Johnston v. Curtis

Arkansas Court of Appeals
70 Ark. App. 195, 16 S.W.3d 283 (2000)

ELI5:

Rule of Law:

An oral modification to a contract for the sale of land, which is normally unenforceable under the Statute of Frauds, can be enforced if the buyer has partly performed the agreement by taking possession of the property and paying a portion of the purchase price.

Facts:

On October 9, 1997, Gerald and Bebe Johnston entered into a written contract to buy a house from Glen and Deanna Curtis for $114,000, contingent upon the Johnstons securing a $102,600 loan.
After the house appraised for only $110,000, the Johnstons' initial loan was denied.
The parties subsequently entered into an oral agreement to reduce the purchase price to $110,000.
Before the closing date, the Johnstons moved into the house and gave the Curtises a $500 check as a show of good faith.
A new loan for the reduced price was approved, and a closing was scheduled for November 17, 1997.
On the day of closing, the Johnstons refused to complete the purchase, stating that the loan's interest rate and closing costs were unacceptable.
The original written contract did not specify an acceptable interest rate or limit on closing costs.
The Curtises later sold the house to a different buyer in March 1998 for $100,000.

Procedural Posture:

The Curtises sued the Johnstons in the Circuit Court of Lonoke County (trial court) for breach of contract.
The trial court found the parties had a validly modified oral contract, which the Johnstons breached.
The trial court awarded the Curtises $10,000 in damages, representing the difference between the modified contract price and the eventual sale price.
The Johnstons (appellants) appealed the trial court's decision to the Arkansas Court of Appeals.
The Curtises (appellees) filed a cross-appeal, arguing they were entitled to additional damages.

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Issue:

Does the doctrine of part performance, evidenced by taking possession of the property and tendering a partial payment, remove an oral modification to a written real estate contract from the Statute of Frauds, making it enforceable?

Opinions:

Majority - Judge Sam Bird

Yes, the doctrine of part performance removes the oral modification from the Statute of Frauds, making it enforceable. While a material modification to a contract for the sale of land must generally be in writing, the Johnstons' actions constitute part performance, which is a well-established exception to the Statute of Frauds. The acts of taking possession of the home and tendering a $500 check are sufficient to prove the existence of the oral agreement to modify the price. Therefore, the modified contract is enforceable. The Johnstons' argument that their performance was excused by the failure of conditions precedent (obtaining an acceptable interest rate and closing costs) fails because these terms were never included in the written contract. A party cannot rely on a fact discovered after the breach, such as Mrs. Johnston's name not being on the deed, to excuse their non-performance.

Analysis:

This decision reinforces the significant role of the part performance doctrine as an exception to the Statute of Frauds in real estate transactions. It clarifies that a buyer's actions, such as taking possession and making a partial payment, can make an oral modification to a written contract legally binding. The case serves as a critical reminder for contracting parties to include all essential terms, such as interest rate caps or other financing conditions, explicitly in the written agreement. Failure to do so prevents a party from later using dissatisfaction with those unstated terms as a valid excuse for breaching the contract.

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