Real estate contracts - Statute of frauds and exceptions

Learning Outcomes

After studying this article, you will be able to determine when the statute of frauds applies to real estate contracts, identify what constitutes a sufficient writing, and recognize the main exceptions that allow enforcement of oral land sale agreements. You will be able to apply these principles to MBE-style questions and avoid common pitfalls regarding enforceability of land sale contracts.

MBE Syllabus

For the MBE, you are required to understand the enforceability of real estate contracts, especially the application of the statute of frauds and its exceptions. This article covers:

• When the statute of frauds applies to contracts for the sale or transfer of interests in land.
• The requirements for a sufficient writing under the statute of frauds.
• The main exceptions to the statute of frauds, including part performance and estoppel.
• The effect of oral modifications and enforceability of contract changes.
• The consequences of noncompliance with the statute of frauds.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following contracts must be in writing to be enforceable under the statute of frauds?
   1. A lease for 8 months
   2. A contract to sell a house
   3. An agreement to paint a house
   4. A contract for landscaping services
2. Which is NOT a recognized exception to the statute of frauds for real estate contracts?
   1. Part performance
   2. Detrimental reliance (estoppel)
   3. Full performance by the seller
   4. Oral modification increasing the price
3. A buyer orally agrees to purchase land, pays the full price, and takes possession. The seller refuses to convey title. Which is the buyer’s best argument for enforcement?
   1. The contract is enforceable because it was for land
   2. The contract is enforceable under the part performance exception
   3. The contract is void because it was not in writing
   4. The contract is enforceable under the parol evidence rule

Introduction

A contract for the sale of real estate is subject to special enforceability rules. The statute of frauds requires most real estate contracts to be in writing and signed by the party to be charged. However, there are important exceptions that may allow enforcement of oral agreements in certain circumstances. Understanding when the statute applies, what constitutes a sufficient writing, and the recognized exceptions is essential for MBE success.

Key Term: Statute of Frauds A legal rule requiring certain contracts—including those for the sale of land—to be in writing and signed by the party to be charged in order to be enforceable.

When the Statute of Frauds Applies

The statute of frauds applies to contracts for the sale or transfer of any interest in land, including full ownership, options to purchase, and most leases longer than one year. The contract must be in writing and signed by the party against whom enforcement is sought.

Requirements for a Sufficient Writing

A writing satisfies the statute of frauds if it:

• Identifies the parties to the contract.
• Describes the property with reasonable certainty.
• States the essential terms (such as price and manner of payment).
• Is signed by the party to be charged (the party being sued).

The writing does not have to be a formal contract; a memorandum, letter, or even several documents read together may suffice if all essential terms are present.

Effect of Noncompliance

If a real estate contract falls within the statute of frauds and does not meet the writing requirement, it is unenforceable in court. However, the contract is not void—if both parties perform, the statute of frauds cannot be used to unwind the transaction.

Worked Example 1.1

Seller and buyer orally agree that the buyer will purchase a parcel of land for $250,000. The buyer pays$50,000 as a deposit, takes possession, and builds a fence. The seller later refuses to complete the sale, claiming the agreement was not in writing. Can the buyer enforce the contract?

Answer: Yes. The buyer can likely enforce the contract under the part performance exception, since the buyer paid part of the price, took possession, and made improvements (the fence). These acts are sufficient to remove the contract from the statute of frauds.

Exceptions to the Statute of Frauds

There are important exceptions that may allow enforcement of an oral real estate contract:

Part Performance

If the buyer has taken substantial steps in reliance on the oral contract, courts may enforce the agreement to prevent injustice. Most courts require at least two of the following:

• Payment of all or part of the purchase price.
• Taking possession of the property.
• Making valuable improvements to the land.

If these acts clearly indicate the existence of a contract, the statute of frauds will not bar enforcement.

Key Term: Part Performance An exception to the statute of frauds allowing enforcement of an oral contract for land if the buyer has taken substantial steps in reliance on the agreement, such as payment, possession, or improvements.

Key Term: Estoppel (Detrimental Reliance) An exception to the statute of frauds where a party is prevented from asserting the statute as a defense because the other party has reasonably relied on the oral agreement to their detriment.

Estoppel (Detrimental Reliance)

If one party reasonably relies on an oral contract and would suffer serious harm if the contract is not enforced, courts may apply estoppel to prevent the other party from asserting the statute of frauds as a defense.

Full Performance by the Seller

If the seller has fully performed by conveying the property to the buyer, the statute of frauds does not apply. The buyer cannot use the statute to avoid payment.

Worked Example 1.2

A buyer orally agrees to buy a house, pays the full price, and moves in. The seller later refuses to sign a deed. Is the contract enforceable?

Answer: Yes, under the part performance exception. Payment of the full price and taking possession are strong evidence of an agreement, and the buyer may compel the seller to convey title.

Oral Modifications and the Statute of Frauds

If a written real estate contract is later orally modified to change essential terms (such as price or property description), the modification must also satisfy the statute of frauds if it brings the contract within its scope. Oral modifications that materially alter the contract are unenforceable unless an exception applies.

Exam Warning

Oral agreements to sell land are unenforceable unless an exception to the statute of frauds applies. Do not assume that payment alone is enough—look for possession or improvements as well.

Remedies and Consequences

If a contract is unenforceable due to the statute of frauds, a party who has conferred a benefit (such as payment or improvements) may be able to recover the value of that benefit under restitution or quantum meruit principles, even if the contract itself cannot be enforced.

Key Point Checklist

This article has covered the following key knowledge points:

• The statute of frauds requires real estate contracts to be in writing and signed by the party to be charged.
• The writing must identify the parties, describe the property, state essential terms, and be signed.
• Part performance (payment, possession, improvements) may allow enforcement of an oral contract.
• Estoppel applies if a party reasonably relies on an oral agreement to their detriment.
• Full performance by the seller removes the contract from the statute of frauds.
• Oral modifications to essential terms must also comply with the statute of frauds.
• If a contract is unenforceable, restitution may be available for benefits conferred.

Key Terms and Concepts

• Statute of Frauds
• Part Performance
• Estoppel (Detrimental Reliance)