The Law of Purchase Agreements: Offer and Acceptance – Minnesota Home Talk Legal Minute

 

 

This Minnesota Home Talk Legal Minute covers some basics of real estate law; namely, the legalities associated with forming a binding real estate purchase agreement, which must satisfy both the rules of contract law and the statutes governing sales of real property.  To hear the audio clip, click here.  You can hear my Legal Minute segments during the show every Saturday on 1500 ESPN at 7 a.m. and On Demand.

General Contract Requirements

A contract is defined as “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Restatement, Contracts § 1; Baehr v. Penn-O-Tex Oil Corp., 258 Minn. 533, 104 N.W.2d 661, 664 (1960).

Both an offer and an acceptance are essential to form an enforceable purchase agreement.  An offer is a commitment by one party to certain definite terms, provided the other party involved in the bargaining transaction will likewise express his or her assent to the identical terms.  An offer to buy or sell real property imposes no obligation until it is accepted according to its terms. The Lake Co. v. Molan, 131 N.W.2d 734,269 Minn. 490 (1964).

A mere offer to sell property can be withdrawn at any time before acceptance. William  Weisman Realty Co. v. Cohen, 157 Minn. 161, 195 N.W. 898, 899 (1923). A party offering to sell real property may, in the absence of an unqualified acceptance of the offer, withdraw his offer and terminate the negotiations. Kull v. Wilsoll, 162 N.W. 1072,137 Minn. 127 (1917).

Acceptance of an offer must be unqualified and unconditional. Podany v. Erickson, 235 Minn. 36, 49 N.W.2d 193, 194 (1951) (dicta). Acceptance is not valid if it deviates from the terms of the offer. Minar v. Skoog, 235 Minn. 262, 50 N.W.2d 300, 302 (1951).

The determination of offer and acceptance in real estate contracts is governed by a mirror image rule requiring that a valid acceptance not only embrace the terms of the offer with exactitude, but also unequivocally express an intent to create a contract. Minar, supra (letter submitted by buyer where he agreed to pay purchase price but also demanded to be notified within 10 days of acceptance or rejection of his “offer” was not an acceptance); Rose v. Guerdon Industries,  Inc., 374 N.W.2d 282 (Minn. Ct. App. 1985).

Acceptance must be made within the time period specified in the offer. Lloyd v. Mickelson, 168 Minn. 441, 210 N.W. 586 (1926).Where no time is expressed for the acceptance of an offer to sell real estate; it should be construed gas requiring acceptance within a “reasonable time.” Stone v. Harmon, 31 Minn. 512, 19 N.W. 88 (1884).

A purported acceptance on term that deviates from the offer is a rejection of the offer. If the response is a counteroffer rather than an acceptance, then it must be accepted by the original offeror to create a valid contract. Minar v. Skoog, 50 N.W.2d at 302. After rejecting an offer by making a counteroffer, the offeree may not accept the original offer unless it is revived by the offeror. The Lake Co. v. Molan, 269 Minn. 490, 131 N.W.2d 734,739 (1964). Requesting modifications of an offer does not preclude formation of a contract where it clearly appears that the offer is positively accepted, regardless of whether the requests are granted. Podany v. Erickson, 49 N.W.2d at 194.

An offer and an acceptance may be made conditional on an event which is not within the parties’ control; for example, obtaining mortgage financing or a lawyer’s opinion. Such a condition is a condition precedent. The condition must be performed before the agreement becomes effective; See Romain v.  Pebble Creek Partners; 310 N.W.2d 118, 121 (Minn. 1981) (where parties failed to agree on security for note by which real estate would be paid for, purchase agreement was null and void by reason of parties’ failure to agree on essential terms); Chapman v. Salem  Lutheran Church, 301 Minn. 486, 221 N.W.2d 129, 130 (1974) (buyers’ ability to obtain mortgage financing was a condition precedent; failure to procure a mortgage was held to void the purchase agreement). For a contract subject to a condition precedent to be valid, it must be shown that the parties intended that the negotiations between them were closed, leaving no power of revocation or withdrawal in either one.

Mutuality of obligations is essential for an enforceable purchase agreement: The seller’s obligation is to convey something of value; the buyer’s obligation is to pay a valuable consideration. Mutuality of obligations should be used solely to express the idea that each party is under a legal duty to the other, each has made a promise and each is an obligor. Mutuality and enforceability require that the terms of performance be specific and definite. The doctrine of mutuality does not mean that the obligations of the parties must be substantially equal. Cardinal Consulting Company v. Cirio  Resorts, Inc., 297 N.W.2d 260,266 (Minn. 1980).

The mutual promises of the parties provide sufficient consideration for the contract. That is, the buyer’s promise to buy is sufficient consideration for the seller’s promise to convey the property, and vice versa. Craigmile v. Sorenson, 239 Minn. 383, 58 N.W.2d 865 (1953). No earnest money deposit is required to make a contract enforceable. Courts will not inquire into the adequacy of the consideration for a contract. Estrada v. Hanson, 215 Minn. 353,10 N.W.2d 223, 225 (1943).

To assure enforceability, a real estate purchase agreement must be sufficiently definite so that all of its essential terms can be determined from information given in the document. The Lake Co. v. Molan, 269 Minn. 490, 131 N.W.2d 734 (1964); Greer v. Kooiker, 253 N.W.2d 133 (Minn. 1977).An agreement to make an agreement in the future is not binding. Shepard v. Carpenter, 54 Minn. 153,55 N.W. 906 (1893); See Greer v. Kooiker, supra. And no court is empowered to supply a term which the parties have expressly left for their own future determination. Telex Corporation v. Data Products Corporation, 271 Minn. 288, 135 N.W.2d 681 (1965). On the other hand, courts may be reluctant find a writing too indefinite to constitute a contract when faced with more than silence or an agreement to agree in the future; for example, where the parties agree on all essentials but express it in an ambiguous manner. That, of course, brings to bear all of the many common law rules for construing ambiguous documents. See Hartung v. Billmeier, 243 Minn. 148, 66 N.W.2d 784 (1954).

Real Property Law Requirements:  Statute of Frauds

As to agreements to transfer real property interests, Minn. Stat. § 513.05 provides:
“Every contract for the leasing for a longer period than one year or for the sale of any lands, or any interest in lands, shall be void unless the contract, or some note or memorandum thereof, expressing the consideration, is in writing and subscribed by the party by whom the lease or sale is to be made, or by the party’s lawful agent thereunto authorized in writing; and no such contract, when made by an agent, shall be entitled to record unless the authority of such agent be also recorded.”

The writing must state expressly or by necessary implication the lands involved and the general terms of the sale. Malevich v. Hakola, 278 N. W.2d 541, 544 (Minn. 1979). The statute of frauds is satisfied when a settlement agreement involving the conveyance of real property is orally placed in record in open court. TNT Properties, Ltd. v. Tri-Star Developers LLC, 677 N.W.2d 94 (Minn. App. 2004).

If a memorandum for sale of land contains a statement of consideration, an adequate description of the parties, an adequate description of the land, the general terms and conditions of the transaction, and is subscribed to by the vendor, the contract is not void for failure to comply with statute of frauds. Greer v. Kooiker, 312 Minn. 499,253 N.W.2d 133 (1977). Thus, in order to comply with the statute of frauds, a purchase agreement must: (a) be written; (b) express the consideration; (e) be executed by the seller; (d) describe the general terms of the sale; and (e) contain an adequate description of the land.

A description of the land to be conveyed is sufficient if it provides an adequate aide with which to locate and identify the property. The test most often cited is if “with the aid of extrinsic evidence, the description can be applied to the property so as to identify and distinguish the intended area from all other lands, it is adequate.” Miracle Construction Co. v. Miller, 251 Minn. 320, 87 N.W.2d 665, 669. However, maps must be attached to or incorporated into the writing and not just given to the buyer if they are to be admitted into evidence to supply a missing description. Malevich v. Hakola, 278 N.W.2d at 544.

The statute of frauds requirement that a vendor sign a contract for the sale of land means that the signature must appear on a writing or writings containing the essential elements of agreement. Malevich v. Hakola, 278 N.W.2d at 544.

In addition to the seller’s signature, the statute of frauds requires that the buyer accept delivery of the writing signed by the seller. Schwinn v. Griffith, 303 N. W.2d 258, 262 (1981).

Courts will invoke equitable principles to circumvent the strict requirements of the statute of frauds. This is consistent with Minn. Stat. § 513.06, which provides:  “Nothing in this chapter contained shall abridge the power of courts of equity to compel the specific performance of agreements in cases of part performance thereof.”

In some instances, part performance will place the transaction outside of the statute of frauds. Doyle v. Wohlrabe, 243 Minn. 107, 66 N.W.2d 757, 761 (1954) (quoted in Greer v. Kooiker, 253 N.W.2d at 138); Rose v. Guerdon Indus., Inc., 374 N.W. 2d 282 (Minn. Ct. App. 1985).  The two most common kinds of part performance are possession of the land and payment of the purchase price.

Mere possession of land or payment of purchase money alone, however, is usually insufficient to constitute such part performance as will avoid the statute of frauds. Hatlestad v. Mutual Trust Life Ins. Co., 197 Minn. 640, 268 N.W. 665, 669 (1936) (as to mere possession); Bouten v. Richard Miller Homes, Inc., 321 N.W.2d 895, 900 (Minn. 1982) (as to mere payment of money).

Where the buyer both takes possession and pays the purchase price, there is sufficient part performance to avoid the Statute of Frauds. Camenker v. Greene, 251 Minn. 106, 86 N.W.2d 708 (1957).

The doctrine of part performance may also apply where a buyer takes possession of land and makes valuable improvements with the seller’s express or implied consent. Bouten v. Richard Miller Homes, Inc., 321 N.W.2d at 899, 900.

The doctrines of equitable and promissory estoppel may be used to take a real estate contract out of the statute of frauds. See, e.g. Berg v. Carlstrom, 347 N. W.2d 809 (Minn. 1984) (the doctrine of equitable estoppel should be invoked to enforce an oral driveway easement where an adjacent landowner had misrepresented the width of the driveway); Nelson v. Smith, 349 N.W.2d 849 (Minn. Ct. App. 1984) (numerous misrepresentations during negotiation of oral lease held sufficient to apply doctrines of promissory and equitable estoppel and therefore enforce the lease); See Olson v  Ronhovde, 446 N. W.2d 690 (Minn. Ct. App. 1989).

Parol evidence (testimony of the parties as to what they intended) is admissible to explain a term of the written agreement but cannot be used to supply a missing term. Malevich v. Hakola, 278 N.W.2d at 544.

In sum, the legal requirements for a binding real estate purchase agreement are numerous and, if any requirement is overlooked, a costly and time consuming dispute may result.  Thus, it is essential that parties confer with qualified professionals – brokers, realtors and real estate attorneys – to ensure that they have entered into a binding agreement.

NOTE:  this post contains excerpts from “Purchasing and Selling Real Property,” Real Property Law in Minnesota, Minnesota CLE (2008).

 

 

 

 

 

 

Posted in Blog, Real Estate Law