An Oral Contract to Buy Real Estate is not Worth the Paper it is not Written on

(aka: Money Won’t Buy you Real Estate Without a Writing)

The Sixth District Court of Appeals in the April 23, 2010 case entitled Saber Healthcare Group v. Starkey upheld the well settled law in Ohio that mere payment of part of a verbally negotiated purchase price for land, without any signed written agreement or other signed writing will not be enforceable in courts of law.

In Ohio (and most other jurisdictions), the “Statute of Frauds” controls, which basically is an ordinance (originating from a 1619 Act of Parliament) establishing that certain contracts must be memorialized in a signed writing, to be enforceable. Specifically, Ohio’s Statute of Frauds (ORC Sec. 1335.05) provides that “no action shall be brought upon a contract or sale of lands or interest in or concerning them, unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith”.

In the Saber Healthcare case, Saber Healthcare and Starkey entered into negotiations concerning the sale and purchase of Starkey's property. Saber gave four checks to Starkey, over a six month period totaling $35,000.00. Starkey cashed all four checks and used a portion of the funds towards paying down the mortgage on the property. Saber produced a draft purchase agreement and sent it to Starkey, who declined to sign the agreement. The draft agreement contained a provision characterizing the $35,000 as a down payment fully refundable in the event the transaction was not closed. Starkey, however disputed that the draft accurately contained their verbal agreements never signed same, and never returned any money to Saber.
Saber, obviously upset that it was out $35,000 and would not get the property on its terms, sued to get its money back on the basis of “unjust enrichment.” The trial court agreed with Saber, and Starkey appealed, claiming: 1) the payments were not unjust enrichment; and 2) alternatively, there was a contract formed and Saber should be ordered to purchase the property.

The Sixth Circuit first confirmed “unjust enrichment”, because all the elements established by Ohio Law were present, namely: 1) a benefit was received by one party from the other; 2) the receiving party was aware of the benefit; and 3) retaining the benefit by the receiving party, without paying for it would be unjust under the circumstances. Starkey got the $35,000 and still had the property. Being allowed to keep both would be unjust.

Starkey then argued that a contract had been formed and Saber breached it. The Sixth Circuit, however, reiterated the general rule regarding the Statute of Frauds. Basically, without a signed writing, there was no enforceable contract and that mere payment of part of the purchase money, without a written memorandum or other written agreement to sell, did not take the contract out of the Statute of Frauds.

Starkey’s final argument was that the Saber payments should be deemed ‘part performance” of the contract to buy the real estate, and “part performance” is a recognized exception to the general rule of the Statute of Frauds. The Sixth Circuit recognized this exception to the general rule, but held it not applicable in cases like Saber Healthcare v. Starkey where the party claiming part performance (established a contractual relationship) was not prejudiced or adversely affected.

Moral of this Story? Get it in writing first, then take the money and run.