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Is an
Offer Legally Binding?
Several
questions have arisen regarding whether an Offer to purchase a property is
legally binding or not. The McCarthy vs. Tobin case has addressed this issue and
shows that if the parties had a “meeting of the minds” or in other words, it was
a firm offer where the parties meant to be bound by the terms of the Offer, then
the Offer is legally binding and enforceable under specific performance by the
buyer.
In order
to show the parties were meant to be bound, the court looked at several elements
of the Offer to ascertain if it contained, among other provisions, a description
of the property, the price to be paid, deposit requirements (consideration),
limited title requirements, and the time and place for closing.
The court
further concluded that "Time is of the essence" was set forth and means that all
times and dates must be met. When a certain contingency is not satisfied or
exercised by the date certain as set out therein, it normally means that the
party has waived their right to exercise it, or maybe committing a breach of the
contract if the party refuses to move forward pursuant to the other terms. It
does not mean that you are “out of contract’ as many licensees like to say.
This does
raise an issue when the offer contains a provision that a mutually acceptable
purchase and sale agreement must be executed by a certain date. The court looked
to whether this provision was meant by the parties to be a polished memorandum
of an already binding contract, or act to extinguish their obligations under the
Offer. In McCarthy, it was found that the parties waived the obligation to
execute the purchase and sale by a date certain as they did not meet that date
or properly extend the execution date thereof, and therefore the Offer was fully
enforceable. In other words, you can go directly to closing without ever
executing a purchase and sale agreement when it is found under the facts that
the parties meant to be bound under the Offer.
Lastly,
to make an Offer binding, it must be signed by the proper parties. A frequent
question arises about a husband or wife signing their spouse’s name to an Offer.
Is this a binding agreement?
Example
question: “I just received an offer on a property owned by a husband and wife.
The husband has signed the offer but his wife is away on vacation and didn’t
sign the offer which correctly lists both her and her husband as sellers. The
husband signed her name, is this a binding agreement?”
No, not
unless she has executed a power of attorney giving him authority to do so.
Theoretically, a court could find the agreement is binding on the husband to the
extent that a breach of contract action could be brought against him but an
action for specific performance to force the sale of the home to the buyer may
be difficult to win based upon the requirements of Massachusetts’ statute of
frauds. A better approach would be to ensure that the agreement allows for a
faxed signature by the parties or simply have them execute a power of attorney. |
