Select Page

Real Estate Transactions
University of San Diego School of Law
Horning, Duane S.

Real Estate Transactions
Professor Duane Horning
University of San Diego School of Law
Fall 2012
Statute Of Frauds
Certain documents must be in writing and satisfy other requirements.
9  Policy Considerations:
–         Require reliable evidence of terms of contract.
–         Prevent perjury
–         High monetary values in real estate transactions
–         Prevent excessive litigation
Cal Civ Code § 1624(a) – Contracts are invalid unless in writing and subscribed by party or party’s agent:
®      Not to be performed within year
®      Answer for default/debt of another
®      Agreement for lease of period longer than 1 year, or for sale of real property, or any interest therein
o    If made by agent of party, agent’s authorization must in in writing and subscribed by the party.
®      Agreement authorizing/employing agent/broker/other person to sell real estate or to lease real estate for longer than a year, or to product/introduce/find a purchaser or seller of real estate or a lesse/lessor of real estate where lease longer than 1 year for compensation or commission.
9  Offer
9  Acceptance
9  Consideration
à Not required with a deed, but other Ks require it.
®      Acceptance with new terms à Counter offer.
1.       Contract to buy/sell property or transfer any interest in property.
2.       Leases of more than a year.
3.       Real estate brokerage agreements
à The exceptions do not apply to these. 
4.       Purchaser’s assumption of indebtedness secured by mortgage, conveyance, or deed of trust on purchased property.
®      August 2 2012 – August 1 2013 à valid
®      August 2 2012 – August 2 2013 à not valid
1.       Writing setting out minimum essential terms of property
à Buyer, seller, price, & property.
à These are only requirements, so long as there are there, it’s valid
à Property description doesn’t need to be as descript as in deed. 
a.        Time/manner of payment are not essential terms
b.       Does not need to be single document
2.       Signed by the party against whom the contract is being enforced.   
a.        Doesn’t need to be full name
à Can be initials, stamp, whatever
b.       Doesn’t need to be on every document, only one.
c.        Can be signed by an agent
Agent has authority to act, not just sign, because separate writing signed by principal allows it.  (Ex. Real Estate agent)
Agent that can clerically sign at principle’s request but has no power to act or enter into a contract.  Ex. Secretary.
Can be used to boost or interpret essential terms, but it cannot contradict
1.        Part Performance
à but payment isn’t enough
2.        Detrimental reliance / Promissory Estoppel.
à other party needs to be aware of reliance
3.        Settlements in the presence of a judge/court
à because the judge watches
4.        Judgments
à because the judge watches
MODIFICATION – Cal. Civ Code § 1698
®       A contract in writing may be modified by a contract in writing
®       A contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties. 
®       Unless the contract expressly provides, a K in writing may be modified by oral agreement supported by new consideration.  The Statute of Frauds is required to be satisfied if the contract as modified is within its provisions. 
®       Nothing in this section precludes in an appropriate case the application of rules of law concerning estoppel, oral novation and substitution of a new agreement, recission of written contract by an oral agreement, waiver of a provisions of a written contract, or oral independent collateral contracts. 
An estate in real property, other than an estate at will or for a term not exceeding one year, can be transferred by
®       operation of law OR
®       by an instrument in writing, subscribed by the party disposing of the same OR
®       by his agent thereunto authorized by writing
HYPOTHETICAL 1:  If A & B write out the terms on a napkin, and A initials the napkin, is the contract binding?
®      Yes.
®      Full signature not required, initials are ok
®      Doesn’t matter that it was a napkin, still in writing
HYPOTHETICAL 2: If A & B meet in a bar, and A decides to purchase B’s house, and they clink glasses, what result?
®      Not in writing so not valid.
®       Facts: Divorcing couple sells home to π. Only the husband signed the contract.  Wife says that she will sign the K later, but never does.  π spends money on improvements to the property and misses the chance to buy another house.  Wife doesn’t want to sell her share of the remodeled property.  Wife claims that she because she never signed, she isn’t bound. 
®      Issue: Whether the contract was unenforceable because it did not satisfy the Statute of Frauds because the wife did not sign it.
®      Rule: Promissory estoppel: exception to statute of frauds when an injury results from denying enforcement of a contract because one party knew the other party would act in detrimental reliance on the contract.
®      Application: Although wife didn’t know π missed out on the other house, the court ignores the knowledge requirement, saying that the wife should’ve known that π naturally wouldn’t buy the house in reliance on the contract.  Plus, her actions indicated assent to the contract. 
®      Conclusion: Husband bound to the contract regardless because he did sign it.  The wife is bound to the contract because of π’s detrimental reliance. 
®      Facts: ∆ negotiates up to 15 year lease with π, but withdraws mid-negotiation and leases to Linen’s n things.  π signed the lease, but ∆ didn’t.  π says that statute of frauds did not apply because the lease had a one year termination clause.  
®      Issue: Whether the lease is enforceable.
®      Rule: Statute of Frauds applies for leases longer than a year.
®      Application: The contract must satisfy the Statute of Frauds because the one year termination clause was not within a year and the lease was for 15 years.  So, because ∆ never signed, the contract is not enforceable.    
®      Conclusion: The Statute of Frauds was not satisfied so π cannot enforce the contract against ∆.
HYPOTHETICAL 3: Seller signs one letter that accompanies the lease. 
®      Not satisfied if you argue that the letter was not part of the lease.
®      It is satisfied if you argue the piecemeal rule to make letter part of the lease. 
Letters of Intent, Agreements to Agree, & Contract Formation
Writing documenting parties’ preliminary understanding of desire to enter into a future contract. 
NOT GENERALLY BINDING: letters of intent are not binding. All they do is help parties provide basic deal points. 
BINDING IF parties objectively mean it to be binding. 
àIt must clearly say so on the fact of the letter. 
®       Ensure objective intent is evidenced with the language of the K.
à Can use oral agreements to show objective intent. 
®       Any failure to follow up the agreement to make a more formal agreement does not invalidate the first contract because was already established as binding. 
When parties orally agree upon all material terms/conditions to proposed written contract with mutual intent that oral agreement should become binding. 
An oral agreement within the statute of frauds limitations is voidable at the option against whom enforcement is sought.
In every contract, implies that neither party will do anything to deprive other party of the benefits of the contract. 
®       Sometimes, parties create informal but binding contracts saying they will create a formal one later.  This first contract is still bindings
®       In mediation/settlement, every good lawyer knows that if you get parties to agree, you have to get it signed on the spot or you lose the agreement when they walk out of the room.  You can write it on yellow notepads by hand, but in a binding way. 
®       “As a matter of form, it may be legally sufficient, but it isn’t everything we really want, so language will be added. (E.g. parties will negotiate further). 
®       Essential terms:
o    Parties
o    Price
o    Property
®       If you want binding, add clause stating letter is binding.
®       If you don’t want binding, a clause saying so, OR saying that a later formal document will be binding. 
HYPOTHETICAL 1: If all the essential terms are in the document and no language says the document is not intended to be nonbinding, can the document be binding?
®       Possibly.  You can argue that the parties meant it to be binding through their unambiguous actions or any language that suggests that it is binding. 
®       If any language suggests a later formal contract or subsequent agreement, then it weighs against it being binding
HYPOTHETICAL 2: What if it’s an oral K the parties write down?
®       Badly drafted documents lead to litigation. 
®       Facts: ∆ and π negotiated to buy ice cream manufacturing plant.  They come to an agreement on some terms via a letter of intent, but ∆ ends negotiations and returns π’s deposit. ∆ said it was only an agreement to negotiate, but π sues for expectation damages/lost profits.
®       Issue: Whether the written agreement that was signed by π was binding.
®       Rule: An agreement to agree is unenforceable, but a binding agreement to negotiate is ok.
®       Application: This was not an agreement to agree.  It was an agreement to negotiate, which is binding.
®       Conclusion: Appropriate remedy for breach of contract to negotiate is reliance damages, not damages for lost profits. 
®       Policy: Good faith and fair dealing. 
®       Facts: Medical care franchisee sued franchisor for breach of K.  Agenda clearly said that the meeting decision was subject to board’s approval.  At the end of meeting, they shook hands.  π drafts letter of intent, ∆ signs, but changes letter to say that it was nonbinding and that ∆ only intends to enter into preliminary agreement.
®       Issue: Can π enforce the oral agreement and handshake as binding?
®       Rule: An oral agreement within the statute of frauds is voidable at the option of the party against whom enforcement is sought.
®       Application: π seeking enforcement against ∆, who wrote a letter saying the agreement was nonbinding and the agenda said the meeting decision was subject to later approval. 
®       Conclusion: No binding contract arose from the letter of intent.  Nonbinding written agreement. 
HYPOTHETICAL 2: What if the meeting was videotaped and assent was clearly manifested because ∆ said “OK, deal! Ill put it in writing.” 
®       There is a binding agreement because oral agreements are enforceable as long as you can show intent, even without a written document.
®       However, an oral agreement covered by the Statute of Frauds can be voided at any time, so really it’s not enforceable.
®       Moral: Get everything in writing.
HYPOTHETICAL 3: Can an agreement to enter into a later agreement/contract be enforceable?  (∆ agrees to later agree to buy π’s land).
®       No.  Agreements to agree are unenforceable.
HYPOTHETICAL 4: Can an agreement to agree to a binding contract but decide the essential terms later be enforceable?
®       No.  Without the essential terms it’s not a valid writing and isn’t enforceable.
®       You CAN agree if you agree to initial essential terms and fill in the details tater, but you always must have essential terms. 
Titles, Deeds & The Recoding System
Intangible legal construct.  Not a document.
1.        Possession
2.        Alienation
3.        Use
4.        Dispose
GOVERNMENT REGULATION: Titles are subject to

EST: Any claim/right to a property.  Not necessarily exclusive and not necessarily possessory. 
ESTATE: A legal term used to define degree of persons ownership in property.  Measures quantity and quality of interests included in bundle of rights that make up estate. 
à Classified by duration / quality / time / number of tenants.
CO-OWNERSHIP: usually limited to: joint tenancy, tenancy in common, community property, special entities (trusts, corporations, llc). 
FREEHOLD ESTATE: Estate’s duration potentially infinite or is measured by length of someone’s life.  California recognizes 3 types.
FEE SIMPLE ABSOLUTE: Estate free of any conditions/limitations. 
à Language: “To _____ and his heirs . . . “
FEE SIMPLE SUBJECT TO CONDITION SUBSEQUENT/DEFEASIBLE: Estates granted subject to a condition that, if violated, could lead to the loss of the estate.
à Language: “upon the condition that; but if; as long as; until”
à Power of termination: future interest arising from this life estate when the condition happens.
LIFE ESTATE: duration measured by/limited to life of one or more people.
à Language: “To A for life, then to B;” “to A for life”
à Remainder: Future interest arising from estate to person, “then to.”
à Reversion: future interest arising from estate when it reverts back to grantor because nobody named after A’s life. [Note: these are rare because people prefer living/revocable trusts now.]  
NONFREEHOLD ESTATE / LEASEHOLD ESTATE: All other estates, usually leases.  Examples: tenancy for years, periodic tenancy at will, tenancy at sufferance. 
®       Licensee: mere privilege to use the land.  Example: occupant of a hotel.
®       Tenant: has exclusive right to possession of land free from disturbance by landlord. 
®       Easement: less than privilege to use land.  Ex: right to put up billboards. 
QUALITY: refers to absoluteness or certainty of estate’s duration.
à “As long as booze is sold.”  Uncertain because could happen at any time or could last forever. 
®       Estate for Years: Tenancy of fixed duration, with definite beginning and end date.  (Doesn’t have to be by year, could be 7 days).
®       Periodic Tenancy: Continues indefinitely for successive periods until terminated by proper notice.  Has begin date & duration period, but undeterminable ending date.  (E.g. month to month).
®       Tenancy at will: Unknown duration, capable of being terminated at will of either party without notice.  (very rare)
à California: law requires 30 day notice by landlords.
®       Tenancy at Sufferance: Occurs when a tenant who was lawfully in possession remains in possession without owner’s consent after termination of tenancy or contractual right to occupancy. 
o    Landlord’s options
§   Evict: court action, landlord must follow procedure.  Can possibly recover treasonable value of use of premises.
§   Accept rent: doing so converts into periodic tenancy.
§   Do nothing: implies consent and changes to tenancy at will, in which landlord must give 30 days notice. 
®       All estates are interests in land
®       Not all interests in land are estates
®       Example: a security device, such as a mortgage or deed of trust is an interest in land that does not convey any estate in real property. 
®       Facts: ∆ deeds land to school subject right to buy back should land cease to be used for school.  School wants non-school use now.  Court granted since the grantor was dead and no future interest was established, just an option to purchase back.  Heirs appeal.
®       Issue: Did the deed create any future interests for the heirs?
®       Rule: Reversion only exists for states less than fee simple
®       Application: This is a fee simple, not a life estate.  So, no reversion.  If there was a contingency option, it died with the grantor because otherwise it would be a void of forever interests (which makes it void under rule of perpetuities).
®       Conclusion: The school owns the property in fee simple absolute and can do what it wants.
®       Policy: Court abhors forfeitures and tends not to find conditions in an estate to cause termination.
®       Facts: ∆ got oral permission from employer π to occupy property.  Upon termination of employment, π demands possession, services 3-day notice to quit or pay rent, and started eviction process. 
®       Issue: Was this a tenancy at will?
®       Rule: A permissive occupation of real estate, where no rent is reserved or paid and no time agreed on to limit the occupation, is a tenancy at will.
®       Application: the property was conveyed in consideration of services to be rendered and there was oral permission to occupy the premises without specification as to time or rent or duration.  So the status of the ∆s is a tenancy at will. 
®       Conclusion: ∆ gets 30 days notice