DIRT DEVELOPMENT for Wednesday, January 14, 2009
Daniel Bogart, Professor of Law
Chapment University School of Law, Orange, California

This is Dan Bogart’s first contribution as a stand in filer of DIRT Developments.  Ira Meislick also has volunteered to help, but we have no guarantee of a daily service.  Just lucky so far. 

STATUTE OF FRAUDS; EVIDENCE OF EXECUTION:  Written Agreement signed after oral contract for purchase of home, and after date of breach of the oral agreement, renders the oral agreement enforceable under the Statute of Frauds.
Royal Investment Group, LLC v. Wang,   ____ A.2d ____, 2008 WL 5088600, (Md. Ct. Spec. App. December 4, 2008).

Wang owned a very run down home in Montgomery County, Maryland.  The property was covered in trash and had the obligatory non operational car sitting in the front. After receiving a series of notices from health officials (including one threatening to demolish his house) Wang decided to sell his property to Royal Investment Group, a company owned solely by  Shahparast.

Despite the condition of the property, Royal agreed to an initial purchase price of $700,000.  Apparently, Shahparast intended to tear down the existing home and build something much nicer. The parties entered into a written contract, setting out a closing date, purchaser price and other terms. 

By separate written addendum executed the same day, the parties modified the terms of the purchase contract: Wang agreed to remove the trash on the property, the closing date was delayed, and Royal was given the right to perform “any repair/construction at buyer’s risk & expense.” The same addendum stated that a failure of the buyer to close the purchase vested any such improvements in the seller.  Over the next several months, Wang and Royal repeatedly amended the contract, as Wang failed to clean the trash from the property.  On each occasion, the parties delayed the closing date and the seller agreed to accept a lower purchase price. 

Royal ultimately alleged that Wang was in breach of the purchase contract, but agreed to waive the breach in return for yet another extension and lower price.  On June 16, 2005, the parties agreed to the price reduction, a new closing date and Wang agreed to remove his beat up car from the front driveway.  The agreement was made orally during a telephone conference between Shahparast and Wang’s agent.  Wang signed an agreement on that date reflecting the terms of the oral agreement.  Facts developed for trial indicated that Shahparast, on Royal’s behalf, signed a faxed copy of the same agreement.  However, the date of Shahparast’s signature was left blank. Wang never formally received the signed copy, and only obtained a copy as part of the civil litigation.  In essence, the purchaser, Royal failed to deliver the written addendum with signature.

The parties continued to dicker over issues, but never agreed on a new purchase price and closing date in any completed contract.  Unbelievably, in October of 2005, as their dispute continued, the purchaser demolished Wang’s home on the property. He then built a replacement home at a cost of around $700,000.  Wang was aware of the construction but chose not to seek an injunction.  Instead, he concluded that Royal was in trespass, and that any improvements built on the property by Royal would belong to the seller as per the terms of the initial agreement. 

Although each party eventually claimed the other breached the contract first, and demanded a variety of remedies and damages, the crux of the case concerned the 3rd amendment to the contract dated June 16.  This agreement would supplant any prior addendum, if fully executed and enforceable.  Wang alleged that Royal breached this agreement by failing to close by its specified closing date of August 31.  Royal denied that the agreement was enforceable citing the Statute of Frauds, requiring that agreements for conveyancing of real property be in writing. 

The trial court held that the addendum was enforceable and as a result, Wang was entitled to receive the $25,000 deposit made by Royal as well as possession of the improved property.  The appellate court affirmed.

According to the court, the June 16 oral agreement among the parties would ordinarily be unenforceable, because there was no final signed agreement delivered by the buyer to the seller.  There was no dispute that the parties reached a meeting of the minds and entered into an oral agreement on June 16. Royal’s alleged breach of the terms of the June 16 agreement modifying the original contract occurred on August 31, the date Royal failed to close the purchase.  Shahparast admitted at trial that he signed the addendum, but he claimed he did so after the August 31 closing deadline. 

The court examined the most basic aspects of the Statute of Frauds, and the policy behind it, and determined that a writing signed by the party to be bound after an oral agreement is reached – and even after the alleged breach of the oral agreement – renders the oral agreement enforceable. Citing the Restatement (Second) of Contracts, Williston and Corbin, the court stated:

The Statute does not require its satisfaction by a writing to be made simultaneously with the agreement, and it is unnecessary to make the fictitious assumption that it is in fact simultaneous in a case where it is not. Satisfaction of the Statute by the making of the memorandum does, however, result in the previously unenforceable oral agreement becoming binding, and since it is that contract which becomes binding, it should be as of the date of the oral contract; and there seems to be no limit, except perhaps that imposed by the Statute of Limitations, upon the power of a party to an oral contract at any time to make a memorandum binding upon himself.

Indeed, the court argued that the policy of the Statute is to prevent the enforcement of contracts that were not made, and rather than failing to enforce contracts that were made.  Under the rather “strained” facts of the case, the addendum “is not the contract” but it is satisfactory as a writing to make the oral contract enforceable.

Reporter’s Comment 1:  The case is chock full of rather wonderful facts.  Ultimately, the seller, Wang, obtained a court order naming the purchaser a trespasser and granting him possession.  Wang changed the locks, but not before Shahparast entered the home and removed thousands of dollars worth of expensive kitchen cabinetry. 

Reporter’s Comment 2: The court’s application of the Statute of Frauds is correct.  Often, lawyers think of the Statute as requiring the simultaneous creation of a written instrument with the oral agreement.  But this is not the case. A later executed document will be evidence of the oral agreement.  What is interesting here is that the later executed document was discovered as a part of the trial process – this discovery substitutes for delivery of the written instrument.

Reporter’s Comment 3:   In any event, Shahparast’s failure to fill in the date of the agreement he signed should have been grounds enough to find an enforceable agreement.  Put bluntly, the purpose of the Statute of Frauds is to prevent fraud.  Looking cynically at the facts, the purchaser very possibly filled in the contract on the date he received it by fax on June 16.  His failure to fill in the date was his attempt to hedge his bets.  If he later decided that he wanted the addendum to be enforceable, he would say that he filled it in on the date received. 

Reporter’s Comment 4:  The seller, Wang, acted in a mercenary fashion by permitting the continued improvement and construction of a home on his property after he had notice construction was underway.  The court nevertheless awarded possession of these improvements to Wang.  The court denied that Wang was unjustly enriched by keeping a $700,000 home he did not pay to construct. This is a bit harsh.  The common law does not establish a fiduciary duty between trespasser and the owner of property, and the ordinary rule is that the trespasser loses the value of improvements.  But unjust enrichment law weighs equities, and neither of these two parties behaved appropriately. Why not place the burden on Wang to enjoin construction? Houses are not built overnight.  The court was caught between the common law rule and forcing a sale of the house to Wang at a value the court determined.  This is something the court was loath to do, perhaps because the parties had addressed the issue specific
ally in the contract.

Reporter’s Comment 5: Once again, even relatively wealth-challenged parties can find lawyers and pursue legal action in real property matters.  The purchaser likely believed that Wang was not likely to enforce his rights to their full extent – thus Shahparast’s rather ridiculous decision to build a home before purchasing property on which it sits.   Wang, according to the facts, made $18,000 a year and was occasionally so hard up financially that he had to resort to “dumpster diving” for food. But he certainly found a lawyer when he needed one and proceeded to win at trial and on appeal.

Comment 5:  The case generated other legal issues.  For example, the trial court awarded attorneys fees to the seller even though he also received the house.  The buyer thought this terribly unjust.  But the contract contained a stock attorney’s fees provision awarding fees to the “prevailing party.”   Wang was the prevailing party. Rubbing salt in the wound, Shahparast was held in contempt for his actions of removing the kitchen cabinets after reading a court order awarding possession to Wang.  Cabinets in the context of a buy/sell agreement, of course, are fixtures.

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