DD 11/10/08 Virginia takes Statute of Frauds seriously - seller can contract with another if details of first deal not resolved in writing.

Daily Development for Monday, November 10, 2008
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri
dirt@umkc.edu

VENDOR/PURCHASER; STATUTE OF FRAUDS:  The Statute of Frauds can provide a Seller with a complete defense to a contract for the sale of real estate even when the most material terms have been orally agreed upon for nearly two years but the parties have not yet reached an agreement on several less fundamental matters. 

Moorman v. Blackstock, Inc., 661 S.E.2d 404 (Va. 2008)

In the fall of 2002, several members of a family entered into negotiations with a developer, Blackstock, to sell their old family farm.  From very early on in the negotiations, the parties agreed on the most fundamental terms of a real property sale: the buyer, the seller, the property lines, and the price.  However, the parties differed on some other terms, such as the timing of payment and the restrictive covenants that would be put on the land.  Over the next two years, they exchanged many emails containing drafts of the contract and proposed terms, but the parties never signed a written agreement.  Eventually, negotiations between the parties broke down, and the family sold the farm to another developer for a higher price in September of 2004.  Blackstock sued for breach of contract of sale.

The court found for the family, indicating that, despite the existence of several broad exceptions such as equitable estoppel and part performance, the Statute of Frauds is alive and well in Virginia.  Furthermore, this is exactly the type of situation that the Statute of Frauds is intended to guard against: one party claims that a contract has been formed and that he knows all of the material terms, while the other party claims that there has not yet been a meeting of the minds on all material terms.  In requiring a written, signed contract for important transactions such as sales of land, the Statute makes clear for the parties (and courts) the exact moment at which a contract is formed and at which its terms become binding upon the parties.

The court supported its decision further by pointing out that the parties had exchanged written drafts of a contract but that at no point were both sides willing to sign one draft.  The court saw this as evidence that the parties did not intend to form a contract orally; rather, they intended that no contract would be formed until all terms had been agreed to in writing by both sides.  The court reasoned that “where parties intend to culminate their agreement with a signed contract, there is a strong presumption that no contract exists until a contract is formally signed and in writing. . . . Overcoming such a presumption requires ‘strong evidence.’”

Comment 1: The case is not unique, but the fact that the case is decided by Virginia’s highest court and written with the apparent intent to “deliver a message” makes if worth reporting.

It is certainly true that courts frequently find ways around the Statute of Frauds, but no thoughtful lawyer would ever count on that happening.  Make the deal before you start counting the profits!!

Comment 2: What should a lawyer do when faced with a “contract that never finalizes?”  Given the right circumstances, the lawyer can draft an agreement for the parties to sign that expresses the basic understandings and provides for a method of determining minor issues.  Normally, however, the court will expect some “bottom line” resolution of undecided issues, so one of the parties will have to take a risk on living with that “bottom line” if other negotiations fail. 

Another approach that sometimes works, when more information will make the deal easier to complete, is to turn a sale into an option, which the optionee will not exercise if the parties later fail to reach agreement on critical points, but which states some “baseline” resolutions of these points so that the optionee has something. 

The editor welcomes input from others as to techniques to address these problems.  But the real lesson in this case is that lawyers must make their clients aware of the need for a final, executed agreement, and to maintain momentum toward such an agreement.  Hard to know whether anything would have helped in this case, but it stands as a warning to us all. 

Comment 3:  Note that the problem here seems to be that parts of the contract were never resolved at all - not that they simply weren't reduced to writing.  Had there really been a deal, albeit unwritten, the outcome here might have been different, although the analysis would appear to be the same.

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