Communicating acceptance: When is a binding Agreement of Sale officially formed?

Many believe that an Agreement of Sale is effective the moment that both parties sign it.

It can be when the parties are in the same room to witness the others’ signing. More often, however, the parties review agreements at separate locations and without knowing what the other side will do. Imagine that a buyer signs an agreement before bed and sets it on her nightstand, only to awaken at 3 a.m. so fearful of homeownership that she tears up the document. Was there ever an agreement?  The answer is, like most legal answers, it depends.

The general rule is that a contract is effective when both parties agree (i.e., sign the Agreement of Sale) AND acceptance is communicated to the offering party. If both parties sign the contract in the same room and at the same time, then acceptance would be communicated simultaneously with the signing of the document. In other cases, where acceptance is not as clear, an additional step to communicate the acceptance may be required.

For a real estate Agreement of Sale, the best method of acceptance is by returning the signed agreement of sale to the offeror. The PAR Agreement of Sale (Form ASR) states that “[r]eturn of this agreement…bearing the signatures of all parties, constitutes acceptance by the parties.” The PAR agreement does not, however, rule out other methods of acceptance. Therefore, there are other means of acceptance that could be used and deemed appropriate by a court, such as acceptance by writing, verbal acknowledgment or conduct.

Acceptance by some other writing. Acceptance can be made in writing without returning the actual agreement of sale to the offeror. For example, if after signing the agreement, a seller texts a buyer that he signed and accepted the agreement, the buyer would have the better argument that acceptance was communicated, though if there were a dispute, she could face other issues, such as assuring that the text messages get admitted into evidence, based on authentication and other evidentiary rules.

Long story short: It’s possible, but it’s unreliable and a bad idea to rely on any writing other than the Agreement of Sale itself as means of communicating acceptance of an agreement.

Oral acceptance. Communicating acceptance orally is less reliable than by writing.  To guard against the uncertainties of oral agreements, Pennsylvania has a statute of frauds that requires agreements for the sale of real estate to be evidenced by a writing. The writing does not necessarily need to be a contract, but it must include material provisions and be signed by the party to be bound. A verbal acceptance can establish a valid contract, but there would have to also be some other writing signed by the party now refusing to abide by the contract before a court will enforce it.

Acceptance by conduct.  Other than accepting an agreement in the presence of both parties, acceptance could also be accomplished in very limited circumstances through other types of conduct. For example, what if Brooke Buyer delivered her signed offer with a $5,000 deposit check? If the seller endorses and deposits the check into his bank account, but never produces a signed Agreement of Sale, the buyer would have a strong argument that the seller accepted the agreement just via the check endorsement. Depending on the clarity of the buyer’s offer, just this signature and deposit could be sufficient for a court to find that all material terms of the sale were in writing.

Although this is a stronger argument for the buyer, this scenario still leaves uncertainty, which could result in added expense, litigation and a potentially losing result.

So, what should you do? Ultimately, the above examples are outliers, and the ordinary and recommended method of acceptance is in writing through delivery of a signed Agreement of Sale. If a seller signs the agreement and delivers it back to a buyer, the moment that the buyer receives the signed agreement is the moment the effective contract is created. This is the moment when the seller communicates his acceptance. The Pennsylvania Supreme Court confirmed this rule in Groskin v. Bookmeyer when it held that the “[offeree’s] mere signing of his own copy of the agreement, without any attempt to notify [the offeror] that he had done so, did not constitute an acceptance of [the] offer.”

Add in agents. As a general rule, we can treat an agent as the actual person being represented. This means that communicating acceptance to the other party’s agent is communicating acceptance to the other party. Likewise, communicating acceptance to an individual’s own agent, is communicating acceptance to themselves (i.e., nobody). In sum, until the agent communicates the acceptance to the other party, assuming the agent has authority to do so, no agreement is created.

There are three major takeaways from this discussion. First, agents should advise, and be advised, that until a signed Agreement of Sale by both parties is in their physical possession, there may not be a binding agreement and the transaction should be treated accordingly. Second, oral communication of acceptance (“We have a deal”) creates uncertainty and has been the subject of repeated litigation. It is far better to indicate that the terms look good, but state that there is no deal until the agreement is signed and returned. Finally, if there is a question as to whether an agreement was formed without having the physical agreement of sale in hand, the answer is likely fact intensive, and parties should be advised to seek counsel.

Chase J. Wright, Esquire, an attorney with Mette, Evans and Woodside contributed to this article.