Daily Development for Monday, June 25, 2001

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

MORTGAGES; FORECLOSURE; PRIVATE FORECLOSURE:. The Statute of Frauds applies to nonjudicial foreclosure sales made pursuant to a power of sale granted in a security deed.

James v. Safari Enterprises, Inc., 537 S.E. 2d 103 (Ga. App. 2000).

Purchaser was the high bidder at a foreclosure sale conducted by mortgagee pursuant to a power of sale granted by security deed. Purchaser alleged that, at the time that she placed her bid, she was unaware that the sale was conducted under a subordinate mortgage and was subject to the first mortgage. The parties did not execute a memorandum of sale as to the transaction, and purchaser denied that they had formed a binding sales contract. The court held that the statute of frauds applies to nonjudicial foreclosure sales in such circumstances and that, as the purchaser had not admitted the existence of a contract, and as there had been no partial performance by (a) full payment, (b) partial payment and possession, or (c) valuable improvement and possession, purchaser was not bound to purchase the property.

Comment 1: The court notes that the Statute of Frauds, under Georgia statute, does not apply to judicial foreclosure sales. A 1902 Georgia decision, however, had concluded that the Statute does apply to nonjudicial foreclosure.

Comment 2: Georgia has a statute stating at court will grant specific performance if the party seeking relief has so far executed the contract, as a consequence of the inducements of the other side, that in the contract were abandoned he could not be restored to his former position The trial court had found that the facts fit within the doctrine, but the appeals court concluded, properly, in the editor's mind, that they did not. But note that this statute deals only with specific performance. It says nothing about a damages remedy. In this case, it would seem that a damages remedy could easily be devised, since there was another bidder, and that bidder's last offer would presumably establish the foreclosure value of the property absent the bid from the defendant.

The court acknowledges that this statute is somewhat different from the common law "part performance" doctrine, although it is quite similar to that doctrine. It concludes in the opinion that the facts did not fit within the "part performance" exception to the Statute of Frauds, and again the editor concurs.

Comment 3: The court does not mention another possible approach equitable estoppel. Although estoppel will not necessarily make the contract specifically enforceable, it can lead to some relief, including specific enforcement in the right case, such as that articulated in the Georgia statute. Equitable estoppel is distinct from part performance because under estoppel theory, unlike in partial performance, the party claiming relief need only show that it had relied to its detriment on the other side's representation that it acceded to the contract. The reliance need not be in the form of partial performance of the contract itself, although, of course, it must have been foreseeable.

The court does not give facts here that support a good case of equitable estoppel. There is some argument that the second bidder left the sale and therefore that the foreclosure seller had lost that bid as well. But the second bidder (under a process that most jurisdictions would not find acceptable) was the president of the company retained to carry out the sale, and his attorney was still present at the auction site when the defendant indicated that she was unwilling to close. Hard to make out any clear estoppel.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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