Is Verbal Acceptance Binding?

 

Must a seller honor a written offer he verbally accepted?

A seller verbally accepted a written offer for a property. A second, better offer has come from a second buyer. The seller would prefer to get out of any obligations it might have to the first purchaser. Is the seller bound by the first offer because of the verbal acceptance?

Colorado law states that “Every contract for… the sale of any lands or any interest in lands is void unless the contract or some note or memorandum thereof expressing the consideration is in writing and subscribed by the party by whom the sale is to be made.” This general concept is called the “statute of frauds.

The requirements of the statute of frauds are reinforced by the acceptance provisions of the Colorado Real Estate Commission approved contract forms to buy and sell real estate which state: “If this proposal is accepted by Seller in writing and Purchaser receives notice of such acceptance on or before ________ , 19 ____ , this document shall become a contract between Seller and Purchaser.” [emphasis added]

However, there are at least two exceptions to the statute of frauds which may bind the Seller to the first Buyer. In Colorado, part performance may take the place of a writing and permit enforcement of an otherwise unenforceable oral contract. For example, many sales contracts require the Buyer to apply for a loan shortly after the contract is formed. If the first purchaser, relying on the verbal acceptance of the Seller, applied for the required loan, this may be sufficient part performance to allow the Buyer to enforce the terms of the contract.

Yet the party relying on part performance to defeat a defense based on the statute of frauds (the first purchaser) must show that the partial performance is more consistent with the terms of the contract than with some other arrangement. For example, if the first purchaser simply met with a loan officer to get a sense of its creditworthiness, or applied for a loan different than the loan specified in the contract, it is unlikely that this “performance” would defeat a claim, based on the statute of frauds, that no contract had been formed.

Another exception to the statute of frauds is based on the notion of “promissory estoppel” which states:

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the statute of frauds if injustice can be avoided only by enforcement of the promise.

So, if the first purchaser, after hearing of the Seller’s verbal acceptance of the contract, entered into a contract to sell its home, the Seller may be “estopped” from denying the existence of its contract with the first buyer.

Because of the exceptions to the statute of frauds, the Seller cannot assume that it has no legal obligations to the first purchaser. Some inquiry should be conducted to determine whether the purchaser has acted in a fashion which would fit either or both of the exceptions, and the Seller should be referred to legal counsel for advice on how to proceed.

A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN