Recent Cases Show How Idaho Courts Can Salvage Oral Real Estate Agreements

Legal Alert

Two recent opinions of the Idaho Supreme Court, both filed on the same day, concern what the Court described in one those cases as “a sadly familiar story: an oral real estate transaction gone terribly wrong.”

Oral real estate transactions are not recommended. In fact, Idaho’s legislature has gone to great lengths to discourage them. By statute, commonly known as the “statute of frauds,” Idaho’s legislature has tried to prevent Idaho courts from enforcing transfers of real estate or related agreements in the absence of a writing signed by the party against whom enforcement is sought. The only exception in the statute is for leases with a term of one year or less.

The courts have created their own exception to that statutory rule for real estate agreements that have been sufficiently performed, but that “partial performance exception” will not save every oral agreement. The two recent cases show that, even where the partial performance exception does not apply, the courts have other options for helping an aspiring buyer when a reluctant seller engages in fraud or is unjustly enriched.

The fraud case is Choice Feed, Inc. v. Montierth, Idaho Supreme Court Docket No. 46544 (released Feb. 9, 2021). In that case, the plaintiff, Choice Feed, Inc., sued the defendant, Montierth, alleging that Montierth breached an oral agreement to sell his feedlot property to Choice Feed once he arranged a 1031 tax deferred exchange. Although Montierth collected money from Choice Feed that was to go toward the purchase of the feedlot property, he never arranged a 1031 exchange. Instead, without notice to Choice Feed, Montierth sold the feedlot property to someone else while continuing to accept monthly payments from Choice Feed. The jury found in favor of Choice Feed on one count of fraud, awarded compensatory damages, and assessed $250,000 in punitive damages. The compensatory damages included the amount of the purchase payments made and the value of extensive improvements made by Choice Feed without Montierth’s consent. The Court said the punitive damages were justified because “[i]t was reasonable for the jury to conclude that [Montierth] never intended to sell the feedlot to Choice Feed via a 1031 exchange, but deceived Choice Feed into renting the feedlot and making improvements to the feedlot until he could find a new buyer.” The Court also said Montierth’s statements to Choice Feed were “clearly intended to string Choice Feed along until [Montierth] could get a better deal.”

The unjust enrichment case is Asher v. McMillan, Idaho Supreme Court Docket No. 46544 (released Feb. 9, 2021). In that case, the parties reached an oral agreement that the defendant, McMillan, would purchase the house, repair the roof, replace the drywall, and perform some other initial repairs. In exchange, the plaintiffs, the Ashers, agreed to rent the house from McMillan for five years before purchasing it from him. The district court determined that even under the partial performance exception to the statute of frauds, the oral agreement was unenforceable for a lack of definite terms because the parties never settled on the exact amount of the purchase price. After the initial repairs by McMillan, the Ashers remediated some mold and then moved into the house and began paying rent. “They also made substantial improvements, which included replacing appliances, refinishing cabinets, making electrical and plumbing repairs, and planting trees. The Ashers do not dispute they made these improvements without McMillan’s request, without seeking his approval, and without an expectation of reimbursement. Rather, the Ashers testified they made the improvements with the expectation of ownership.” The Idaho Supreme Court agreed with the district court’s determination that “it would be unjust for McMillan to retain the improvements without paying for them because the improvements were not made as a gift, the Ashers anticipated owning the property after five years, and McMillan was aware of the improvements and did not object.” The expectation of ownership combined with the awareness of improvements without objection was sufficient to tip the scales in favor of the plaintiffs. After determining that McMillan was unjustly enriched, the focus turned to the amount due the plaintiffs. The Court said the focus of a restitution award is the value of the benefit that would be unjust for the defendant to retain, rather than the cost to the plaintiffs in conferring the benefit. Nevertheless, the Court said, those costs may be competent evidence of the value.

So, while oral agreements regarding real property are never recommended, and while the statute of frauds can be a daunting hurdle to overcome, these recent cases show that Idaho courts may still have other ways to rewrite the ending to these sadly familiar stories.

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