In Tennessee, most contracts are just as legally effective and valid if they are verbal as opposed to written. However, many real estate contracts and agreements, under Tennessee law, may be held invalid if not memorialized by a written document or documents which the court determines sufficiently set forth the essential terms of the agreement. Moreover, such real estate contracts may be held invalid if the documents memorializing them are not signed by the parties against whom enforcement is sought.
The Tennessee the statute of frauds, Tenn. Code Ann. §29-2-101(a)(4), can potentially invalidate any real estate contract that is not adequately memorialized and signed by the party against whom enforcement is sought. The Tennessee statute of frauds does not automatically void real estate agreements which fail to meet its requirements: It makes such transactions voidable.
The statute of frauds covers real estate option contracts as well as garden variety real estate sales contracts. It does not cover agreements about boundary line disputes; real estate agents’ agreements to list and sell real estate; or real estate brokerage agreements.
The statute of frauds does not apply to some agreements which are collateral to the transfer of real estate. For example, in one Tennessee case, in addition to transferring a lot, the seller agreed to build a certain type of home. The parties’ in that case had no written contract about the specifications for the home or the quality or type of materials to be used in building the home. The seller argued that the contract to build the home was unenforceable under the statute of frauds, but the Court of Appeals of Tennessee disagreed.
Importantly, a Tennessee court may enforce a real estate contract even though it does not comply with the statute of frauds by invoking the doctrine of equitable estoppel. For example, the Supreme Court of Tennessee held in a case that the doctrine of equitable estoppel applied to prevent a seller from relying on the statute of frauds where that seller had placed the buyer in possession of property and permitted the buyer to construct improvements on the property.
While the doctrine of equitable estoppel is available in Tennessee to deflect a statute of frauds defense, Tennessee law directs that it should only be applied in exceptional cases where it is needed to prevent a fraud. Tennessee, unlike some other states, does not follow the rule that a buyer’s part performance of an agreement, such as by, for example, making a payment towards the property, improving it, or building on it, makes the statute of frauds inapplicable.
An oral agreement to rescind a written agreement for the conveyance of real estate is not subject to the statute of frauds. Thus, even if the agreement which was rescinded was subject to the statute of frauds, the agreement to rescind it is not.
The Tennessee statute of frauds states that a real estate contract which is covered by that statute should be memorialized in “some memorandum or note. . .” The statute itself does not provide any further guidance about what terms, descriptions, etc. must be in the memo, note, or other writing. There are quite a few Tennessee cases which have interpreted that language and which provide more definition about what kind of writings are and are not sufficient to comply with the statute. Here is a summary of the general rules established by those cases:
Rule One: The writing or memo must contain the essential terms of the agreement, but it need not contain every term of the agreement.
Rule Two: Several different writings may be considered together in the determination of whether there is a sufficient writing under the statute of frauds. To be considered together, the writings don’t necessarily have to refer expressly to one another, but it must be clear by their language and/or other circumstances that they are connected to the same transaction.
Rule Three: Every case which involves whether the writing or writings are sufficient will turn on its own unique facts.
If you are involved in real estate litigation in Tennessee, you should consult with an experienced real estate litigation lawyer before you make any determinations about how the statute of frauds might affect your case.