Real Estate Contracts and Statute of Frauds
Real estate attorneys must be familiar with the concept of the statute of frauds. While the concept is often not applicable in business breach of contract lawsuits, the statute of frauds is something that an attorney in real estate litigation should always consider.
What is the Statute of Frauds? California Civil Code section 1624 provides that certain types of contracts are unenforceable unless they are in writing. Included in the list of contracts are those that involve the purchase or sale of property, the leasing of property for more than a year, and brokerage contracts (to sell or to lease). A corollary called the “Equal Dignities Rules” requires that when an agent signs a contract that must be in writing, the underlying agreement giving that agent authority must also be in writing. The main purpose of the statute of frauds is to prevent fraud.
What constitutes a valid written contract? There is no hard and fast rule as to what is sufficient to constitute an enforceable contract for the sale or purchase of land. Generally, the contract must identify the parties to the contract, include a description of the property so that it can be identified, and include the basic terms of the contract so that it can be enforced (including price). California law has numerous cases dealing with different situations in which contracts were either enforced or invalidated. Some cases insist that the lack of any essential terms will render the contract unenforceable while others get around this limitation by allowing oral testimony to fill in the gaps (called ‘parol evidence’).
Does the Statute of Frauds apply to my case? The statute of frauds has so many exceptions that determining its applicability in most real estate lawsuits can be a daunting task for the best real estate lawyer (but, if there is a chance that it applies, make sure your attorney asserts it as an affirmative defense). The statute of frauds does not apply in partnership or joint venture arrangements. It does not apply in agreements to share the profits from the sale of real property. It does not apply to oral contracts settling boundary disputes between neighboring landowners. The concept of equitable estoppel may make the real estate contract enforceable. Equitable estoppel can be applied when a defendant has acted or said something that leads the other party to believe in the enforceability of the contract (“detrimentally relies”) and the failure to enforce the contract would lead to “unconscionable injury” or “unjust enrichment.” Naturally, determining whether there was unconscionable injury or unjust enrichment varies from case to case.
Every real estate lawsuit should prompt the real estate lawyer to check on the applicability of the statute of frauds. On the other hand, most good real estate attorneys have considered the statute of frauds in drafting their complaint and, if it appears to be a problem, will have pled one of the exceptions above to get around its application. Because of the various exceptions, the statute of frauds is difficult to use in a summary judgment motion or in any other summary attempt to dismiss the case.