QUICK NOTE: PURCHASE-AND-SALE CONTRACTS AND THREE POINTERS

Posted on June 5, 2022June 5, 2022 by Edward Garber

When you enter into a purchase-and-sale contract for real estate, keep in mind that you can modify the contract to include terms particular to the transaction. These modifications can be important if an issue arises such as if closing does not timely occur. In a new case, discussed here, three noteworthy pointers can be found below:

Including an addendum with a drop-dead closing date can be valuable to a buyer and seller because it prevents any excuse to the closing date. For example, if the seller cannot deliver marketable title by this drop-dead date, the buyer has the option to terminate the contract. However, the addendum can include any modification or provision important to you for purposes of the transaction.
The arguments of waiver and estoppel are very difficult arguments to raise when it comes to real estate contracts. This is because: (a) the contract will provide that modifications to it must be in writing and signed by the parties, and (b) the statute of frauds requires contracts relating to real estate transactions to be in writing and signed by the party to be charged. In other words, if the objective is to modify the contract, that modification needs to be in writing and signed otherwise the statute of frauds and the contract itself can bar that argument.
A lis pendens does create a cloud on title. Thus, if you purchase a property with a lis pendens, this prevents the seller from delivering marketable title to you as the buyer. A lis pendens remains a cloud on title until the appellate time period expires as it pertains to any order to discharge the lis pendens.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

STATUTE OF FRAUDS APPLIES TO SALE OF REAL PROPERTY

Posted on April 3, 2022April 3, 2022 by Edward Garber

In law school, one of the first legal doctrines we learn is known as the “statute of frauds.” The statute of frauds is essentially a defense to a contract enforcement action claiming the contract is unenforceable due to the statute of frauds. In other words, this doctrine is raised when one party seeks to enforce a contract. The other party argues, “not so fast,” because the contract is NOT enforceable in light of the statute of frauds.

Common scenarios where the statute of frauds comes into play are with transactions involving real property or agreements where services are not to be performed within one year.

The statue of frauds doctrine is contained in Florida Statute s. 725.01:

No action shall be brought whereby to charge any executor or administrator upon any special promise to answer or pay any debt or damages out of her or his own estate, or whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person or to charge any person upon any agreement made upon consideration of marriage, or upon any contract for the sale of lands, tenements or hereditaments, or of any uncertain interest in or concerning them, or for any lease thereof for a period longer than 1 year, or upon any agreement that is not to be performed within the space of 1 year from the making thereof, or whereby to charge any health care provider upon any guarantee, warranty, or assurance as to the results of any medical, surgical, or diagnostic procedure performed by any physician licensed under chapter 458, osteopathic physician licensed under chapter 459, chiropractic physician licensed under chapter 460, podiatric physician licensed under chapter 461, or dentist licensed under chapter 466, unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized.

In Walsh v. Kimberly Abate, Successor Trustee of the 3388 Barrow Island Trust, 47 Fla.L.Weekly D702c (Fla. 4^th DCA 2022), the underlined aspect of the statute of fraud was at-issue involving the sale of real property. Here, a buyer, through an agent, made a written offer to purchase a home for $3.1 Million. The seller, through an agent, e-mailed the buyer’s agent that the seller would only accept $3.4 Million. The buyer’s agent responded to the e-mail that the buyer will pay the $3.4 Million with other terms in the written offer remaining the same. The seller’s agent sent a text to the buyer’s agent that the $3.4 Million was accepted, and the buyer’s agent responded with a confirmatory text. Days later, the seller apparently had a change of heart. The seller’s agent notified the buyer’s agent that the property was being sold to a third party.

The buyer then sued the seller for specific performance to force the sale of the property to the buyer. The seller moved to dismiss the complaint. The trial court granted the motion, which was affirmed on appeal.

While e-mails and text exchanges between the real estate agents made clear there was an agreement, here lies the problem…the statute of frauds. When it comes to the sale of real property:

The statute of frauds requires that (1) “the contract must be a writing signed by the party against whom enforcement is sought,” and (2) “the writing must contain all of the essential terms of the sale and these terms may not be explained by resort to parol evidence.” Additionally, the statute of frauds “should be strictly construed to prevent the fraud it was designed to correct.”

Walsh, supra (citations omitted).

The seller, in this case, NEVER signed a contract. The seller never sent back the written offer with a signed counter-offer at the $3.4 Million, irrespective of the e-mails and texts. On this point, the appellate court noted:

[T]he record reflects an initial offer signed by [buyer] and thereafter only unsigned text messages and emails exchanged between the buyer’s and sellers’ agents. Significantly, the offer of purchase itself contemplated a signed written agreement as it stated that the effective date of the agreement would be “the date when the last one of the Buyer and Seller has signed or initialed and delivered this offer or final counter-offer.” Dispositively, the sellers did not sign the initial contract, and neither party signed the modification of price and closing date.”

Walsh, supra.

When it comes to transactions involving real property, there is a reason why signed written offers are transmitted, and signed written counter-offers are exchanged. This is why – the statute of frauds.

CHALLENGES OF AN ORAL CONTRACT OR THE “HANDSHAKE DEAL”

Posted on June 27, 2015November 8, 2024 by Edward Garber

An oral contract is a contract that is not reduced to writing. In certain circumstances, and every disputed circumstance involving an oral contract, it becomes a “he said, she said” as to whether a contract was created and what the terms of the contract entailed. This is why it is always good practice to memorialize contractual terms in writing instead of accepting the “handshake deal” as the manner in which to do business.

Also, with oral contracts, the party being sued may argue that the statute of frauds bars the enforcement of the oral contract. The statute of frauds is a legal doctrine that states that an oral contract is unenforceable if it is not performed (or cannot be performed) within one year of the contract’s making. See Fla. Stat. s. 725.01. The statute of frauds does not apply if the oral contract is capable of being performed or accomplished within one year of the contract’s making. However, if there is a lawsuit concerning an oral contract, there is a strong chance that the defendant (or party the contract is being enforced against) will assert the statute of frauds as an affirmative defense.

The case of Loper v. Weather Shield Manufacturing, Inc., 40 Fla. L. Weekly D1492a (1^st DCA 2015) illustrates an oral contract scenario.

In this case, a house was constructed facing the ocean in 2001-2002. The house was constructed with large double-paned windows that came with a 10-year warranty. The owner noticed water intrusion started to occur between the panes of glass and windows began to develop a fogging affect. The contractor tried to correct the issue to no avail. In 2005, a representative from the window manufacturer inspected the windows and some of the windows were replaced. However, the water intrusion and window-fogging issues continued. In 2010, a meeting was conducted with the owner, window manufacturer, window installer, and contractor. During the meeting, the owner separately spoke with the representative from the window manufacturer. The representative explained that if the owner had a lawyer he was not going to be able to help the owner to which the owner replied he did not have a lawyer but plans to seek legal action if the problem does not get resolved. The owner stated that he wanted the defective windows replaced and wanted a new 10-year warranty (the original warranty was set to expire at the end of 2011). The representative responded that he would relay the request to his bosses; he subsequently contacted the owner to confirm there was a deal. The owner asked for the terms to be put in writing and the representative said his company’s legal department would prepare the agreement.

The owner never heard back from the representative. After calling many, many times, he discovered that the representative had been laid off. The owner then spoke with another representative that told the owner that he approved the deal and he would check on the status of the settlement agreement with his company’s legal department and get back to the owner. Of course, this did not occur. The owner followed-up with this representative and never received a call back.

By August 2011, and with the original warranty set to expire, the owner was still following-up with the manufacturer to reach a longstanding resolution to his window issues. Finally, approximately a month before the owner’s original 10-year warranty was set to expire, the owner received an e-mail from the manufacturer saying it will not extend the 10-year warranty and, thus, was reneging on the terms of the oral agreement between the parties.

The owner filed a lawsuit against the manufacturer claiming that the manufacturer breached an oral contract where windows would be replaced and a new 10-year warranty furnished.

After a jury trial, the jury returned a verdict in favor of the owner finding that there was an oral contract. However, the judge directed judgment in favor of the window manufacturer finding (1) there was insufficient consideration for the oral agreement between the owner and manufacturer and (2) even if there was consideration, the statute of frauds barred the enforcement of the oral contract because the contract required a new warranty that extended beyond one-year.

On appeal, the First District Court of Appeal reversed directing entry of judgment in favor of the owner on the breach of oral contract claim consistent with the jury’s verdict.

Regarding the trial court’s finding of insufficient consideration, the Court held that the owner’s forbearance from pursing legal rights, specifically in the context of an expiring 10-year warranty and a manufacturer’s overt run-around, was sufficient consideration. (“Viewed in a light favorable to Dr. Loper [owner], the parties had a deal that could be readily and promptly effectuated, but which languished — not due to Dr. Loper’s actions — but because of dawdling by Weather Shield [manufacturer]. The jury specifically answered ‘yes’ to the question of whether Dr. Loper ‘reasonably rel[ied] in good faith on Weather Shield Manufacturing, Inc., to reduce this oral agreement to writing,’ and could have readily concluded that the time period of Dr. Loper’s forbearance was expected to be brief, but ultimately was prolonged due to Weather Shield’s dithering….” Loper, supra.)

Regarding the trial court’s finding that the statute of frauds barred the enforcement of the oral contract, the Court held that the statue of frauds makes an oral contract unenforceable if it cannot be performed within one year of the contract’s making. But, if the oral contract is capable of performance within one year, it is enforceable. Here, the trial court focused on the fact that the contract could not be performed within one year because it contemplated a ten-year warranty (extending beyond one year). But, the issuance of the warranty could have been accomplished within one year and the issuance of the warranty, and not the length of the warranty, is what the trial court should have focused on. (“The record evidence supports the conclusion that Dr. Loper [owner] and Weather Shield [manufacturer] both intended that their oral agreement be effectuated promptly; no evidence supports that they intended that the issuance of the warranty was intended or required to occur beyond a year’s time. Because issuance of replacement policy could have, indeed should have, occurred in less than a year, the statute of frauds issue is inapplicable.” Loper, supra.)

Take-Aways

Although the owner prevailed on his breach of oral contract claim, it is always good to reduce the terms of an agreement (any agreement) to writing. The owner prevailed because he was probably a good witness that told a persuasive story to the jury that the jury found to be credible. It is the owner’s story of events the Court focused on since the owner received a jury verdict in his favor (and was the party appealing). Hence, having a credible, persuasive witness always helps!
Here, the owner’s counsel was creative. The owner’s counsel knew the owner could not sue the contractor or even the window installer because the statute of limitations expired. But, there was a colorable claim that could be asserted against the window manufacturer based on the outcome of a meeting that took place involving the owner and manufacturer. While this oral contract claim is certainly a difficult and probably expensive claim to prove, the owner prevailed on this claim (although, it is uncertain as to what expense meaning did the owner recover more than he incurred in legal fees and/or did he create an argument to recover attorney’s fees by serving a proposal for settlement).
It is uncertain why it took the owner so long to retain counsel to deal with a persistent water intrusion and window-fogging problem. The owner should have retained counsel earlier to best preserve his rights. Although the owner was able to show that his wiliness not to retain counsel supported the consideration for the oral contract, forbearance from pursuing legal rights should not come across as unreasonably indefinite or illusory. Here, the Court found that the forbearance was intended to be brief but was simply extended based on the run-around given by the manufacturer up until the point that the manufacturer knew the original warranty was expiring.