Black-letter propositions
- 01
A contract for the sale of real property is void unless the contract or a note or memorandum of it, expressing the consideration, is in a writing subscribed by the party to be charged or his lawfully authorized agent, as in New York General Obligations Law section 5-703(2); California's section 1624(a)(3) likewise requires the agent's authority to be in a signed writing.
- 02
The writing must be signed by the party against whom enforcement is sought, so a contract signed only by the buyer can be enforced against the buyer but not against the seller.
- 03
The statute of frauds does not abridge the power of courts of equity to compel specific performance in cases of part performance, as when the buyer takes possession and makes valuable improvements in reliance on an oral contract.
- 04
If a contract does not specify a time for performance, a reasonable time is allowed, and an act like payment of money that can be done instantly must be performed immediately once the thing to be done is exactly ascertained.
- 05
Specific performance of a contract to convey real property is favored because damages are presumed inadequate; California makes the presumption conclusive for a single-family dwelling the party seeking performance intends to occupy, and a presumption affecting the burden of proof in other cases.
- 06
For a seller's breach, California measures the buyer's detriment as the price paid, expenses of examining title and preparing papers, the difference between the contract price and the value at breach, expenses of preparing to enter the land, consequential damages, and interest; for a buyer's breach, the seller recovers the excess of the contract price over the value of the property to the seller, plus consequential damages and interest.
- 07
A liquidated damages clause in a contract to sell owner-occupied residential property of not more than four units is valid to the extent of cash actually paid if the amount does not exceed 3 percent of the price unless the buyer shows it is unreasonable; over 3 percent, it is invalid unless the party relying on it shows that the amount is reasonable.
Use this attack sequence under time
Frame the issue
Test the writing for signature by the party to be charged, the property, the parties, and the consideration, and check any agent's written authority.
Resolve the next checkpoint
If the writing fails, ask whether part performance, estoppel, or another exception lets a court enforce the contract in equity.
Resolve the next checkpoint
Identify the time for performance, whether a date was fixed, and whether delay was reasonable.
Finish the conclusion
Choose the remedy: specific performance, damages under the statutory formula, or retention of a deposit as liquidated damages.
Common wrong turns
- The signature required is that of the party against whom enforcement is sought, not of both parties.
- Part performance is a ground for specific performance in equity, and it does not convert an oral contract into a valid written one.
- A deposit above the statutory percentage is not void; it is valid only if the seller proves it was reasonable.
Worked example
A buyer signs a written contract to buy a house for $300,000. The seller never signs, and later refuses to close.
The statute of frauds requires the signature of the party to be charged. Because the seller did not sign, the buyer cannot enforce the contract against the seller unless an exception such as part performance applies, although the seller could enforce it against the buyer, who is the party that signed.
Practice this topic
The writing requirement and part performance
New York General Obligations Law section 5-703(2) says a contract for the leasing for more than one year, or for the sale, of any real property or an interest in it is void unless the contract or some note or memorandum, expressing the consideration, is in writing, subscribed by the party to be charged or his lawful agent authorized by writing. Subdivision (4) says nothing in the section abridges the powers of courts of equity to compel specific performance of agreements in cases of part performance. California Civil Code section 1624(a)(3) invalidates an agreement for the sale of real property, or an interest in it, unless it or a note or memorandum is in writing and subscribed by the party to be charged or the party's agent, and it requires an agent's authority to be in a writing signed by the party sought to be charged.
Cornell's Wex entry on the statute of frauds treats it as a rule that certain contracts must be in writing to be enforceable. The exam commonly tests three points: which party must sign, what the memorandum must contain, and the part performance exception.
Time and remedies
California Civil Code section 1657 says that if no time is specified for performance of an act, a reasonable time is allowed, and an act that can be done instantly, such as payment of money, must be performed immediately once the thing to be done is exactly ascertained. Cornell's Wex entry says specific performance is a remedy in which a court orders a party to fulfill its obligations, is often applied when damages are inadequate, and is most common in cases involving real property.
California Civil Code section 3387 presumes that breach of an agreement to transfer real property cannot be adequately relieved by money, and makes the presumption conclusive for a single-family dwelling the party seeking performance intends to occupy. Section 3306 defines the buyer's detriment on the seller's breach as the price paid, the expenses of examining title and preparing papers, the difference between the agreed price and the value at breach, expenses of preparing to enter the land, consequential damages and interest. Section 3307 defines the seller's detriment on the buyer's breach as the excess, if any, of the amount due the seller under the contract over the value of the property to the seller, plus consequential damages and interest.
Liquidated damages and deposits
California Civil Code section 1675 governs liquidated damages in contracts to sell residential property with no more than four units that the buyer intends to occupy. Such a provision is valid to the extent of payment actually made in cash or by check if it meets other statutory requirements and either of two conditions. If the amount paid does not exceed 3 percent of the purchase price, the provision is valid unless the buyer establishes that it is unreasonable. If it exceeds 3 percent, the provision is invalid unless the party seeking to uphold it establishes that the amount is reasonable.
Reasonableness is judged by the circumstances existing when the contract was made and by the price and terms of any resale within six months of the buyer's default. The statute therefore shifts the burden of proof according to the size of the deposit.
Frequently asked questions
What is the controlling rule for contracts for the sale of land: writing, part performance, time, and remedies?+
State the writing requirement and who must sign, apply any exception, set the time for performance, and finish with the remedy formula and any liquidated damages limits.
Who must sign a contract for the sale of land?+
The party to be charged, meaning the person against whom enforcement is sought, or that person's authorized agent, under statutes like New York's section 5-703(2).
Does part performance make an oral land contract enforceable?+
A court of equity may compel specific performance in cases of part performance, but the statute otherwise voids the oral contract, per section 5-703(4).
Is specific performance available for a house buyer?+
Yes. California presumes damages are inadequate for real property and makes the presumption conclusive for a single-family dwelling the buyer intends to occupy.
How large a deposit may a seller keep as liquidated damages?+
In California, up to 3 percent of the price is presumed valid, and more than 3 percent is valid only if the seller proves it reasonable, under Civil Code section 1675.