BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 2136 (Daly)
As Amended March 24, 2014
Hearing Date: June 10, 2014
Fiscal: No
Urgency: No
NR
SUBJECT
Contracts: Statute of Frauds
DESCRIPTION
Existing law generally requires that certain contracts be a
signed writing in order to be enforceable. This bill would
provide that an electronic message of an ephemeral nature, such
as a text message or instant message, is not sufficient to
constitute a contract to convey real property.
This bill would also exempt electronic messages of an ephemeral
nature from the requirement imposed on real estate brokers to
retain specified records and transactions for three years from
the date of the closing of a transaction.
BACKGROUND
Under the statute of frauds, certain contracts, such as a
conveyance of real estate or an agreement that cannot be
completed within a year, must be evidenced in a signed writing
in order to be enforceable. Thus, an oral conveyance of real
estate generally has no legal effect. The concept of the
statute of frauds is borrowed from English common law and grew
from the belief that requiring a signed writing would limit
attempts to enforce unfounded and fraudulent claims against the
real estate of another. The statute reflects a recognition that
the higher the stakes in a transaction, the greater the
incentive to fabricate or distort an agreement, and therefore,
the greater the need for requiring a signed writing.
There are a number of exceptions to the statute of frauds,
(more)
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including an exception based on the concept of ratification.
Under this exception, even if the original contract was oral and
unenforceable, if the party against whom enforcement is sought
later acknowledges the existence of the contract by a signed
writing, the acknowledgment can constitute a ratification of the
oral agreement and provide a legal basis for enforcement.
The courts and Legislature have adapted the statute of frauds to
apply to modern communication as technology evolves. Today,
electronic transactions are routine. Communication by email,
somewhat novel 15 years ago, is now part of our daily lives.
Although cases involving electronically delivered contract terms
have been challenging courts beginning in the 1990s, statutory
law now makes clear that a contract cannot be denied enforcement
solely because it is in electronic form or signed
electronically. (See Uniform Electronics Transaction Act (UETA)
7A U.L.A. 211 (2002) and the Electronic Signatures in Global and
National Commerce Act (E-Sign), Pub. L. No. 106-229, 114 Stat.
464 (2000).)
In 1998, California updated the Civil Code to ensure that a
contract that is valid in all other respects is not invalid for
lack of a writing, provided there is sufficient evidence to
indicate that a contract has been made by telephone, exchange of
electronic messages, or otherwise. (SB 1865, Maddy, Ch. 78,
Stats 1998.) This bill seeks to further refine the law, in
light of modern technology, so as to distinguish electronic
messages that are ephemeral in nature, such as a text or instant
message, from those that have been found to operate more like a
writing created by pen and ink, such as an email or facsimile.
Accordingly, this bill would provide that an electronic message
of an ephemeral nature that is not designed to be retained or
create a permanent record is insufficient to constitute a
contract to convey real property, and would exempt such messages
from the type of records that a real estate broker is required
to retain.
CHANGES TO EXISTING LAW
1.Existing law provides that, in order to be valid, certain
contracts must be in writing and signed by the party to be
charged. These contracts include:
an agreement that cannot, by its terms, be performed
within a year;
a promise to answer for the debt of another, as
specified;
an agreement involving or for the sale of real property;
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an agreement that, by its terms, cannot be performed
during the life of the promisor; or
a contract, loan or undertaking to loan more than
$100,000. (Civ. Code Sec. 1624.)
This bill would provide that an electronic message of an
ephemeral nature that is not designed to be retained or to
create a permanent record, including a text message or instant
message, is insufficient to constitute a contract to convey
real property, in the absence of a written confirmation
sufficient to indicate that a contract has been made.
1.Existing law requires a real estate broker to retain for three
years copies of all listings, deposit receipts, canceled
checks, trust records, and other documents in connection with
any transactions for which a real estate broker license is
required. (Bus. & Prof. Code 10148.)
This bill would exempt electronic messages of an ephemeral
nature, such as text messages or instant messages, from the
above requirement.
COMMENT
1.Stated need for the bill
According to the author:
Current law pertaining to the retention of documents is
out-of-date and thus problematic for real estate brokers.
Short-lived communications such as texts, tweets, etc. are not
designed or formatted for long time retention. Current law
fails to reflect modern technology and does not include real
estate conversations or transactions taking place via social
media. Absent an updating of the law, real estate brokers will
be required to preserve printouts of entire conversations via
social media, as official records.
2.Electronic messages of an "ephemeral" nature are distinct from
other electronic communications
The California Association of Realtors (CAR), the sponsor of
this bill, contends that this bill is necessary to distinguish
short-lived electronic communications from transaction
documents. CAR writes:
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The Spring 2013 Bureau of Real Estate's Real Estate Bulletin
observed that electronic transactional documents (including
short-lived electronic messages such as texts, tweets, etc.)
used in connection with a transaction must be preserved for
the same period of time as paper documents and are part of the
documentation that must be made available to auditors if
requested. However, such communications are not intended to
be preserved for an extended period of time and, moreover,
should be memorialized in a permanent form in order to be
considered a transaction document.
For over two decades, courts and legislatures have grappled with
the legal effect of electronic documents and what constitutes an
electronic signature. In 1998, the Legislature amended the
Civil Code to account for advances in technology, such as
facsimiles and email. Today, electronic correspondence such as
emails or facsimiles, are often viewed together to provide
evidence of the parties' intent. Such correspondence may also be
viewed as a contract when all requisite terms, which may include
a valid signature, are incorporated. Under the statute of
frauds, conveyances of real estate require a signed writing, and
courts have determined that a signature for statute of fraud
purposes is "a name, written or printed, but is not to be
reckoned as a signature unless inserted or adopted with an
intent, actual or apparent, to authenticate a writing."
(Mesibov, Glinert & Levy v. Cohen Bros Mfg. Co. 245 NY 305,
310.)
As a result, emails and facsimiles now function largely as a
traditional letter, which is clearly a writing and a document
under the law. However, since the law was last amended, new
methods of electronic communication have been created that
challenge the existing definitions of "writing" and "document."
Text messages, social media postings such as "tweets," and
instant messages may be considered writings or documents under
the law, but arguably function more like an oral conversation.
These "ephemeral" communications are often casual, rarely
contain a signature, are typically not stored in a permanent
format, and invite a back and forth exchange between
participants much like a face-to-face or telephone conversation.
Accordingly, these communications are problematic for real
estate brokers who are required under existing law to retain
documents in connection with any real estate transaction for
three years after the close of the transaction. This includes
letters, emails, facsimiles, checks, and other documents that
are arguably permanent and easy to retrieve, store, or access.
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"Ephemeral" electronic communications, however, take place in a
manner and forums not intended for permanent access or filing.
The author argues that because "current law fails to reflect
current technology, real estate agents will be required to print
out and retain hard copies of entire conversations taking place
over Facebook, Twitter, etc."
This bill would resolve this issue by exempting "ephemeral"
electronic communications from the above requirement. This bill
would also provide that these communications are not sufficient
to create a contract to convey real estate. Arguably, this
conforms to the intent behind the statute of frauds which seeks
to protect individuals and their property interests from fraud
by requiring certain formalities in real estate contracts.
Support : Orange County Association of Realtors
Opposition : None Known
HISTORY
Source : California Association of Realtors
Related Pending Legislation : None Known
Prior Legislation : SB 1865 (Maddy, Chapter 78, Statutes of 1998)
allowed the enforcement of certain financial transaction
agreements without the necessity of a written contract, if
sufficient evidence of the agreement is produced.
Prior Vote :
Assembly Floor (Ayes 78, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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