Different from residential transactions, commercial transactions are often
more complex and custom to the particular set of circumstances. Commercial
transactions can be secured by an interest in real property or other forms
of assets, and other transactions can be unsecured and not require the
borrower to grant a security interest of any kind.
The beginning of this process always starts with the agreement between
the parties…the contract.
In Connecticut, all contracts for the sale of real estate are governed
by the Connecticut Statute of Frauds (Conn. Gen. Stat. Sec. 52-550). In
order to satisfy the Statute of Frauds, the contract must “state
the contract with such certainty that its essentials can be known from
the memorandum itself, without the aid of proof, or from a reference contained
therein to some other writing or thing certain.”
The contract must include, at the minimum, three essential details:
1.) Subject of the Sale – The contract must sufficiently describe
the property being sold/purchased. In the majority of commercial sales,
this will include the official property description or map filed in the
land records of the city or town in which the property is located. Connecticut
case law holds that if the property to be sold is not specifically described,
the agreement violates the Statute of Frauds. Therefore, it is important
that the contract makes the subject property “reasonably definite"
for the contract to comply with the Statute of Frauds.
2.) The Terms of the Sale – The Statute of Frauds requires the terms
of the sale/ purchase of real estate to be fully and accurately reflected
in the contract. This is broken down into two parts (i) Purchase Price
and Payment Method and (ii) Time of Performance.
i. Purchase Price and Method of Payment – A contract must specify
the terms of payment for all or any part of the purchase price. In Connecticut,
if a contract only states the price, the law may presume the payment is
to be made in cash. This presumption can only be made where the only term
of the contract is price. This makes it essential that the contract specifically
layout the not only the price, but form of payment. In 1976, Conn. Gen.
Stat. Sec. 49-5b was created to provide guidelines to the minimum requirements
to be met in a mortgage contingency clause. By statute, this clause must
contain “(1) the principal amount of the loan in dollars purchaser
must obtain to fulfill such contingency, (2) the limit of the time period
within which a commitment of such loan must be obtained, and (3) the term
of the mortgage expressed in years.”
ii. Time of Performance – The failure of an agreement to specify
the time for performance is not lethal. The contract can and usually will
still be held as enforceable because the law will imply a reasonable time
for performance and the contract will not violate the Statute of Frauds.
Note, however, this does not apply the same to financing and mortgages.
A contract which fails to include an essential term such as the length
or terms of financing will render the contract unenforceable.
3.) The Parties to the Sale – The final essential element of a purchase
and sale contract is the description of the parties. The general rule
is that the Statute of Frauds requires that the names of the parties to
a contract for the purchase and sale of real estate be stated in the agreement.
A lawsuit was once brought by a builder who sued to recover a deposit
made by him for the purchase of two buildings owned by the defendant.
The court ruled in favor of the builder and ordered that the defendant
refund the deposit because the written contract was unsigned. The court
ruled that “the unsigned written contract was unenforceable under
the Statute of Frauds.”
However, the Statute of Frauds does NOT require both parties to sign the agreement.
The rule in Connecticut is “that so long as the written contract
is signed buy the party to be charged, that is sufficient.” Therefore,
the agreement only needs to be singed by party who an action is being
brought against. To avoid issues or misunderstandings later on, it should
be clear that the best practice requires that all parties sign the contract.
In a commercial deal, it is very common for the parties to be a corporate
entity wherein the parties are a principal. Many times, this entity is
formed after the contract is signed. In this situation it is essential
that the contract include a provision allowing such an assignment or nomination
of the contract rights to the entity of the parties choosing.
If you are looking for experienced attorney's for your commerical real
estate or commercial transaction needs, dont hesitate to contact Massih
Law at 203-880-9980 for a consultation.