Schafer v. Barrier Island Station, Inc.
946 F.2d 1075 (1991)
Rule of Law:
Under the Statute of Frauds, a contract for the conveyance of land must be in a writing signed by the party to be charged or by an agent with lawful authority. An attorney does not have implied or apparent authority to bind a client to such a contract merely by virtue of the attorney-client relationship.
Facts:
- John V. Schafer, Jr., and other plaintiffs signed contracts with Barrier Island Station, Inc. to purchase three condominiums.
- The sales contracts were explicitly conditioned upon the execution of a separate repurchase agreement with terms acceptable to the buyers.
- The plaintiffs signed a proposed repurchase agreement, but Barrier Island returned it unsigned with a handwritten addition making its repurchase obligation contingent on the successful conversion of the development to time-share units.
- The plaintiffs rejected this handwritten addition as unacceptable.
- Barrier Island's attorney, Crouse Gray, then sent a letter to the plaintiffs' attorney stating he had 'been advised' that Barrier Island 'would agree to abide by the original repurchase agreements' without the handwritten addition.
- Relying on this letter, the parties closed on the sale of the condominiums over two months later without executing a final, mutually signed repurchase agreement.
- Over three years after closing, the plaintiffs demanded that Barrier Island repurchase the properties.
- Barrier Island refused, asserting that no valid repurchase agreement was ever consummated.
Procedural Posture:
- The plaintiffs (Schafer, et al.) filed a lawsuit against Barrier Island Station, Inc. in the United States District Court.
- Following a trial, a jury found that a written contract existed and returned a verdict in favor of the plaintiffs, awarding approximately $825,000.
- The district court entered a final judgment based on the jury's verdict.
- Barrier Island Station, Inc., as the defendant-appellant, appealed the judgment to the United States Court of Appeals for the Fourth Circuit.
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Issue:
Does a letter from a seller's attorney, which reports hearsay that his client 'would agree' to the buyer's proposed terms for a real estate repurchase agreement, satisfy the Statute of Frauds when there is no evidence the attorney had express or apparent authority to bind the client to the contract?
Opinions:
Majority - Niemeyer, Circuit Judge
No. A letter from an attorney reporting hearsay about a client's willingness to agree to a real estate contract does not satisfy the Statute of Frauds. The letter itself does not constitute a binding agreement, as its language ('I have been advised... that Barrier Island would agree') merely reports a potential future willingness to agree, not a consummated deal. Furthermore, for an agent's signature to satisfy the statute, the agent must be lawfully authorized. The attorney-client relationship does not create implied authority for an attorney to execute substantive contracts on a client's behalf. Apparent authority was also absent, as plaintiffs failed to show any manifestation by Barrier Island to them that its attorney, Gray, was clothed with the authority to bind the company to a contract.
Dissenting - Widener, Circuit Judge
Yes. There was sufficient evidence for the jury to reasonably conclude that Barrier Island agreed to the original repurchase terms. The combination of Gray's letter, his testimony that he would not have sent it without the principals' approval, the fact that the sale closed shortly thereafter, and the existence of other unsigned drafts without the offending language created a reasonable inference that Barrier Island dropped its demand in order to secure the sale. The majority improperly substitutes its own factual inferences for those of the jury and permits Barrier Island to use its attorney to conduct its affairs and then unfairly avoid the consequences of that conduct.
Analysis:
This decision reinforces the strict requirements of the Statute of Frauds in real estate transactions and clarifies the limited scope of an attorney's authority. It establishes that an attorney's power to negotiate does not, by itself, grant the power to contractually bind a client. The ruling places a heavy burden on parties who rely on communications from opposing counsel, signaling that nothing short of a writing signed by the principal (or an agent with proven authority) will suffice. Consequently, this case serves as a strong precedent against using an attorney's correspondence to satisfy the Statute of Frauds without clear proof of the attorney's authority to form a binding contract.
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