BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Why do some contracts have to be in writing and others do not?
I. STATUTE OF FRAUDS – WRITING REQUIRED:
Many years ago the concept of what today is called the “Statute of Frauds” was created to prevent fraud by requiring certain agreements to be in writing. Today, in California the Statute of Frauds is found in Civil Code 1624 (a) and reads, in relevant part:
“The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party's agent:
(1) An agreement that by its terms is not to be performed within a year from the making thereof.
(3) An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.
(4) An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation or a commission.
(6) An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust upon the property purchased, unless assumption of the indebtedness by the purchaser is specifically provided for in the conveyance of the property.” (Portions Deleted)
Note that paragraph 3 above requires a written contract for the sale of real property, or a lease for more than one year. Paragraph 4 states that a written agreement is required for an agent hired to sell or to procure buyers for real estate, or to lease real property for more than one year.
Some appellate cases have held that in certain circumstances, where a fully-written agreement did not exist, though otherwise required, the agreement can nonetheless be enforced:
1. A written contract was found to exist where a memorandum of the agreement containing all of the essential terms is signed naming buyer, seller, the land to be conveyed and the purchase price.
2. Other cases have found that a number of separate writings (partial agreements, notes, emails, etc.), when taken together, constituted an enforceable written agreement where, again, all of the essential terms were present.
3. Also, in certain situations the courts will enforce an agreement, which is required to be in writing by the Statute of Frauds but was not, if the agreement was partially performed, but “it must appear that a sufficient change of position has occurred so that the application of the statutory bar would result in an unjust and unconscionable loss..”
II. ORAL AGREEMENTS ENFORCEABLE:
Most other contracts, not covered by the Statute of Frauds, can be enforced even if they are oral agreements. Some real estate related examples would be a lease for one year or less; or an agreement by a listing broker to compensate a cooperating broker.
The problem, of course, is proving the existence, and even the terms, of the oral agreement. If there are no witnesses it becomes “he said – she said.” Even if there are witnesses, the memories of the witnesses can vary.
PRACTICE TIPS:
1. Good practice is for real estate licensees to get all listing agreements and all purchase agreements fully completed, signed and dated by the parties. Be thorough and diligent. Make sure each contract is complete, boxes are checked, initials added where needed, etc.
See Weekly Practice Tip: “Top 10 Contract Writing Tips”
2. While it may be possible to enforce an oral agreement, or a written agreement that is not complete, the proof of that agreement, and its terms, can be time-consuming and expensive – with no guarantee of the outcome. Always get it in writing, even if not required.
3. If you have a written purchase agreement that is missing some information, or is otherwise incomplete, and a seller or buyer wishes to know if the contract is enforceable, you must refer them to a good real estate attorney for advice.
4. If a listed property is not in the MLS, get a written commission agreement from the seller prior to presenting your offer. See Cooperating Broker Compensation Agreement (ZipForms form CBC).
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2010 04/23/10