BILL ANALYSIS Ó AB 2136 Page 1 Date of Hearing: May 6, 2014 ASSEMBLY COMMITTEE ON JUDICIARY Bob Wieckowski, Chair AB 2136 (Daly) - As Amended: March 24, 2014 PROPOSED CONSENT SUBJECT : Contracts: Statute of Frauds KEY ISSUE : Should existing law specify that short-lived electronic messages, such as tweets and text messages, are not sufficient to constitute a contract to convey real property under the Statute of Frauds, unless the message is confirmed in writing? SYNOPSIS This non-controversial bill specifies that an electronic message of an ephemeral (short-lived) nature, such as text message or instant message, is not sufficient to constitute a written contract for purposes of conveying real estate. In addition, this bill would specify that such ephemeral electronic messages are not among the "other documents" that a licensed realtor must retain for three years, unless the messages have been properly memorialized in writing. Under the existing Statute of Frauds (Civil Code Section 1624) certain classes of contracts, including those that convey real estate, must be in writing. An oral agreement to convey property, otherwise valid, is only enforceable if reduced to writing in a manner set forth in the statute. Sponsored by the California Association of Realtors (CAR), this bill responds to the increasing tendency of realtors and clients to use text messages, instant messaging, or social media postings to communicate about things that once were communicated orally, either by telephone or face-to-face. The bill would not say that such communications would never be material, but only that, like oral communications, they would need to be memorialized in writing and subscribed by the appropriate party before they could constitute an enforceable part of the contract. For similar reasons, such messages would not be among the "other documents" that licensed realtors must maintain for a period of three years, unless the messages are confirmed in writing in a manner prescribed by existing law. There is no opposition to this bill. AB 2136 Page 2 SUMMARY : Provides that an electronic message of an ephemeral (short-lived) nature, as specified, is insufficient to constitute a contract to convey real property, and a real estate broker is not required to retain such messages, except as specified. Specifically, this bill : 1)Specifies that an existing statute that requires a licensed real estate broker to retain, for three years, copies of all listings, deposit receipts, canceled checks, trust records, or other documents executed or obtained in connection with a real estate transaction shall not be construed to require a licensed real estate broker to retain electronic messages of an ephemeral nature, as described. 2)Provides that an electronic message of an ephemeral nature that is not designed to be retained or to create a permanent record, including, but not limited to, a text message or instant message format communication, 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 between the parties, and communicated as prescribed. EXISTING LAW : 1)Provides, under California's Statute of Frauds, that the following types of contracts are invalid unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party's agent: a) An agreement that by its terms is not to be performed within a year from the making thereof. b) A promise to answer for the debt, default, or miscarriage of another, except as provided. c) An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party to be charged. d) An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a period longer than one year, or to produce, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease AB 2136 Page 3 is for a longer period than one year, for compensation or a commission. e) An agreement that by its terms is not to be performed during the lifetime of the promisor. f) An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or a deed of trust upon the property purchased, unless assumption of the indebtedness by the purchaser is specifically provided by the conveyance of the property. g) A contract, promise, undertaking, or commitment to loan money or to grant or extend credit, in an amount greater than $100,000, not primarily for personal, family, or household purposes, made by a person engaged in the business of lending or arranging for the lending of money or extension of credit. (Civil Code Section 1624 (a).) 2)Notwithstanding the above, an agreement that is valid in other respects and is otherwise enforceable is not invalid for lack of a note, memorandum, or other writing and is enforceable, provided, that the agreement is a qualified financial contract, as defined, and if one of several specified conditions apply, including if there is a confirmation in writing sufficient to indicate that a contract has been made between the parties and is received by the party against whom enforcement is sought no later than the fifth business day, or other time period agreed to by the parties, and the sender does not receive a written objection within a specified period of time. (Civil Code Section 1624(b).) 3)Requires a licensed real estate broker to retain, for three years, copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed by him or her or obtained by him or her in connection with any transactions for which a real estate broker license is required. (Business & Professions Code Section 10148.) FISCAL EFFECT : As currently in print this bill is keyed non-fiscal. COMMENTS : This bill seeks to amend California's existing Statute of Frauds (Civil Code Section 1624) to take account of the increasing propensity of real estate agents and their clients to communicate through electronic messages, including text messages, instant messaging, and social media postings. This measure would specify that these electronic messages of an AB 2136 Page 4 "ephemeral nature" - i.e. short-lived electronic messages that are not designed to be retained or to create a permanent record - are insufficient to constitute a contract to convey real property, unless the messages have been reduced to writing in conformity with existing requirements under the Statute of Frauds. Similarly, the bill would also specify that such documents, unless memorialized in writing, are not among the documents that the California Real Estate Commissioner requires to be retained for a period of three years. Background : Under the common law a contract is simply an enforceable promise, and that promise is generally enforceable whether it is made orally or in writing. The first "Statute of Frauds," enacted in England in 1677, has been adopted in whole or substantial part by nearly all of the states of the United States. In California, the Statute of Frauds is codified as Civil Code Section 1624. As an exception to the common law rule that an oral contract is every bit as enforceable as a written contract, the Statute of Frauds provides that certain classes of contracts are not enforceable unless there is some written note or memorandum of the agreement that is signed by the party to be charged (that is, the party against whom someone is trying to enforce the contract). Its purpose, as the name suggests, is to prevent frauds and perjuries in those contracts which involved something of significant value or where memories of oral agreements may have faded. In California, as in most other jurisdictions, the typical types of contracts that fall under the Statute of Frauds, and which therefore must be in writing, are those where the promise will not be performed until a year or more after the contract is executed; an agreement to assume the debts or obligations of another; an agreement to make a loan in excess of $100,000, if the person making the loan is in the business of making loans; and, most relevant to this bill, any agreement to sell real property (or to lease real property for more than one year.) However, like most general rules of law, California's Statute of Frauds contains an exemption. It provides that notwithstanding the general rule that certain contracts must be in writing, an agreement or contract that is valid and enforceable in all other respects is not necessarily invalid for want of a note, memorandum, or other writing. (Civil Code Section 1624 (b)(1).) For example, certain oral contracts that might otherwise be invalidated by the Statute of Frauds might become enforceable if there are other writings sufficient to indicate that a contract AB 2136 Page 5 was made, or if an oral agreement is later memorialized in writing, is received by the person against whom the contract will be enforced within a specified period of time, and that person does not return a written objection within a specified period of time. The sponsor notes that oral communications between licensed realtors and clients - and between realtors who represent the parties to a real estate transaction - may become part of the written contract if appropriately reduced to writing. For example, outside of the written conveyance documents, parties may orally agree that a chandelier, or some other valuable fixture, will be removed from (or stay with) the home after the sale. To be enforceable, that oral agreement must be reduced to writing in a manner prescribed by the statute. However, according to an official publication of the California Department of Real Estate, these communications are increasingly conducted with tweets, text messages, and the like. (Real Estate Bulletin, Vol. 73, No. 1, Spring 2013.) While tweets and text messages are a form of "writing," it is not entirely clear if such ephemeral electronic messages should satisfy the writing requirement for a conveyance of real estate under Statute of Frauds. The problem with existing law, it appears, stems from the increasing use of "ephemeral" (or short-lived) electronic messages, including text messages, instant messaging, and social media postings as a means of communication between realtors and clients - communications that once occurred orally, either face-to-face or over the telephone. The bill, therefore, makes two changes to existing law relative to these kinds of electronic messages. First, the bill will specify that electronic messages of an "ephemeral" nature - i.e. messages that are not designed to be retained or create a permanent record - are not sufficient to constitute a contract under the Statute of Frauds, unless they have been reduced to writing and subscribed by the parties in a manner prescribed in existing law. Second, this bill would amend provisions of the Business & Professions Code that require a licensed realtor to maintain for three years copies of all "listings, deposit receipts, canceled checks, trust records, and other documents" [emphasis added] executed or obtained by the realtor in connection with any real estate transaction. Such documents are retained so that they may be made available for inspection by the Real Estate Commissioner. The sponsor claims that, under existing law, if "other documents" is broadly construed, a realtor would be required to retain copies of all text messages, AB 2136 Page 6 twitter messages, and social media postings, whether or not they were sufficiently material to confirm in writing. This bill would specify that the three-year retention requirement does not apply to electronic messages of an ephemeral nature, unless the messages are sufficiently material to have been confirmed in writing. Otherwise, ephemeral electronic messages would be treated substantially the same as an oral communication. They would only meet the requirements of the Statute of Frauds, and would only need to be retained by the realtor for three years, if properly confirmed in writing. ARGUMENTS IN SUPPORT : The California Association of Realtors (CAR), the sponsor, argues that "AB 2136 will distinguish short-lived electronic communications from transaction documents which must be maintained in a real estate agent's files." CAR contends that "short-lived" or "ephemeral" documents such as text messages and tweets "are not intended to be preserved" and they are not sufficient "to constitute a contract to convey real property in the absence of a written confirmation that is in a durable, retainable form." If such communications are material, CAR contends, they "should be memorialized in a permanent form in order to be considered a transaction document." For the same reason, such messages should not be subject to the retention requirement until they are reduced to a durable, written form. The Orange County Association of Realtors supports this measure for substantially the same reasons, adding that it will appropriately "require an electronic document used in connection with [a real estate] transaction to be in a durable, retainable form before retention." REGISTERED SUPPORT / OPPOSITION : Support California Association of Realtors (sponsor) Orange County Association of Realtors Opposition None on file Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334 AB 2136 Page 7