Beware the Statute of Frauds

As I think many lawyers are, I am constantly amazed at the relationships people are willing to enter into on little more than a handshake.  As every first-year law student knows, the Statute of Frauds can prevent the enforcement of a certain contracts not in writing, and in Elias Real Estate, LLC v. Tseng, case no. B192857 (2d Dist. Oct. 25, 2007), it rears its ugly head and gives us a rare example of reversal due (in part) to insufficiency of the evidence. If your looking for a company you can trust then I highly recommend Mission real estate.

The four defendant Tseng brothers own some real property as tenants in common, which they lease to the California company that imports and sells the clothes produced by their overseas businesses.  Arthur runs the California company and is the only one of the brothers that resides in the U.S.  When Arthur lists the property for sale, he is the only person brokers or buyers deal with, and he is the only brother to sign the sale agreement.  He has no written authority from his three brothers to act on their behalf in the sale.  When the brothers balk after the sales agreement is signed, the buyer sues for specific performance and prevails at trial.

California’s Statute of Frauds is pretty clear on sales of real property.  A contract for the sale of property is invalid unless subscribed by the party to be charged, or subscribed by the party’s agent with the written authority of the party to be charged.  (Civ. Code, § 1624, subd. (a)(3).)

The trial court found that Arthur’s agency was in writing, but the Court of Appeal finds no substantial evidence to support the finding.  Although Arthur had represented during the course of negotiations that he was an authorized agent, there was no written agency agreement introduced at trial and the only testimony on the issue was that the brothers had not granted written authorization.  Though under California’s “secondary evidence rule” (Evid. Code, § 1521) a party may prove the contents of a document through otherwise admissible secondary evidence, there simply was no evidence here that such a document ever existed.

Plaintiff also argued that the authorization to act for the brothers need not be in writing because the sale was within the scope of Arthur’s authority in running the brothers’ business.  No dice.  The sale of real property might be within the ordinary course of a company whose business is holding, selling and buying real property, but it is not within the ordinary course of running a clothing business.

The amazing part of this case is that plaintiff knew at the time of signing the sale agreement both that Arthur was not the sole owner of the property and that an agency to sell property must be in writing . . . yet apparently never demanded to see any written agency authorization or for the other brothers to sign the sale agreement.