buyers?

Answer. NO ON BOTH COUNTS.

E-mail

This is a claim by Purchaser for specific performance for the purchase of real property. Purchaser alleges that on or about March 22, 2007, the parties began negotiations regarding the property.

Purchaser claims that he originally thought he had a deal on or about April 16, 2007, to purchase the property for five million ($5,000,000) dollars, when he received a copy of Seller’s memo to his attorney to prepare a contract. Later, on April 24, 2007, Purchaser received a copy of another memo sent to Seller, indicating that there were other offers.

Later, that same day, Purchaser received an e-mail from

Seller which stated as follows:

Sent: Tuesday, April 24, 2007 9:33 PM

To: Purchaser

Subject: Real Property

I just finished speaking to my two partners. In order to short-stop the other two deals we agreed that if you agree with the following we will consummate the deal: $5.4 million; no due diligence; 5% deposit hard on contract; closing on or before 12/31/2007 TOE. If all in agreement no need to call me back just e-mail me that it is agreed to and I will instruct counsel to finish the contract (and you do the same with your attorney) and possibly have a sit-down this week to lock it up. Let me know.

The following morning, Purchaser responded by e-mail as follows:

From: Purchaser

Sent: Wednesday, April 25, 2007 9:41 AM

To: Seller

Subject: RE: Real Property

I agree to your terms as stated herein below. As a courtesy, please provide me with the Phase I and soil borings you have for your site as well as the soil borings you may have for the other site. FYI, our attorney left a message for your attorney yesterday (who was away from the office) to discuss the contract. I don't object to a sit down, however, to make it effective, both attorneys should talk to each other today to flush out the issues in which they are in agreement.

Seller maintains that negotiations continued past the date Purchaser claims, and that on May 13, 2007, Seller informed Purchaser that they would be looking to sell the property to another purchaser.

Seller relies on General Obligations Law § 5-703(2), which holds in relevant part: “A contract ... for the sale, of any real property or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.” GOL § 5-703(2).

To satisfy the statute of frauds, a memorandum evidencing a contract and subscribed by the party to be charged must designate the parties, identify and describe the subject matter, and state all of the essential terms of a complete agreement.

Seller maintains that there is no signed writing evidencing a contract for the sale of real property, and that Purchaser, therefore, can have no claim for specific performance.

Purchaser responds that the e-mail exchanges between Seller and Purchaser constitute a “signed writing” within the meaning of the statute of frauds making said agreement enforceable under a claim for specific performance.

The explosive growth of e-mail as a method of both personal and business communication, often to the exclusion of conventional written documents, has raised the question whether e-mail messages allegedly indicating an agreement between the sender and receiver can constitute writings satisfying the requirements of the Statute of Frauds.

Courts addressing this question have largely declined to state any general rule, and have instead determined on a case-by-case basis whether the particular e-mail messages asserted by a party as evidencing an agreement satisfy the elements of the applicable Statute of Frauds provision, an approach which may imply acceptance of the general proposition that e-mails can satisfy the Statute of Frauds in a proper case.

While the legislature specifically allowed e-mail messages to satisfy the statute of frauds in transactions involving qualified financial contracts, the legislature did not create such a rule for transactions involving real property.

The purpose the statute of frauds is to remove uncertainty and to distinguish in real estate sales, provisional “agreements to agree” from final binding contracts.

Martin Act

The Martin Act (General Business Law art. 23-A) does not preclude a private party from prosecuting an otherwise valid common-law fraud claim in connection with the sale of securities whenever the alleged fraudulent conduct is such that the Attorney General would be authorized to bring an action against the defendant under the Martin Act

Some support for the contrary conclusion-that such claims are barred by the Martin Act-appears in prior case law wherein the appellate court dismissed a fraud claim brought by a cooperative against a sponsor notwithstanding a jury verdict in favor of the cooperative. The Court stated that although a prior decision “does not foreclose a cause of action for common-law fraud, private plaintiffs will not be permitted through artful pleading to press any claim based on the sort of wrong given over to the Attorney-General under the Martin Act”

To prevail on a claim of fraudulent practices under the Martin Act, the Attorney General need not allege or prove either scienter or intentional fraud. Accordingly, to prevent an end run around the rule prohibiting a private right of action under the Martin Act, a private plaintiff cannot be permitted to bring a cause of action that, although styled as one for common-law fraud, lacks proof of an essential element of common-law fraud.

When a plaintiff pleads all the elements of fraud with particularity, no end run around the Martin Act would be entailed by granting the plaintiff an opportunity to prove the truth of the allegations. But to throw the plaintiff out of court merely because the Attorney General would be entitled to relief under the Martin Act on the strength of the same allegations, or a subset of those allegations, makes no sense. To construe the Martin Act to have abolished the right of purchasers of condominium and cooperative interests (and purchasers of other securities) to sue sellers for common-law fraud is to give the Martin Act a construction that is antithetical to its remedial purpose. Nor does anything in the text of the Martin Act lend any support to such a construction.

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