Real Estate Finance Notes 8/25/04

 

Statute of frauds

 

England didnít have any kind of recording system until 1925.Then they had a registry system.The idea is that you can look at title and know exactly who owns what.The purpose of the statute of frauds was to start a publicly maintained recording system that would enable people to ascertain the title to real property, which you canít do without writings: you canít make a public record out of livery of seisin.

 

There are two different kinds of real estate contracts.Thereís the marketing contract (or purchase and sale agreement) and the contract for deed/installment contract.The latter is not a purchase and sale agreement at all: itís essentially a mortgage or a security device like a mortgages.Weíll put it off until after weíve already covered mortgages.With the marketing contract, the parties contemplate that theyíll sign the agreement, which is highly conditional (like the one in the text), and then as soon as the contingencies are satisfied, there will be a closing, consideration will be paid in full, and the deed will be transferred.So the contract wonít have a long life before being fully executed.The contract for deed essentially says that the contract will remain in effect for a certain period of years, which may be a long time.The legal title to the property will be in the vendor until the vendee pays the consideration in full.The vendee will pay a certain amount of money per month.If all payments are made, then the vendee keeps the property.If the payments arenít made, the vendee gets tossed out and the vendor keeps the property.Mostly, weíll be talking about the marketing contract.

 

The most frequently used marketing contract in Columbus is on the Columbus Bar Association website.Note that on page 20 there is a seller disclosure and buyer inspection clause.Whatís the point of that?Whatís the ulterior motive?One purpose is to get hidden defects out on the table.The main force for getting this included is protection for the agent.This clause requires the seller to disclose everything and submit to the buyer the sellerís disclosure form.Real estate agents are in a legally untenable position: they represent the seller, and their loyalty is to the seller, but they also have a duty to disclosure material defects to the buyer.That creates big time conflicts of interest!Whatís happened is that the standard form contract is used to attempt to shift the liability for failure to disclose exclusively on the seller and get the real estate agent off the hook.

 

Thereís an integration clause at the end of the contract.Are such clauses effective for real estate contracts?Is it legally enforceable to say that they canít amend their agreement?What about oral modifications?You can orally rescind, but you canít orally modify.The agreement thatís youíre making doesnít have to do with the enforceability of the contract.Braunstein thinks this is kind of dumb.Modifications seem frequently more trivial than rescission.Modifications are like a new contract: thatís why they have to be in writing.But thereís an exception!Thereís always the possibility of equitable estoppel.

 

Shelton v. Williamson

 

This is a suit for specific performance.This is an installment contract because land is being purchased in installments.The purchase price is $357 per acre.Is this contract complete enough to enforce?When is the deed to be delivered?You can infer that the contract was that the deed was to be delivered when the final payment had been made, which would make it look more like an installment contract than a marketing contract.Does the contract of sale have to be in writing?No, but there must be something in writing thatís evidence that there was a contract.The statute of frauds clearly does not require that the contract be in writing.It does require that some note or memorandum of the contract be in writing.There can be some terms that are oral or determined by the courts, but there are some terms that must be in the note or memorandum in order to make it enforceable.But what are these terms?How specific were they here?ď80 acres land in the rearĒÖnot very specific.They also have a legal description.But there are lots of Section 31s, lots of Township 27s and Ranges 28, all over the country!But we can combine this with information from the taxing authority.Once we know itís in a county or municipality, then we know where the land is.

 

This description would be inadequate for a deed because it doesnít describe one and only one parcel of land.When weíre putting something into public records, we need a greater degree of certainty than when we have an agreement between two people.Some courts, however, would say that the requirement is the same.But this court doesnít adopt that standard.This court takes a looser standard and says that the property only need be identified with reasonable certainty.There must also be an indication of how much money was to be paid.Itís not hard to determine the price.So itís not specified precisely, but itís easy enough to compute.There must be a promise, subject matter, consideration, and price.Whatís the difference between the consideration, price, and promise?What else is left for consideration once price and promise are taken into account?Braunstein thinks you need the price, and the essential promise which is to turn over the deed when the full payment has been made.

 

Was there really a contract for the sale of land here?Why wasnít it a lease?Well, it has this percentage rate.It seems clear that there is a contract here and we know with some certainty what the terms of the agreement are.There doesnít seem to be much reason not to enforce it.Whatís the internal coherence requirement?How many documents are relied on here to prove the contract?The vendor kept copies of all the checks and a sort of ďmatrixĒ of records of payments.The court puts all the writings together and say that all of them taken together constitute the note or memorandum required by the statute of frauds.The court doesnít tell us much about internal coherence.Normally, itís required that there is some reference in the writings that they deal with the same subject matter.Thatís clear here in that many of the documents are copies of each other.

 

The executor claims that the price is inadequate.Is that a statute of frauds claim?Keep in mind that when you win on the statute of frauds, all youíve done is establish that there was an oral agreement that the court can legally enforce.You havenít proved your case, because this is a suit for specific performance.You must prove all the elements that are required for enforcement of the contract.So the defendant tries to claim that the contract is inequitable.But the court says: this is an affirmative defense, and the defendant didnít introduce any evidence about it.Inadequacy will be a successful affirmative defense if the price is shockingly inadequate.But there was no evidence that would either shock or not shock the court.If the price isnít inadequate, you must show some other way that the contract was inequitable.

 

What about the contract on page 31, the ďRabbit BayĒ contract?Does this letter satisfy the ďessentialĒ elements to satisfy the statute of frauds?Itís clear that a sale is intended.We know that the promise is for a sale.The memorandum must be signed by the party to be charged.Is ďLove BarbĒ a signature?Whatís a signature?Is it a mark that is intended to give legal significance to the document?That seems to be the case here, but the letter seems pretty informal.It looks kind of like a preliminary negotiation.But Diane and Jim call up and want to buy the property.If they back out, then Barb is stuck because there is no memorandum signed by them.

 

What if there was an exchange of e-mails?What if this same note had been e-mailed to Diane and Jim and they had responded with ďOKĒ?Would that be enough to have a writing that satisfies the statute of frauds?Can you electronically sign over the telephone?Under the Electronic Records Act, the mark is defined in that it can be an electronic signal instead of a pencil or pen mark.But there also still needs to be intent: was this mark intended to be a signature?

 

Does the statute of frauds require a contract to be in writing?No!Just a note or memorandum of the writing, and maybe not even that in the case of part performance.Does the statute of frauds require the seller to sign the writing?Not in most states.Only the ďparty to be chargedĒ needs to sign.You donít know who has to sign the memorandum until you know whoís enforcing it.If one party can enforce the contract, the other one canít necessarily enforce it too.Itís perfectly conceivable that only one person will have signed the agreement, or note or memorandum of the agreement.Thatís a very exceptional circumstance in the law.Usually, if one person can enforce against the other, then there is mutuality of remedy and the other person can enforce too.But only one side in this case can prove the contract exists!

 

Must the writing be introduced into evidence in any action to enforce the contract?Not necessarily.The memorandum might have been destroyed.You could just introduce evidence that there once existed such a note or memorandum.Youíd need a pretty darn good explanation, but just because you donít still have the writing doesnít mean you have a legal difficulty with the statute of frauds; you just have an evidentiary difficulty.

 

Note that the statute of frauds is an affirmative defense.The statute of frauds doesnít require a single writing.What about a judicial agreement?If the purpose of the statute of frauds is evidentiary, then if you admit there was a contract thereís probably sufficient evidence that the contract existed.That ought to be enough.But whatís wrong with that?It encourages perjury!Instead of saying that we had an agreement but itís not in writing, you simply lie!The states split on this.There are at least some states where a judicial admission would not be enough and could not be used to satisfy the statute of frauds for that reason.

 

If the statute of frauds is not satisfied, it doesnít necessarily mean that there is no contract.The purchaser can still get rescission and restitution.You could argue, however, that this is based on an idea of unjust enrichment.But then there is also the part performance doctrine.Even if you have the statute of frauds, there are lots of exceptions, such as easements by implication or necessity that donít have to be in writing but are enforceable.

 

Part performance

 

There are three acts of part performance, and you need two of them: (1) partial payment of the price, (2) taking possession, and (3) making substantial improvements on the land.Which of these are actually performance?Is partial payment of the purchase price performance of the contract?It depends on when the payment is due under the contract.It sounds like, usually, that would be performance of the contract.But not taking possession: you can own land and never even see it.And not making improvements, for the same reason.Why should the vendor care if you make improvements to a house that theyíre selling to you?So the last two arenít typically performance of the agreement.So it might be a good doctrine, but the name is confusing.

 

Roundy v. Waner

 

The mother and daughter get into a fight!The court finds that there was part performance.What was the part performance?The daughter paid part of the purchase price, made some repairs, and took possession.There are lots of things that would establish the part performance doctrine.We have all three of the things we just mentioned!The court will enforce the agreement and the parents lose their house!The theory for the part performance exception is to protect reliance and prevent unjust enrichment.Does this make much sense?In practice, weíve gone much further than protecting the reliance interest.But here, they invested $2400 and got the whole house, which gives them a lot more than their reliance interest.Why donít we just give them $2400 instead of the whole benefit of the bargain?The second rationale the court uses is that people donít do these acts unless they believe that the house is going to be theirs forever.If you use the evidentiary requirement, itís a higher burden of proof because the acts canít be ambiguous.Anytime you have these acts, there will be a question as to whether there is a temporary right of possession as opposed to a sale.

 

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