Chapter: A contract for the sale of real estate in Michigan must be in writing to be enforceable due to which law? (EN)

Chapter: A contract for the Sale of Real Estate in Michigan Must Be In Writing to Be Enforceable Due to Which Law? (EN)

I. The Statute of Frauds: A Fundamental Legal Principle

• Definition: The Statute of Frauds is a legal doctrine requiring certain types of contracts to be in writing and signed by the party against whom enforcement is sought to be enforceable in a court of law. It is designed to prevent fraudulent claims and perjury by requiring reliable evidence of the agreement’s existence and terms.
• Historical Context: The Statute of Frauds originated in England in 1677 with “An Act for Prevention of Frauds and Perjuries.” The underlying intent was to address concerns about unreliable testimony and the potential for fabricated contract claims.

II. Michigan’s Statute of Frauds and Real Estate Contracts

• Michigan Compiled Laws (MCL) § 566.106: This section of Michigan law codifies the Statute of Frauds, specifically addressing contracts for the sale of real estate. It mandates that such agreements must be in writing to be enforceable.
  • Specific Language: MCL § 566.106 states, in relevant part: “No estate or interest in land, other than leases for a term not exceeding 1 year, nor any trust or power over or concerning lands, or in any manner relating thereto, shall be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by some person thereunto by him lawfully authorized by writing.”
• Key Elements for Compliance:
  1. Writing: The contract must be documented in a tangible form.
  2. Subject Matter: The writing must clearly identify the real estate being conveyed. The legal description is usually required, although an address can suffice if it allows for unambiguous identification.
  3. Parties: The writing must identify the buyer(s) and seller(s).
  4. Terms and Conditions: The writing must outline the essential terms of the agreement, including the purchase price, method of payment, and any contingencies.
  5. Signature: The writing must be signed by the party against whom enforcement is sought (or their authorized agent). This means that, to be enforceable against the seller, the seller must have signed the document. To be enforceable against the buyer, the buyer must have signed the document.

III. Exceptions to the Writing Requirement: Partial Performance and Estoppel

• Partial Performance: While the Statute of Frauds mandates a written contract, courts may, under certain circumstances, enforce an oral agreement if the buyer has partially performed the contract. The partial performance must be unequivocally referable to the oral contract.
  • Elements of Partial Performance:
    1. Payment of Purchase Price (or a substantial portion thereof): The buyer has tendered money to the seller. Let P represent the purchase price and P_t the partial payment. P_t/P needs to be a significant fraction for this to be considered sufficient partial performance.
    2. Possession: The buyer has taken possession of the property with the seller’s consent.
    3. Valuable Improvements: The buyer has made substantial, valuable improvements to the property. If the value of the improvement is V_i and the original property value is V_p, then the ratio V_i/V_p must be considerable.
• Promissory Estoppel: This equitable doctrine may provide relief when one party relies on the oral promise of another to their detriment.
  • Elements of Promissory Estoppel:
    1. Promise: A clear and definite promise was made.
    2. Reliance: The promisee reasonably relied on the promise.
    3. Detriment: The promisee suffered a detriment as a result of their reliance.
    4. Injustice: Injustice can only be avoided by enforcing the promise.
  • Application to Real Estate: Promissory estoppel might be invoked when a buyer, relying on a seller’s oral promise to sell, sells their current home.

IV. The Significance of the “In Writing” Requirement

• Clarity and Certainty: A written contract provides a clear and unambiguous record of the agreement, minimizing the potential for misunderstandings and disputes.
• Evidence: A written contract serves as concrete evidence of the parties’ intentions and obligations. This is crucial in legal proceedings.
• Prevention of Fraud: By requiring a written agreement, the Statute of Frauds reduces the risk of fraudulent claims based on fabricated or misrepresented oral promises.
• Title Insurance: Title companies rely on written documents in the chain of title to ensure the validity and marketability of the title. Oral agreements are difficult or impossible to verify for title insurance purposes.
• Lender Requirements: Mortgage lenders require written purchase agreements to assess the value of the property and the terms of the loan.

V. Practical Applications and Examples

• Scenario 1: Oral Agreement: A and B verbally agree that A will sell his house to B for $200,000. B gives A $1,000 as a deposit. There is no written agreement signed by either party. This agreement is unenforceable under the Statute of Frauds. B cannot force A to sell the house at that price.
• Scenario 2: Written Offer and Acceptance: B submits a written offer to A to purchase A’s house for $200,000. A signs and delivers a written acceptance of B’s offer. A binding and enforceable contract exists.
• Scenario 3: Partial Performance: A and B orally agree that A will sell his farm to B for $500,000. B pays A $250,000, moves onto the farm, and begins making significant improvements, building a new barn at a cost of $50,000. A court may enforce the oral contract under the doctrine of partial performance, even though there is no written agreement. The substantial payment, possession, and improvements all point unequivocally to the existence of an agreement.

VI. The Uniform Electronic Transactions Act (UETA) and Electronic Signatures

• UETA in Michigan: Michigan has adopted the Uniform Electronic Transactions Act (UETA), which recognizes the validity of electronic records and electronic signatures.
• Application to Real Estate: Under UETA, a contract for the sale of real estate can be created and signed electronically, provided that the parties agree to conduct the transaction electronically and the electronic signature is attributable to the person signing.
• Requirements for Electronic Signatures: The electronic signature must be demonstrably linked to the signer and must be created using a method that allows the signer to retain control over its use.

VII. The Role of Legal Counsel

• Drafting and Reviewing Contracts: It is crucial to consult with an attorney when entering into a contract for the sale of real estate. An attorney can ensure that the contract complies with the Statute of Frauds and adequately protects your interests.
• Enforceability Issues: If you are involved in a dispute over a real estate contract, an attorney can advise you on the enforceability of the contract and your legal options.

VIII. Conclusion

The Statute of Frauds, as codified in Michigan Compiled Laws, is a cornerstone of real estate law. Its requirement that contracts for the sale of real estate be in writing serves to prevent fraud, ensure clarity, and provide a reliable basis for legal enforcement. While exceptions exist, reliance on an oral agreement is inherently risky. Prudent practice dictates securing all real estate agreements in a properly executed written contract, ideally with the guidance of legal counsel.