Real Estate Litigation Update: Statute of Frauds? It Had Better Be Written. Sort of.

Mar 28, 2013   

Leave it to Don King to muddy the legal waters. Consistent with its recent pattern of strictly enforcing agreements, the Florida Supreme Court issued a decision that refused to expand exceptions to the Statute of Frauds. DK Arena, Inc. v. EB Acquisitions I, LLC, Case No. SC10-897, 38 Fla. L. Weekly S187a (March 28, 2013). A copy of the decision is available here.

The Statute of Frauds is codified at Fla. Stat. §725.01, and stands for the proposition that all contracts for the sale of land must be memorialized in a written document signed by the parties to the contract or their lawful representatives. Conversely, Promissory Estoppel is “[t]he principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment.” The doctrine applies when there is (1) a promise which the promisor should reasonably expect to induce action or forbearance, (2) action or forbearance in reliance on the promise, and (3) injustice resulting if the promise is not enforced. W.R. Grace and Co. v. Geodata Serv., Inc., 547 So. 2d 919, 924 (Fla. 1989). Id. Principles of contract and estoppel frequently clash to form a quagmire of equity. Indeed, the question of whether promissory estoppel may be used to defeat a written contract is answered differently in jurisdictions across the country.

In DK Arena, EB Acquisitions agreed to purchase real estate from Don King, and the parties entered into a real estate sales agreement. The agreement had stringent due diligence periods, after which a $1 million deposit was to be disbursed to DK Arena. The agreement contained a standard provision which required all modifications to be in writing. However, as due diligence unfolded, EB Acquisitions saw the value of Don King and sought to capitalize on his promotional abilities. Accordingly, the parties discussed entering into a joint venture, wherein King would promote the project before the City Commission in an effort to change the subject property’s currently zoned use. According to EB Acquisitions, King verbally agreed to extend the due diligence period to enable the completion of negotiations over the parties’ joint venture agreement. Later, after the contractual due diligence period expired, the joint venture negotiations failed. King demanded the disbursement of the $1 million deposit. When EB Acquisitions refused, litigation ensued.

At trial, EB Acquisitions testified that although the agreement was not modified in writing, it detrimentally relied on King’s promises to extend the due diligence period in order to conclude the joint venture negotiations. The trial court agreed, finding that it would be inequitable and unjust to award DK Arena the deposit. The appellate court affirmed, but King is not one to sit silent when things don’t go his way, and appealed the matter to the Florida Supreme Court.

In DK Arena, the Court reviewed whether Florida would follow the Second Restatement’s view that promissory estoppel may be applied to enforce oral promises that would otherwise be unenforceable under the Statute of Frauds. The Court announced that unlike many jurisdictions, Florida will not. Instead, the Court held, “[t]he doctrine of promissory estoppel cannot be used to circumvent the statute of frauds.” Id. The Court reasoned that the doctrine of promissory estoppel should not be applied in derogation of “the legislative prerogative,” thus leaving exceptions to the statute of fraud squarely in the hands of the legislative branch.

Accordingly, Florida’s Supreme Court left us with a bright line rule that real estate agreements, and modifications thereto, must be reduced to writing or the verbal agreement will remain unenforceable. Well, sort of. In its decision, the Supreme Court tossed the lawyers of its Bar a bone. Specifically, the Court went on to explain that while promissory estoppel will not excuse performance of a written agreement, the doctrine of “waiver” remains very much alive.

The Court explained the difference between the two legal principles:

While waiver is sometimes viewed as related to estoppel, the two doctrines are founded on different principles and are considered distinct: Estoppel is designed to prevent fraud and injustice. In contrast, waiver is the intentional relinquishment, express or implied, of a known right. Although closely related, the doctrines of estoppel and waiver frequently are confused. Waiver operates to “estop” one from asserting that upon which he otherwise might have relied, but it is not a true estoppel. Waiver does not require detrimental reliance.

DK Arena, supra.  The Court went on to explain, “Waiver involves the act and conduct of only one of the parties, but equitable estoppel involves the conduct of both parties. Estoppel frequently carries the implication of fraud, but waiver never does.” Id.

Thus, while promissory estoppel cannot be used as a defense to performance of a contract, waiver survives. As long as a party is led to believe that a contractual provision will not be enforced, the law will not allow that provision to being enforced. In other words, the affirmative act of, “Gotcha sucker!” will not be strictly construed.

What does all of this mean? The obvious import of the Florida Supreme Court decision is the fact that nothing is obvious or decided. Real estate disputes, like all commercial matters, require skilled attorneys to navigate your interests through the most turbulent issues.