Many lawsuits have been filed over land deals that have gone bad. A lot of those involve buyers that get cold feet and renege on the deal. But, what if the seller tries to back out after agreeing verbally to a particular party’s offer to purchase the property? That’s what happened in this case, and it illustrates a fundamental rule of contract law - contracts for the sale of real estate must be in writing to be enforceable. That’s known as the Statute of Frauds. It’s an old rule that date backs to 1677 in England.
While contracts for the sale of land must be in writing to be enforceable, the courts have created an exception to the Statute of Frauds designed to address a seller’s attempt to breach an oral sales contract. This exception, known as “partial performance,” applies when the buyer has taken steps which undeniably indicate reliance on the existence of an oral contract, and the seller would have prevented such steps from having been taken had there not been a contract. Elements indicating the existence of partial performance include the buyer making substantial permanent improvements to the land with the seller’s knowledge that relate to the contract; the buyer assuming actual and exclusive possession of the property; and whether the Statute of Frauds would unjustly enrich the seller and inflict undue harm on the buyer. Generally, the party attempting to remove a contract from the Statute of Frauds under the partial performance exception bears the burden of establishing the existence of an oral contract and at least one of the elements of the exception.
In this case, the plaintiff orally offered to buy the defendant’s real estate for $5,000 per acre. The defendant didn’t act on that offer, but instead put the property up for sealed bids. The plaintiff’s written bid was the highest, at $5,500 per acre, and the defendant orally stated that he was willing to accept the bid, and the defendant’s lawyer said that a real estate contract would be prepared. But, before the formal contract was written, the defendant sold the land to someone else for $5,800 per acre. The plaintiff sued, claiming that an enforceable contract existed. The defendant moved for summary judgment on the basis that the Statute of Frauds had not been satisfied – there was no enforceable written contract. The trial court agreed with the defendant and dismissed the case. On appeal that decision was affirmed. The plaintiff failed to show that steps had been taken toward future development of the property and no funds had been expended in reliance on the alleged agreement. That would have been detrimental reliance had it occurred and would have constituted “partial performance” within the exception to the Statute of Frauds. The court also said the plaintiff could not prove the existence of an enforceable contract by means of the statements of the defendant’s attorney. There is another exception to the Statute of Frauds if the party against whom enforcement is sought (here, the defendant) admits to the contract’s existence in court, but the court would not extend that rule to the attorney’s statements. Callahan Construction, Inc. v. Weidemann, No. 6-319/05-1207 (Iowa Ct. App. June 28, 2006).
