Text Messages Can Create an Enforceable Contract for the Sale of Land in Tennessee

In Tennessee, an agreement for the sale of land must be in writing in order to be enforceable, pursuant to Tennessee’s version of the Statute of Frauds. Specifically, pursuant to Tenn. Code Ann. § 29-2-101(a)(4), the agreement “shall be in writing, and signed by the party to be charged therewith…”

downloadSo, of course that includes your typical sale contract that is signed by both buyer and seller.

But, what about e-mails back and forth? What about text messages? Well, it depends.

Last week, the Tennessee Court of Appeals issued an opinion that suggests that text messages could work, provided that all elements of a binding, enforceable contract otherwise exist.  This case is Gatlin v. Scott, M201802293COAR3CV, 2019 WL 4567497, at *3 (Tenn. App. Sept. 20, 2019).

As we all know, a contract–whether written or oral–“must result from a meeting of the minds of the parties in mutual assent to the terms, must be based upon a sufficient consideration, free from fraud or undue influence, not against public policy and sufficiently definite to be enforced.” Higgins v. Oil, Chem. and Atomic Workers Int’l Union, 811 S.W.2d 875, 879 (Tenn. 1991).

No matter what the medium, there must be a clear showing of offer and acceptance and definite/specific terms. If you’ve got that, then a notes on a paper napkin, e-mails, and, yes, text messages might work.

In this new case, the issue wasn’t that the contract would be made up of text messages; the issue was that the text messages did not clearly show mutual assent to the terms.

The critical issue was that, when buyer presented his specific sale terms via text, his text concluded with this line: “Please let me know if you want to move forward and I’ll get a contract to you.” The seller responded: “We will gladly accept your offer.”

Is that an offer and acceptance?

The Court ultimately concluded that “[t]he circumstances presented here show that the agreement was a preliminary negotiation and not a final agreement to which either party intended to be bound.”

The fact that a sale contract was referenced–but never signed–was the deal breaker.

This was the exact issue facing Chancellor Bill Young in Davidson County, when an aggrieved buyer sued Gibson Guitar to force the sale of the Valley Arts Building on Church Street in early 2018. There, Somera argued that a chain of e-mails between it and Gibson created a binding contract; in response, Gibson argued that Somera’s emails expressly stated that the terms would be memorialized into a sale contract, which was never signed by Somera’s deadline, and that’s when Gibson signed an actual contract with a third party buyer.

This consistent with recent cases in other states, and a good discussion of those cases can be found at this blog post by Best Practices Construction Law and the Massachusetts Real Estate Blog.




Res Judicata Part 2: What about Bankruptcy Court?

Remember a few months ago, when I talked about the concept of res judicata in Tennessee and how, in some situations, a smart plaintiff will include all relevant causes of action in its initial action? That way, the plaintiff may be able to avoid re-litigating similar issues later.

In that post, I noted that it can be a critical issue in bankruptcy cases, where a state court judgment for fraud can potentially fast-track a non-dischargeability finding under 11 U.S.C. Sec. 523.

Specifically, to do that, the plaintiff needs to plead specific facts and causes of action that would satisfy the elements of 11 U.S.C. Sec. 523 (but in the state court proceeding). In order to convince the bankruptcy courts, however, to apply issue preclusion, the plaintiff generally also has to actually litigate the matter, i.e. the judgment can’t have been based on a default judgment.

As a quick recap, here’s the typical checklist that a bankruptcy court may consider. Were the issues in the prior proceeding:

  • identical with those in the subsequent proceeding;
  • actually litigated;
  • necessarily decided in a final judgment on the merits; and
  • asserted against the same party or someone in privity.

The question that comes up, then, is whether a default judgment has issue preclusive effect? As you can guess from the above, in most cases, a default judgment (i.e. one that is entered solely because the defendant doesn’t respond) is not deemed to be “actually litigated.”

But, two pending cases from August 2019 suggest that courts are looking at these issues.

They are: Creech v. Viruet (In re Creech), 18-12584 (11th Cir. Aug. 7, 2019) (full copy here); the Draka v. Andrea (In re Andrea), 18-96014 (N.D. Ill. Aug. 6, 2019) (full copy here).

These are really interesting cases, and they are worth a reivew, if only to see the heightened standards that a bankruptcy court will apply in 523 actions. Which, by itself, is the primary reason so many creditors want courts to grant issue preclusive effect to default judgments.

In the end, it’s a short-circuit to avoid the relief that the Bankruptcy Code provides to debtors, so it’s a disfavored move. I’d be surprised if a default judgment will satisfy that burden.