Navigating the Statute of Frauds

Generally, a statute of frauds is a law that requires certain types of contracts to be in writing and signed by the parties. Although laws vary from state to state, it is nearly universal that contracts involving the sale of real estate have to be in writing. If the contract is not in writing, then the promise (to sell or to buy) is unenforceable against the other party. For example, if buyer orally offers to buy his neighbor’s lot and then reneges on the deal, if the agreement was never reduced to writing, the neighbor does not have any remedy in court to sue the neighbor for breach of the agreement.

In Ohio, as it relates to real estate, the statute of frauds applies to any contract for the sale of lands, tenements, hereditaments (land/building/rent or right of way) or any interest therein. With the statute of frauds comes volumes of court opinions on whether a certain writing is enforceable. In one case, at issue was a “napkin agreement” for the sale of a property. The “napkin agreement” had the purchase price, deposit, remaining balance and signatures of the property co-owner and buyer. After lengthy litigation, an Appellate Court ultimately determined that the co-owner did not have the “apartment authority” to sign on his wife’s behalf, and thus the “napkin agreement” was unenforceable because it did not comply with the statute of frauds.

As licensees, difficulty can arise when agents are acting with the “apparent authority” of their clients, and the agent’s actions are ratified by the clients in some way. Such is why licensees should obtain a power of attorney from their client, if the client expects the agent to sign documents concerning the purchase of sale of real estate, on the client’s behalf. Licensees are cautioned from writing “signature to follow” or “per email/telephone authority.” Other examples are recent cases where text or email messages have unwittingly bound clients to contract terms because they have been found to constitute a “signed writing.” Here licenses should consider adding a disclaimer to email and text communication that no terms are binding until reduced to writing and signed by all parties.

A recognized exception to the statute of frauds is when one party has partly performed in reliance on the contract, and that such part performance changed the party’s position to his or her prejudice. In another case, a buyer negotiated an oral agreement for the purchase of a one-half interest in a farm for $150,000.00. Subsequently, the details were worked out with an attorney and an agreement was sent to everyone, but signatures were not obtained. The buyers obtained a loan, opened a bank account, had areas surveyed and discussed an access road. When the sellers reconsidered selling, the buyer sued for specific performance and argued the part performance excluded the oral agreement from the statute of frauds. The appellate court found that notwithstanding the buyer’s part performance, the seller and buyer continued to negotiate terms of the sale, including a right of first refusal. The court ultimately upheld the trial court in dismissing the buyer’s complaint, finding because the parties continued to negotiate terms of sale, the first oral contract had not been finalized, and thus was an unenforceable contract.

From the two cases discussed above, certain acts can determine whether a contract violates the statute of frauds. Because cases involving the statute of frauds can vary depending on very specific fact patterns, legal counsel should be sought to answer any client inquiries. Speaking of contracts, do you know all the contract clauses you should always have on hand?