Both co-owners of property must sign contract of sale.

In the rush of busy everyday life, short cuts are sometimes taken in business transactions. Required signatures to agreements are at times not secured because they are seemingly unnecessary. However, when it comes to real estate transactions, signatures to contracts of sale may be absolutely essential. If there are two owners of a property and only one signs a contract of sale, disastrous results can follow.

In March, 1994 Shui Chan was shown a piece of property in Brooklyn by a real estate broker, Bayridge Park Hill Realty Company. The property consisted of a ground-level storefront with two apartments on the second floor. It was owned by two brothers, Amil and Jack Shaban.

After viewing the property, Ms. Chan signed a binder and gave the real estate broker a $100 cash deposit. The binder provided that an $6,500 would be paid on the signing of a formal contract, which Chan would prepare. The total purchase price was $65,000.

The binder was then delivered to Amil Shaban, who signed it as "owner." Jack Shaban, his brother and co-owner, did not sign. After signing the binder, Ms. Chan claimed she was told that in addition to the $6,500 agreed upon in the binder, another $9,000 in cash was required before the formal contract of sale of the property would be signed by the sellers. Ms. Chan refused to pay the additional money and no formal contract was prepared. The Shaban brothers denied that any additional money was demanded, and claimed that since no formal contract was signed, they did not proceed with the sale.

Chan commenced a lawsuit against both owners, as well as the brokers who were involved with the transaction. She claimed that the Shaban brothers breached the contract (binder) with her and that the brothers, as well as the broker, committed fraud.

The Supreme Court granted summary judgment in favor of the defendants and the broker, and dismissed Chan's complaint. On appeal, the Appellate Division agreed with the lower court (Chan v. Bayridge Park Hill Realty Company et. al., 623 N.Y. S. 2d 896), and sustained its position that Chan had no case.

The Appellate Division ruled that the "purchase agreement (binder) which was drafted by Ms. Chan's real estate agent provided that the parties intended to sign a formal contract for the purchase of the property which called for the payment by Chan of $6,500. Although Ms. Chan was advised by her real estate agent to obtain an attorney to prepare a formal contract, no such contract was prepared.

The Court held that there was no breach of contract since the binder was void because under the Statute of Frauds, a contract can be enforced against a party only if that party had actually signed the contract. Inasmuch as Jack Shaban, a co-owner of the property, did not sign the contract (binder) to sell the property, the contract was void. Also, since there was no proof that Amil Shaban was acting as his brother's agent in this matter, his brother Jack could not be bound by the binder agreement.

Further, Chan could not recover on the grounds that she was defrauded since she failed to prove that Amil Shaban made any misrepresentation to her with respect to his status as a joint owner of the property. It was clear to Chart that Amil was acting only as a co-owner of the property for himself and not as agent for his brother Jack. Moreover, since the title to the property was a matter of public record, the information as to its ownership could have been ascertained by Chan by the exercise of ordinary due diligence.

Of the four judges of the Appellate Division who ruled on this case, one dissented. Justice Copertino held that Amil Shaban, the co-owner who actually s12igned the contract, could in fact be held responsible for the damages sustained by Chan if she could prove those damages on trial.

Justice Copertino disagreed with the majority, which held that no enforceable contract was entered into. He stated that a binder agreement may be enforceable even if the parties contemplated the execution of a more formal contract, as long as the agreement identifies the parties, describes the subject property, recites the essential terms of the agreement and is signed by the party to be charged.

The binder agreement in this case, he wrote, accurately describe the property and stated that the purchase price was $65,500, with a $6,500 deposit to be paid upon the signing of a formal contract. The binder agreement also provided that it was subject to Chan's ability to obtain a 10-year first mortgage in the amount of $26,000 at an interest rate 12 percent and subject to the rights of the tenants. Justice Copertino opined that the absence of Jack's signature did not render the contract void, but it remained enforceable as to Amil Shaban, who was the one who actually signed the binder. Jack Shaban, who did not sign the binder, could not be held liable for damages.

Justice Copertino voted to allow the trial to proceed against Amil Shaban only.

Although this case concluded by a three to one vote to dismiss Ms. Chan's complaint, it illustrates an important point. In order to avoid any misunderstandings and prevent unnecessary litigation, it is vital to purchasers and sellers alike that a contract of sale must be signed by all co-owners of the property in order for the contract to be enforceable.

(Edward L. Schiff is senior partner of the New York City law firm of Schiff, Turek, Kirschenbaum, O'Connell, LLP. He specializes in real estate matters.)