Oral Agreement Upheld in Property Transfer Dispute

May 20, 2015- Richmond, VA

In today’s modern world, “handshake” or “gentleman’s agreements” may seem a thing of the past – with good reason. The “he said, she said” nature of oral contracts make them particularly difficult to enforce and are typically not in the parties’ best interests.

In Virginia, the Statute of Frauds generally provides that agreements between parties must be in writing and signed by both parties. The law is designed to prevent fraudulent dealings by requiring certain agreements to be memorialized on paper.

However, in a recent case argued by our Brad Goodwin before the City of Richmond Circuit Court, Judge W. Reilly Marchant upheld an oral agreement based on a little known exception to the Statute of Frauds – part performance by the parties.

The Facts:

In 2006, the Petitioner (“Mr. Smith”) and our client (“Mr. Doe”) pooled the equity from the sale of their individual homes and purchased a home together as joint tenants with the right of survivorship.

In 2009, Mr. Smith became involved in a dispute with the Internal Revenue Service and the Virginia Department of Taxation concerning unpaid back taxes.  The parties agreed to convey the property into Mr. Doe’s name alone, as he did not owe back taxes and to prevent the IRS from taking adverse action against the property. In November of that year, Mr. Smith executed a Deed of Gift to that effect.

According to Mr. Smith, at the time the Deed of Gift was executed, Mr. Doe agreed to re-convey the property back to a joint tenancy with the rights of survivorship once Mr. Smith’s tax dispute was resolved.

In 2011, Mr. Doe obtained a protective order against Mr. Smith after a dispute at the property. Mr. Smith moved out of the residence and has not lived there since. Since that time, Mr. Smith has made arrangements to repay the back taxes with both the state and the IRS; however, he testified in court that the taxes were not yet paid in full.  Even in light of the agreement that Mr. Smith has with the state and IRS, Mr. Doe has not re-conveyed the property back into joint names of Mr. Doe and Mr. Smith.

As a result, Mr. Smith sued Mr. Doe and asked the Court to rescind and set aside the Deed of Gift on the basis of fraudulent inducement.  In the alternative, Mr. Smith requested that the Court order the specific performance of the parties’ contract- the re-conveyance of the property back into Mr. Doe and Mr. Smith’s joint names- or to impose a constructive trust upon the property in favor of Mr. Smith

On behalf of Mr. Doe, Bradford E. Goodwin, Esquire of Reid Goodwin, PLC, argued that the Virginia Statute of Frauds requires that any agreement for the transfer of real property is to be in writing and that even if there was a valid agreement, Mr. Smith failed to satisfy the condition of all his back taxes being paid before the property could be re-conveyed. Therefore, Mr. Smith was not entitled to be put back on the deed.

The Ruling:

On April 27, 2015, Judge Marchant held that the parties had in fact entered into an oral agreement requiring the conveyance of the property from Mr. Smith and Mr. Doe as joint tenants with rights of survivorship, to Mr. Doe in fee simple, with the condition that Mr. Doe would re-convey the property back to a joint tenancy with the rights of survivorship once Mr. Smith had repaid all back taxes owed.

Judge Marchant determined that this oral agreement was removed from the Statute of Frauds based on the “doctrine of part performance.” In Virginia, this doctrine overrides the Statute of Frauds (and makes the oral agreement enforceable) when one or both of the parties have already performed certain and definite acts in furtherance of the agreement and when a refusal of the agreement would result in a manifest injustice.

In effect, the Court was satisfied that Mr. Smith and Mr. Doe intended to be bound by the terms of the agreement based on the conveyance itself and the agreement was therefore enforceable.

Judge Marchant found that Mr. Smith’s contracted obligation to pay back all of the taxes owed operated as a condition precedent to Mr. Doe’s obligation to re-convey back into joint names. Since Mr. Smith had not fulfilled this obligation, Judge Marchant ruled there is currently no contractual obligation upon the Mr. Doe to re-convey the property to Mr. Smith and Mr. Doe as joint tenants with rights of survivorship.  Our client, Mr. Doe, was allowed to keep the home titled solely in his name.

Big Picture:

Generally, the requirement in Virginia that agreements between parties must be in writing makes it very difficult for one party to make a claim against another based on an oral contract. However, as seen here, those entering into an oral agreement should be aware that part performance by one of more of the parties can eliminate the requirement for a written contract.