by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

STATUTE OF FRAUDS; ESTOPPEL: Montana Supreme Court rules that promissory estoppel is not available to enforce a contract that is void due to the Statute of Frauds. Austin v. Cash, 906 P.2d 669 (Mont. 1995). Buyers brought an action for specific performance of a contract to acquire certain Montana land based upon revised counteroffer. The revised counteroffer in this case was not "subscribed" to by the seller and therefore did not meet the Statute of Frauds requirements. But one of the brokers testified that the seller verbally had agreed to the counteroffer. The buyers alleged that that broker had represented to the buyers that the seller had signed the counteroffer, when in fact the broker had simply written new terms onto an earlier counteroffer that seller's had signed and faxed it to the buyers. The result was that there was at least an argument that the parties had agreed verbally and that the buyers believed that seller had signed a counteroffer.

Subsequently, the buyers, in negotiating over the sale of some property in California that everyone knew had to be sold to make the instant deal work, reduced the price of the California property by $45,000. Buyers claimed that that they would not have reduced the price had they known that they did not have a binding deal on the purchase of this new property. The trial court found for the buyers, so one assumes that most issues of fact would be construed in favor of the buyers. Nonetheless, the Montana Supreme Court reversed.

The court held that the contract could not be taken out of the Statute of Frauds under the theory of part performance by the buyers since the reduction in price of the California property was done in contemplation of eventual performance, but was not itself performance of the Montana contract. Buyers' actions were not unequivocally referable to the Montana contract. Promissory estoppel is not applicable, when there is a case within the Statute of Frauds. Since the contract did not meet the Statute of Frauds requirements, there was no valid contract in existence and the court did not grant specific performance to the purchaser.

Comment: The facts given us by the Montana court do not indicate that the sellers had any reason to expect that the buyers would reduce the price of the California property on the basis of their belief that they had a deal in Montana. Consequently, the fundamental requirement for estoppel based upon forseeable reliance doesn't exist in this case. But to the extent that the court is suggesting that estoppel would never be available in favor of buyers as against a contract that is void for the Statute of Frauds, the editor doubts that the court is following the generally accepted common law. If a seller makes a verbal promise to sell, and the buyer relies upon that promise in a foreseeable way, there is an estoppel. The consequence may be simply that the buyer is entitled to some equitable relief for the consequences of the reliance, and may not be entitled to get the contract enforced. But certainly enforcement of the contract is one conceivable remedy given the right circumstances.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.