ORS 41.580 Statute of Frauds Certain types of agreements are void unless the agreement, or some note or memorandum thereof, expressing the consideration, is in writing and subscribed by the party to be charged.
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There are few provisions of state law affecting real estate as misunderstood as the Statute of Frauds. The statute is just that: a statute. The statute is commonly thought to “require” certain contracts, including real estate sale agreements and listings, to be in writing. That is, unfortunately, far too simple and misleading an interpretation of the statute.
Certainly, real estate contracts should be in writing. REALTORS® have long demanded written agreements in all of their activities on behalf of clients through Article 9 of the Code of Ethics. That is just good business and diligent representation. The Statute of Frauds is not about good business. Instead, it is an arcane rule of evidence that can affect the outcome of disputes over contracts. With that basic understanding, we can turn to an examination of the statute itself and its impact on the real estate industry.
Rejection of an offer terminates the offer. You cannot reject an offer and then later accept it. The very same rule applies to counter offers. A counter offer revokes the original offer. Thus, a seller cannot counter the buyer’s offer seeking more money and, when the buyer rejects the counter, then turns around and accept the original offer. Similarly, a buyer may not counter a seller’s counter offer and, when their counter is rejected, try to go back to the seller’s counter offer. Notwithstanding these most basic rules of offer and acceptances, both buyers and sellers will sometimes try to counter and, when that goes nowhere, try to accept the original offer.
Counter offers can sometimes be confused for “grumbling assent” or “counter inquiry.” Grumbling assent is acceptance with some comment like: “I accept but still think the price is too high.” A counter inquiry is acceptance with a proposal for new terms. For instance: “I accept but would you consider less money?” A grumbling assent or counter inquiry is not a counter offer, it is acceptance. The key here is clear acceptance and a request or comment, not a demand or other statement that would call into question the willingness to proceed with the terms proposed in the offer.
This same issue of request versus demand is central to understanding the real estate myth that a contract, once formed, can be terminated if one party requests changes to the contract that are “rejected” by the other. Basically, there is no such thing as a counter-offer to a contract that has already formed. Once the contract has formed, subsequent requests for modifications that do not threaten non-performance are just that: requests. If rejected, nothing happens. Click here for a detailed discussion of the difference between modification requests and threats of non-performance.
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Revocation is the manifestation of the intent not to enter into the contract proposed by an offer. A “manifestation” of intent can be oral or written or, as discussed shortly, even indirectly. Unless an offer is specifically made irrevocable, it can be revoked at anytime prior to acceptance.
Revocation is effective when received. This, of course, leads to endless argument about what it means to have “received” something. Legal texts dealing with the law of contracts define “received” as “when a writing comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him.”
As you can see from the definition, “receipt” does not require that the writing come into the possession of the person to whom the revocation is addressed. Possession by the addressee is but one of three ways to have receipt. Typically, buyers and sellers deal through agents. So the question is whether agents are “authorized” to accept revocations. The answer is very simple: If they are authorized to receive offers and acceptances, they are authorized to receive revocations unless the principal specifically limits their authority.
If agents are authorized to receive revocations, revocations are effective when agents receive them. This is true whatever the means by which the revocation is communicated. Agents should, however, keep in mind that things done verbally can end up being worth about as much as the paper they are [not] written on. These two factors suggest that the best way to handle a revocation for a client is to call the other agent and tell them your client revokes and to check their fax machine because your clients’ written confirmation of the revocation should be printing out as we speak.
When you can’t reach the other agent, the third part of the definition of “receipt” (“when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him”) comes into play. Notice that the third part of the definition of “receipt” includes deposit where “similar communications” are deposited. What is similar to a revocation? How about communications (offer, counter offer, acceptance, etc.) regarding formation of the contract? Basically, a revocation can be “deposited” any place the recipient has authorized the deposit of other communications regarding the formation of the contract. Typically, that is their real estate agent’s office.
How does one “deposit” something at a real estate office? Handing it to a person and getting a receipt is a best case scenario (easy to prove and very certain). Sending it to a person during business hours by a means of communication commonly used for that purpose is another way but can raise “I never got it” issues. Sending it to a fax machine after hours raises even more issues. Slipping something under the front door after hours is at the far end of the “deposit” spectrum (hard to prove and very uncertain).
A good way to think revocation is to analogize it to the deposit of money in a bank. When you go to the bank during banking hours and hand the money to a teller and get a receipt, you are very sure the money has been “deposited.” If you drop it in an ATM and get a receipt, that’s pretty good. Dropping it in a night deposit box designated for that purpose works but you won’t have a receipt. Shoving money under the front door after hours might work if it is discovered by an honest person but you wouldn’t want to bet on it. In short, revoking is pretty easy but you need to think about proof.
The ease (assuming adequate proof) with which an offer can be revoked is probably made most clear by the common law doctrine of indirect revocation. The doctrine originated in the 1876 English common law case of Dickerson v. Dodds. Dodds made an offer to sell his property to Dickerson. Before Dickerson could accept, Dodds made an offer to sell the property to Allan. Allan accepted. When Dickerson learned Allan had accepted, he quickly “accepted” the offer he had and sued Dodds. The court held the offer to Dickerson was indirectly revoked when Dickerson received reliable information that Allan had accepted.
The result in Dickerson v. Dodds upsets real estate agents and lawyers alike. How, they wonder, could the court find that the offer to Dickerson was revoked? If you think about it, however, you will see that the holding is a logical consequence of the idea that contracts are voluntary private agreements. Dickerson knew when he attempted to accept that the property was already sold to Allan. He, therefore, knew that Dodds did not want to sell to him. That is, he knew prior to his acceptance that Dodds had revoked his offer to sell by selling to someone else.
The result in Dodds should not give agents comfort. Creating multiple offers for the same property at the same time is so dangerous it calls into serious question the agent’s diligence. That a court might later, depending on the circumstances (remember Dickerson v. Dodds only worked for Dodds because Dickerson knew of Allan’s acceptance before he tried to accept), rule for one or the other of the offerees is irrelevant. A diligent real estate agent representing a seller will not depend on the vagaries of common law to protect their client.
Had Dodds been represented by a competent real estate licensee, two things would have happened. First, the agent would have made every effort to revoke using the best means available under the circumstances and understanding that revocation is valid only upon “receipt.” Click here for a detailed discussion of revocation. Second, the agent would have made the second offer contingent on revocation of the first. Revocation, as you can see from the discussion thus far, is simply too fact specific to take a chance with. If you do your best to revoke and then make the second offer contingent on the revocation of the first offer, you will never be responsible for your seller ending up with two deals.
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The power of acceptance is terminated if the offeror dies before the offeree can accept. This is the case whether the offeree knows of the offeror’s death or not. Do not confuse this rule with the performance of contracts. If one party to a contract already formed dies, the contract is typically binding on their heirs. But that is not the case if the offeror dies before the contract is formed. If the offeree dies before accepting an offer, the deceased’s heirs or representatives cannot accept the offer on the deceased’s behalf nor for their estate.
Incapacity, like death, can affect contract formation. As with death, the incapacity must arise after the offer is made but before it is accepted. For that to happen, there must basically be a legal judgment of insanity. That is a rare case. In cases where the issue of capacity is in doubt, most courts will hold in favor of formation of a contract unless the offeree knows of the offeror’s incapacity. As with death, the representatives of a person who lacks the capacity to contract cannot accept on that person’s behalf unless they have the specific written authority to do so, i.e., a power of attorney.
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The general rule is that an offer is deemed open for the time specified in the offer or, if no time is specified, for a reasonable time in the circumstance. Given the rule, lapse disputes take two forms. If a time is specified, lapse arguments typically revolve around how the specified time is to be counted. If no time is specified, the argument will be about what is a reasonable time for the offer to be open in these circumstances.
What is reasonable in the circumstances depends on a number of factors. Market dynamics are a big factor. How long a reasonable buyer will allow an offer to last is not the same as how long a reasonable seller will allow a counter offer to last. What is reasonable depends on the specific buyer or seller in the specific market seeking the specific property at the specific time. Basically, what a court wants to know is how long do these kinds of offers in this market typically last.
If an offer expires on a certain date, the question is whether the offer expires at a minute after midnight of the day before the date or at midnight on that date. If an offer allows a certain number of days for the seller to accept, the question is when the days allowed start to run. Is it the date the offer is made or date it is received? Once that is settled, disputes can arise over whether the offer ends at midnight on the last day or at the same time of day the offer was made or received. These same counting issues arise when the expiration is expressed in hours.
Because counting issues can cause so much confusion, most real estate forms express the offer deadline as a date and time of day. This manner of expressing the offer deadline eliminates counting disputes. An offer which expires on January 1, at 5 p.m. must be accepted (signed AND communicated) no later than 5 p.m. on that date. There are no “if ands or buts.” Holidays don’t matter. There are no excuses or conditions, period. Acceptance communicated at 5:01 p.m. on January 1 would be too late.
Because offers expire automatically if not timely accepted, late acceptance communicated to the offeror acts as a counter offer. For a contract to form, the original offeror must accept the “counter offer” and communicate that acceptance to the offeree. Typically, there is no place on form contracts for the offeror to accept the offeree’s late acceptance. For that reason, it has been the practice of Oregon real estate licensees to use the “acknowledgment” clause as “acceptance.” Eventually, standard forms were changed to accommodate the use. Click here for a detailed discussion of the acknowledgment issue.
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Because an offer creates the power of acceptance in the offeree, termination of offers is an important subject. Offers can be terminated by the passage of time, death of the offeror or by rejection. Unless specifically made irrevocable, offers are revocable by the offeror any time prior to acceptance. Each of these means of termination of offers raises its own set of legal issues.
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There is no such thing as “acknowledgment” of a contract from a legal point of view. Contracts are formed by offer and acceptance alone. That form contracts in Oregon contain an “acknowledgment” clause is a misunderstood accident of history – not a legal requirement. Only in Oregon has “acknowledgment” become intertwined with offer and acceptance.
Years ago, the Real Estate Agency, in a effort to force better recordkeeping, adopted a number of administrative rules dealing with offers. These rules, now codified in OAR 863-015-0135, demanded, among other things, that licensees give buyers copies of their offers as well as copies of the seller’s response to the offer even if the response is rejection. Click here for a copy of OAR 863-015-0135. Soon thereafter, real estate sale forms in Oregon began to include “acknowledgment” clauses.
The original idea of an acknowledgment clause was to create proof that real estate agents had provided the buyer with a copy of the seller’s response to the buyer’s offer as required by administrative rule. Acknowledgment was a matter of agent recordkeeping and had nothing whatever to do with formation of the contract. The acknowledgment clause was placed below the signatures of parties so as not to be confused with a term of the contract itself. That approach evidently was too simple because confusion is exactly what resulted.
Two major contract formation myths have grown up around the acknowledgment clause. The first, that there is no contract until the buyer signs the acknowledgment, is pure myth. The exact origin of the acknowledgement myth is lost in time but the most likely origin is a court case where a lawyer used the buyer acknowledgment signature not to prove a contract existed but to satisfy the more narrow requirements of the Statute of Frauds. Click here for a detailed discussion of the Statute of Frauds. Whatever the origin of the myth, there is no such thing as “acknowledgment” of acceptance in contract law.
The other major contract formation myth that has grown up around acknowledgment involves using acknowledgment as acceptance when a seller makes changes to an offer or “accepts” the offer after it has expired. Unlike the pure myth that acknowledgment is required to form a contract, the myth that acknowledgment can be used in place of acceptance has at least some legal traction. As we know from the discussion of acceptance, intent plays a large role in acceptance. It follows that an acknowledgment clause signed with the proper intent could be evidence of acceptance.
The problem with using an acknowledgment clause as evidence of acceptance is that such clauses typically contain no words of promise. Because of its recordkeeping origin, the Oregon acknowledgment clause, in its original form, simply said “Buyer acknowledges receipt of a copy of Seller’s written response to this Agreement.” Acknowledging receipt of a copy of response says nothing about the buyer agreeing to the contents of the response – just that they got a copy of the response, whatever it was. The acknowledgment clause, therefore, was as originally written poor evidence of acceptance of changes to an offer or late acceptance.
Notwithstanding the contract formation problems inherent in using acknowledgment to prove acceptance, the practice proved too convenient to forego. It became standard practice for agents to consider the buyer’s acknowledgment as evidence of their acceptance of alterations to the buyers’ offer or the seller’s late acceptance. By the time it was called into question by attorneys, the practice of using acknowledgment for the buyer’s acceptance when the seller “accepts” the offer after it has expired was so widespread that the acknowledgment clause was changed to accommodate the practice.
An unintended consequence of changing the acknowledgment clause to accommodate late acceptance by the seller has been to perpetuate confusion. The pure myth that acknowledgment is “required” before there is a real estate contract continues in the industry notwithstanding a complete absence of legal support. Now that the acknowledgement clause actually is used for acceptance in the case of expired offers, you can expect acknowledgment myths to survive well into the future.
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You wouldn’t think that contract formation problems resulting from an acceptance that varies from the offer would be a problem in real estate. You would be wrong. It is still a common, if completely misguided, practice for agents to allow (or even suggest) clients make (and initial) changes to an offer or counter-offer prior to “accepting.” These agents evidently believe that minor changes made in this way are “easier” than making a counter offer. That is not the case and this manner of conducting business is extremely dangerous. Here’s why.
It is the most basic of common law contract rules that an acceptance which adds qualifications or conditions to an offer operates as a counter offer and, therefore, a rejection of the offer. Any attempt by the offeree to add or subtract anything from the offer will result in uncertainty in the formation of the contract if for no other reason than that there is no place on standard forms for the offeror to accept a counter offer made in this way. All this leaves formation of the contract very much up in the air when additions or deletions are made to an offer before it is “accepted.”
Just how much up in the air changing the terms of an offer can leave formation is illustrated by the famous Oregon case of Painter v. Huke. Huke listed his property with a broker who obtained an offer from the Painters. Huke countered for more money down. The Painters were OK with the increased down but wanted more time to close. So the agent had the Painters change the closing date, initial the change and “accept” Huke’s counter offer. She then sent a copy of the signed counter offer to Huke and started working to close the deal.
About a month later when the closing in Huke’s counter offer came due, Huke asked the broker why the Painters weren’t closing. That’s when he learned of the changed closing date. Not happy with any of this, he sold the property to another buyer. That’s when the Painters sued him and won at trial. On appeal, the Oregon Court of Appeals ruled against the Painters, holding they had no contract with Huke because their initialed change to Huke’s counter offer added to the terms of the offer and, therefore, was a rejection and counter offer by the Painters. The Court could find no evidence that Huke accepted the Painters’ counter offer and, therefore, found there was no contract. Click here for a copy of the Painter v. Huke case.
For years, preprinted real estate contracts have contained a warning to sellers and their agents to not make any modification to the offer. The next time you see that warning, think of Painter v. Huke. Making alterations to an offer, whether those alterations are initialed or not, destroys the power of acceptance. Returning the altered form to the offeror is a counter offer. Click here for a discussion of counter offers. Acceptance varying from the offer always creates the potential that a court will later rule no contract was ever formed.
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Probably the place “intent to accept” is most likely to arise is in communicating acceptance. It is common law that the acceptance of a bilateral contract must be “communicated” to the offeror or his agents to be effective. Communication brings up means and timing issues. What does it take to “communicate” acceptance and when is that acceptance effective? These are big questions because the offeror has the right to revoke an offer at any time prior to acceptance.
Most courts, including Oregon courts, hold that acceptance is effectively communicated when it is put out of the possession of the offeree. At common law, this concept was known as the mail box rule. In the famous 1818 English case of Adams v. Lindsell, a common law court ruled that acceptance mailed (placed in a public mailbox) prior to receipt of revocation was effective even if the revocation was received before the offeror received the acceptance.
Mailboxes, other than as an application of the rule, don’t really have much to do with communicating acceptance anymore. The more general rule is that if an offer is accepted by a medium that is reasonable in the circumstances (mail, fax, telegraph, etc.), it is effective when it is put out of the possession of the offeree. This often comes as something of a shock to real estate licensees because real estate rules and form contracts focus on the date and time the acceptance is signed rather than when acceptance is communicated.
The focus on signing has lead to considerable grief in Oregon real estate. Two scenarios are common. In one, the seller gets a better offer from buyer #2 after countering buyer #1 and tries to revoke the counter, only to find out buyer #1 has already “signed.” In the second popular scenario, the fact that the buyer or seller has “signed” or “accepted” is communicated by one agent talking to another agent on the phone. In both these situations contract formation is very much in doubt.
Communication of acceptance requires putting the acceptance out of the possession of the offeree. In the first scenario, the signed acceptance is still in the buyer’s possession. Signing is not enough. The signed document must be “communicated” or “dispatched;” that is, placed out of the seller’s possession and into the buyer’s (assuming no counter offers). How is that done? Typically, nowadays, an accepted written offer is placed out of the seller’s possession into the buyer’s when it is faxed to the buyer’s agent. The date and time on the fax will be an excellent record of when acceptance took place.
It is easy to see why the law requires communication of acceptance if you think about the seller revocation/buyer acceptance scenario. The seller’s agent calls up the buyer’s agent and says “the seller revokes.” The buyer’s agent calls the buyer and says “hey, you better have signed that counter offer because the seller is trying to revoke.” The buyer, being no dummy, says “no sweat, I signed it an hour ago.” Allowing this kind of process would seriously undermine the goal of supporting voluntary contracts. Hence the rule that acceptance is not effective until communicated.
The second scenario where one agent tells the other agent on the phone that their client has “signed” or “accepted” raises questions about how acceptance can be communicated. The general rule is that acceptance can be communicated by “any means reasonable in the circumstances.” What is reasonable in the circumstances usually depends on things like how these parties have communicated previously, how communications are usually handled in the business or industry involved, the time given for acceptance and so on.
In the case of real estate contracts, the means of communication is often set by the offer itself. In Oregon, most real estate contracts contain a term stating the offer (or counter offer) can be accepted “only in writing.” It is black-letter common law that when the place, time or medium of acceptance is prescribed by the offer, no contract is formed unless the terms of the offer are followed. It follows that when the offer states that acceptance can be accomplished “only in writing,” a verbal exchange between agents isn’t going to meet the terms of the offer.
Once you understand “acceptance,” you can see that there is no occasion for an agent to ever say to someone that an offer has been “accepted.” Until communicated in writing, there is no acceptance. Once the acceptance in writing is communicated, there is no need to tell someone it is accepted – they already know. It would be very wise for agents to remove “my client has accepted” from their vocabulary. It would be even wiser for agents to explain to clients that if they want their acceptance to be effective, they need to have a way to communicate it to the seller as soon as they sign it.
All this is not to say a court will never enforce a verbal acceptance in a real estate transaction. Formation of a contract is ultimately a matter of intent, not bright-line legal rules. Limitations on the means of acceptance can be waived by conduct. The Statute of Frauds can be avoided in special cases based on past performance or detrimental reliance. Click here for a discussion of Statute of Frauds issues. In short, communicating acceptance verbally is always risky and never predictable.
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