When Does The OREF Sale Agreement Become Contractually Binding?

Posted on by Phil Querin

Introduction.  This question is important for at least two reasons:

  1. It determines the time after which neither party can withdraw from the transaction without facing legal consequences; and
  2. It determines the time from which events, such as contingencies, begin and end.

Section 32 (Definitions/Instructions).  Here is what the Sale Agreement says:

(8) The phrase “signed and accepted” in the printed text of this Sale Agreement, or any addendum or counteroffer, however designated (collectively, “the Agreement” or “the Sale Agreement”), shall mean the date and time that either the Seller and/or Buyer has/have: (a) Signed their acceptance of the Agreement received from the other party, or their Agents , and (b) Transmitted it to the sending party, or their  Agent, either by manual delivery (“Manual Delivery”), or by facsimile or electronic mail (collectively, “Electronic Transmission”). When the Agreement is “signed and accepted” as defined herein, the Agreement becomes legally binding on Buyer and Seller, and neither has the ability to withdraw their offer or counteroffer, as the case may be.

Breaking Down The Text of Subsection (8).  Several rules emerge:

  1. Signing alone is not acceptance.
  2. For acceptance to occur (of the offer, the counteroffer, or counteroffer to counteroffer, etc.) it must be signed by the recipient and transmitted to the other side (or their agent).[1]
  3. Until acceptance, an offer or counteroffer may be withdrawn without legal consequences.
  4. Although not expressly stated above (perhaps it should be) transmitting a signed acceptance late, i.e. after the deadline, is not per se’ binding on either party – since the late transmission is a nullity unless the parties expressly agree otherwise, or through performance, act in a manner affirming the contract. In such cases, best practice is for both parties to agree in writing to treat the contract as binding.
  5. It is not sufficient to merely sign an acceptance to make a contract binding – the signed document must be hand-delivered or electronically sent (i.e. email or facsimile) to the party (or their agent) making the offer or counteroffer. Let’s refer to these forms of delivery as “transmission”.
  6. Once timely transmission of the signed acceptance occurs, a legally binding contract is formed. Note that it is “transmission” of the signed acceptance that counts – not receipt by the other party. Thus, if a seller signs their acceptance of an offer and it is immediately emailed back to the buyer or buyer’s agent, the contract is binding, even though the buyer is unaware that the transmitted document remains unopened in their inbox.
  7. Once the contract becomes binding, legal consequences arise: (a) A buyer cannot withdraw their offer without risking the loss of the earnest money deposit;[2] and (b) A seller cannot refuse to close without triggering a specific performance and/or damage claim from the buyer.[3]
  8. Transmission by email is essentially the same as hand delivery. 

Triggering Performance Dates. Once the Sale Agreement becomes binding based under the above rules, the buyer contingency periods are triggered.[4] Item (10) of Section 32 (Definitions/Instructions) provides:

Time calculated in days after the date Buyer and Seller have signed and accepted this Agreement shall start on the first full business day after the date they have signed and accepted it.

For example, if the Sale Agreement became binding on Wednesday, January 15, 2020 – that is, the date seller’s agent transmitted their client’s signed acceptance to the buyer’s agent – calculating a 10-business day contingency period would occur as follows:

  • Thursday, January 16, 2020 – is the first business day of the inspection contingency period;
  • Friday, January 17, 2020 – is the second business day;
  • Monday, January 20, 2020 through Friday, January 24, 2020 are the 3rd through the 8th business days; and,
  • Monday, January 27, 2020 and Tuesday January 28, 2020 would represent the 9th and 10th business days.[5]

Broker Tips on Dates and Deadlines. Below are some reminders to avoid arguments down the road. Both the seller’s and buyer’s brokers should coordinate with each other to confirm important dates and deadlines:

  • Business days do not include weekends or holidays;
  • If a day is listed in ORS 187.010 as a holiday in Oregon OR in 5 US Code §6103 it is not a business day.
  • Don’t get confused with dates the Governor may declare certain days as holidays for state employees – these are days that have been so designated in collective bargaining agreements, such as the Friday after Thanksgiving – which is not listed in ORS 187.010 or 5 US Code §6103.
  • If it does not appear in either the above statutes/codes, it’s not a “holiday” for purpose of the OREF Sale Agreement; if it appears in one of the above lists, it is a “holiday”. Hint: The two lists are the same, except for Columbus Day.
  • Remember that Columbus Day is not a “business day” because even though Oregon doesn’t recognize it in ORS 187.010, it is recognized in 5 US Code §6103; therefor it is a holiday under the Sale Agreement.

If in doubt about a particular day, treat it as a business day, which will have the effect of making the contingency period end too early rather than too late.  [The same rule applies to calculating all important deadlines – better to be safe than sorry!] ~Phil

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[1] Technically, one making an offer (or counteroffer) is called the “offeror” and the one receiving the offer (or counteroffer) is the “offeree”.

[2] The Sale Agreement provides that in the event of a buyer’s default, the earnest money can be forfeited to the seller – but this is the seller’s sole remedy.  This is why listing agents need to be careful about allowing the seller to accept a small earnest money deposit; the lower the deposit, the easier it is for the buyer to walk away.

[3] The Sale Agreement provides that if the seller refuses to perform, the buyer may file a claim asking that the arbitrator make an award of “specific performance” to the buyer, forcing the seller to sell. Significantly, this is not a buyer’s sole remedy; he or she can also seek damages in addition to specific performance.

[4] I say “buyer contingencies” because all of the pre-printed contingencies in the Sale Agreement are for the buyer’s benefit, such as inspection, title, financing, private well, septic, lead based paint. Unless waived or expired, a buyer may terminate the transaction based upon the occurrence of a contingency. For example, a buyer can terminate the transaction under the inspection contingency  by rejecting the inspection report, if properly and timely exercised.

[5] Note that pursuant to item  (13) of Section 10 (Definitions/Instructions), except for calculating the federal lead- based paint contingency period, the last day of the buyer’s inspection contingency period ends at 5:00 PM on January 28, 2020.

 

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