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CAN AN ORAL AGREEMENT FOR THE SALE OF LAND BE ENFORCABLE?

Posted by Michael Keller | Aug 07, 2023 | 0 Comments

The statute of frauds is a law found in the Texas Business & Commerce Code Sections 26.01 that requires any contract for the sale of real property, or for leases longer than one year, be in writing and signed by the person charged with the promise for the agreement to be enforceable. Therefore, an oral contract for the sale of real property, or for a lease longer than a year, will not be upheld by the courts. However, some exceptions to the statute of frauds exist that thus allow a contract to be enforceable despite the lack of a signed writing. Typically, these exceptions rest on the idea that enforcing the statute of frauds would amount to actual fraud against the buyer if the contact were voided.

PARTIAL PERFORMANCE

The first exception is the partial performance exception. Typically, when there is partial performance, the purchaser thinks he bought the land and acts as if he is the new owner while the seller acts as if the purchaser is merely a tenant on the land.

Here, a purchaser of real property may enforce an oral contract for the sale of land if the purchaser:

  • performs acts unequivocally referable to the agreement;
  • the acts were performed in reliance on the agreement;
  • the purchaser experienced substantial detriment as a result of the acts performed in reliance on the agreement;
  • there is no other adequate remedy for their loss; and
  • the seller reaps an unearned benefit such that not enforcing the agreement would amount to a virtual fraud.

When all five of these elements are met, the purchaser can enforce the oral contract to buy the land despite the statute of frauds.

PAYMENT, POSSESSION, AND IMPROVEMENTS

In Texas, case law has set forth another route that establishes partial performance when all three requirements are met. Here, a purchaser of real property may enforce an oral contract for the sale of land if the purchaser:

  • paid adequate consideration for the property,
  • took possession of the property, and
  • made valuable improvements to the property.

In order to enforce an oral contract despite the statute of frauds, there must be strong evidence of all three of these.

When considering these three elements, courts have set boundaries for what behavior is adequate to meet the requirements. First, payment of adequate consideration does not need to be payment in full. Partial payment is sufficient so long as the other two elements of possession and improvements are established. Courts have ruled that even payment of less than 30% of the full amount is enough to prove that there was payment of adequate consideration for the property.

Next, to prove that there was possession of the land, a purchaser must have present possession rather than possession occurring at a future date. While possession does not need to be exclusive, courts tend to look for evidence that the purchaser exhibited some sort of ownership or control over the property.

Lastly, the purchaser must prove that he made valuable improvements to the property. While there is no hard rule for the type of improvements that must occur, the improvements need to be to such an extent that the transaction would be fraudulent if the contract were unenforced. Additionally, many courts necessitate that the improvements are permanent.

PROMISSORY ESTOPPEL

The last exception to the statute of frauds is the doctrine of promissory estoppel. Promissory estoppel will allow an oral contract for the sale of land to be enforced despite the statute of frauds because the purchaser detrimentally relied on the promise. Here, the seller cannot escape the sale of the land and must uphold the contract due to principles of fairness.

To enforce an oral contract for the sale of land under the doctrine of promissory estoppel, the buyer must prove that:

  • the seller made a promise and expected the buyer to rely on the promise;
  • the buyer must actually rely on that promise and act as if he bought the land;
  • by relying on this promise, the buyer must suffer damages; and
  • these damages may only be compensated through court intervention.

When a purchaser is able to prove this, principles of fairness stop the seller from arguing that he did not sell the land to the purchaser. Here, the purchaser can enforce the contract for the sale of real estate without a signed writing because they acted in reliance on the promise, and it would be inequitable to void the sale.

THE KELLER FIRM CAN HELP

Have you recently transacted to buy or sell land without a contract in Texas? Or are you considering buying or selling land in the future? The Keller Firm has considerable experience in assisting both buyers and sellers of real estate in Texas. Contact The Keller Firm to discuss your matter today.

Disclaimer: This website is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with The Keller Firm through this site does not form an attorney/client relationship. 

About the Author

Michael Keller

Attorney and Founder

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