Real
Estate Finance Notes
Statute of frauds
There
are two different kinds of real estate contracts. There’s 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: it’s essentially a mortgage or a security device like a mortgages. We’ll
put it off until after we’ve already covered mortgages. With the marketing contract, the parties
contemplate that they’ll 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 won’t
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 aren’t made, the vendee gets tossed out and the vendor keeps the property. Mostly, we’ll be talking about the marketing
contract.
The
most frequently used marketing contract in
There’s
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
can’t amend their agreement? What about
oral modifications? You can orally
rescind, but you can’t orally modify. The agreement that’s you’re making doesn’t 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: that’s
why they have to be in writing. But
there’s an exception! There’s always the
possibility of equitable estoppel.
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 that’s 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? “80 acres land in the rear”…not
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 it’s
in a county or municipality, then we know where the land is.
This
description would be inadequate for a deed because it doesn’t describe one and only one parcel of land. When we’re 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 doesn’t 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. It’s not hard to
determine the price. So it’s not
specified precisely, but it’s easy enough to compute. There must be a promise, subject matter, consideration,
and price. What’s 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 wasn’t 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 doesn’t seem to be much reason not to enforce
it. What’s 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 “matrix” 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 doesn’t tell us much about internal
coherence. Normally, it’s required that
there is some reference in the writings that they deal with the same subject
matter. That’s 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 you’ve done
is establish that there was an oral agreement that the court can legally enforce. You haven’t 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 didn’t 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 isn’t inadequate, you must show some other way that the contract was
inequitable.
What
about the contract on page 31, the “
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 “OK”? 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 “party to be charged” needs to
sign. You don’t know who has to sign the
memorandum until you know who’s enforcing it.
If one party can enforce the contract, the other one can’t necessarily enforce
it too. It’s perfectly conceivable that
only one person will have signed the agreement, or note or memorandum of the
agreement. That’s 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.
You’d need a pretty darn good explanation, but just because you don’t
still have the writing doesn’t 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 doesn’t 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 there’s
probably sufficient evidence that the contract existed. That ought to be enough. But what’s wrong with that? It encourages perjury! Instead of saying that we had an agreement
but it’s 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 doesn’t 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 don’t 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 they’re selling
to you? So the last
two aren’t 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, we’ve 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 don’t
we just give them $2400 instead of the whole benefit of the bargain? The second rationale the court uses is that
people don’t do these acts unless they believe that the house is going to be
theirs forever. If you use the
evidentiary requirement, it’s a higher burden of proof because the acts can’t
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.