Statute of Frauds

Hello. When I woke up this morning, I had yet to choose a topic for my Sunday blog article. So I started kicking around topics that I haven't considered in some time. One such topic was the "Statute of Frauds." It sounded good, so that is what I will write about in this posting.

The contract for the sale of land, or the conveyance of an interest in land, requires a written instrument evidencing such contract or conveyance. In the case of a sales contract, it is usually the purchase agreement or some derivative thereof that evidences the contractual obligations prior to conveyance. In the case of a conveyance, it is a deed of one form or another that will evidence an actual conveyance. But why is a written instrument necessary? Answering this question will afford the reader a basic understanding of the Statute of Frauds.

Dukeminier, Krier on Property - Fifth Addition, a 2002 publication - discloses that the Statute of Frauds, enacted in England in 1677 under the title "An Act for the Prevention of Frauds and Perjuries," sought to make people more secure in their property and their contracts by making deceitful claims unenforceable.

What is the Statute referring to with its use of the term "deceitful claims?"

The Statute of Frauds is designed to protect individuals and entities from wild claims pertaining to their land. Example: Let's say that Mr. Nogood, a Colorado Avalanche fan, files a lawsuit against Mr. Dogood, a Detroit Red Wing fan. Mr. Nogood claims he entered into an oral contract with Mr. Dogood for the purchase of Mr. Dogood's land for $50,000.00. Mr. Nogood offers no other proof aside from the existence of the proposed oral contract. Mr. Dogood, of course, denies the existence of such contract. Wherefore, Mr. Nogood requests "specific performance" based on the purported oral contract. Who wins?

Answer: Mr. Dogood wins. Why?

Because there is no written agreement between the parties for the sale of Mr. Dogood's land. Absent a writing, Mr. Nogood's position fails under the requirements of the Statute of Frauds. The existence of the Statute of Frauds affords Mr. Dogood substantial protection from wild or unfounded claims pertaining to his land. Even if Mr. Nogood and Mr. Dogood created a valid oral contract, the oral contract itself does not satisfy the elements of the Statute of Frauds, as written.

Michigan has enacted its own Statute of Frauds, which can be found in Chapter 566 of the Michigan Compiled Laws. The Michigan statute takes its roots from the original Statute of Frauds drafted in 1677. In particular, Sections 566.106 and 566.108 of the Michigan Compiled Laws are relevant to this discussion.

Section 566.106 reads: No estate or interest in lands, other than leases for a term not exceeding 1 year, nor any trust or power over or concerning lands, or in any manner relating thereto, shall hereafter be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by some person thereunto by him lawfully authorized by writing.

Discussion: Section 566.106 concerns the conveyance of land. Simply put, a conveyance of blackacre must be accomplished by way of deed; you cannot have an oral conveyance of land. Notice the exception for a lease for a term not exceeding 1 year.

Section 566.108 reads: Every contract for the leasing for a longer period than 1 year, or for the sale of any lands, or any interest in lands, shall be void, unless the contract, or some note or memorandum thereof be in writing, and signed by the party by whom the lease or sale is to be made, or by some person thereunto by him lawfully authorized in writing: Provided, that whenever any lands or interest in lands shall be sold at public auction and the auctioneer or the clerk of the auction at the time of the sale enters in a sale book a memorandum specifying the description and price of the land sold and the name of the purchaser, such memorandum, together with the auction bills, catalog or written or printed notice of sale containing the name of the person on whose account the sale is made and the terms of sale, shall be deemed a memorandum of the contract of sale within the meaning of this section.

Discussion: Section 566.108 concerns contracting for the sale of land. Simply put, a contract for the sale of land must be in writing.

Now, the Statute of Frauds requires a contract for the sale of land to be in written form. However, there can be situations in which an oral contract for the sale of land will be immune from a Statute of Frauds defense. This can be seen when a court determines that circumstances between the parties justify enforcement of an oral contract. Such determinations are based in equity, which acts to circumvent the Statute of Frauds.

Explanation: Let me use the earlier example of Mr. Nogood and Mr. Dogood, with a significant change in facts. Let's say that Mr. Nogood wrote a check to Mr. Dogood for $5,000.00. On the check, Mr. Nogood wrote that it was a down payment on Mr. Dogood's land, based on their oral agreement. Mr. Dogood deposited this check in his personal bank account. Additionally, let's assume that Mr. Nogood informed Mr. Dogood that Mr. Nogood was planning on selling his current home with the intent of purchasing Mr. Dogood's property from the proceeds. Three months later, Mr. Nogood sells his property and asks Mr. Dogood to perform under their earlier oral agreement. Finally, let's assume that Mr. Dogood says, "No, I will not sell you my home because we never had a written agreement to sell." Now, given our change of facts, if Mr. Nogood files a suit for "specific performance," who wins?

Answer: Probably Mr. Nogood. Why?

Partial performance of the oral contract, the payment of $5,000.00, coupled with Mr. Dogood's knowledge of Mr. Nogood's attempt to sell his residence to finance the purchase of Mr. Dogood's land, would probably be enough to persuade a judge to afford specific performance to Mr. Nogood. With the particular set of facts before the court, the court may well determine that it is inequitable to deny Mr. Nogood. In other words, there were specific actions on the part of Mr. Nogood and Mr. Dogood to establish that there would be significant harm to Mr. Nogood if the oral contract, as purported, was not enforced. Based on the facts, Mr. Dogood would probably be estopped from denying the existence of the oral contract. This is because he had accepted and deposited $5,000.00 from Mr. Nogood.

Note on Specific Performance: Specific Performance is when a court orders the performance of a contractual obligation that someone or some entity is attempting to avoid. In the case of a garden variety sale agreement, specific performance may order a defendant to convey land to the plaintiff. The court is saying, in essence, that the defendant must perform per the original contractual arrangement.

Note on Estoppel: Estoppel precludes a person or entity from denying the existence of something that has, in the eyes of the law, been established as truth. In our example, once the court determined that a valid oral contract was formed (the depositing of the down payment of $5,000.00), Mr. Dogood would be estopped from denying the existence of the contract.

Conclusion:

The Statute of Frauds is designed to protect owners from bogus claims concerning their land. The Statute of Frauds is very pragmatic and easy to follow. After all, if you are intent on purchasing land, it seems that a logical first step would be the written execution of a contract for the sale of such land. However, persons involved in real estate transactions should be aware that the Statute of Frauds, although formidable, can be circumvented in limited circumstances. Circumstances allowing circumvention are fact intensive. If the plaintiff can establish that it would suffer inequity, based on the facts, it may prevail under "specific performance," stemming from partial performance and estoppel.

Chow,

dave