Jaye v. Tobin 42 Mich. App. 756

V. J. Brennan, J.

On November 17,1965, James Cole, C. I. Rutledge and Harry Wolf (and their *758respective wives) purchased approximately 2,700 acres of land surrounding Beaver Lake in Alpena County. Most of this land was resold to a hunt club and is not involved in the present suit. The remainder of the land, approximately 600 acres, was immediately resold to Irving Stollman by land contract dated November 17, 1965.

By a written agreement dated April 18, 1966, Stollman retained Wolf and Rutledge as co-brokers to sell lots to be subdivided from the 600 acres on Beaver Lake. Wolf and Rutledge were to receive one-third of the net profits from the sales. Wolf and Rutledge then proceeded to advertise the property and solicit buyers. The plaintiffs, and their respective wives, entered into "purchase agreements” with Wolf and Rutledge for lots in the proposed subdivision.

Sometime in the summer of 1967, Wolf and Rutledge ceased advertising and soliciting buyers because improvements on the property were not proceeding according to schedule and because Stollman defaulted on the land contract. Faced with foreclosure proceedings on the land contract, Stollman then assigned his interest in the property to one Marshall Tobin, on September 16, 1967.

Plaintiffs were then informed that Mr. Tobin was the new owner of the subdivision and that the name of the subdivision had been changed. Mr. Tobin did not regard the "purchase agreements” as purchase agreements, but rather as deposits, and attempted to renegotiate sales with those who had entered into such agreements with Wolf and Rutledge.

A controversy arose regarding the nature of these agreements resulting in the present lawsuit which was tried by the circuit court, sitting with*759out a jury, in Alpena County. The circuit judge found for plaintiffs, and awarded either specific performance or a certain amount of money damages for each lot purchased against the defendant Tobin. Since all plaintiffs elected the money damages, any issue in this case regarding specific performance is moot. The defendant appeals and raises several issues.

The defendant first argues that the "purchase agreements” are void for failure to comply with the statute of frauds. His argument is based on the following language from that statute:

"Every contract for the leasing for a longer period than 1 year, or for the sale of any lands, or any interest in lands, shall be void, unless the contract, or some note or memorandum thereof be in writing, and signed by the party by whom the lease or sale is to be made, or by some person thereunto by him lawfully authorized in writing: * * * .” MCLA 566.108; MSA 26.908.

The defendant is correct in stating that Wolf and Rutledge had no written authority from Stollman to convey the lots in question. However, as the plaintiffs indicate, a party may be estopped from raising the statute of frauds. In Hatch v Wolack, 316 Mich 258, 262 (1946) and again in Kent v Bell, 374 Mich 646, 653 (1965), our Supreme Court cited with approval the following language from Lyle v Munson, 213 Mich 250, 260 (1921):

"Misleading, fraudulent conduct by act or acquiescence is the underlying thought which moves the chancery court under the principle of equitable estoppel to deny resort to the statute of frauds as an instrument of fraud.”

Stollman, and therefore Tobin, his successor in interest who was aware of these transactions at the time of his purchase of the property, received *760regular reports on the activities of Messrs. Wolf and Rutledge. He took no action to cause them to cease their activities despite the fact that he stated he had no intention of selling the property at the prices in question. Due to his silence and acquiescence, defendant will not be permitted to raise the statute of frauds.

Defendant next argues that the purchase agreements are void for lack of mutuality. His argument is based on a provision in that agreement which provides that the purchasers may terminate the agreement at will any time prior to the delivery of a title insurance policy.1 Defendant’s argument is not well taken. First, it has long been the law in this state that a cancellation clause does not invalidate a contract. J R Watkins Co v Rich, 254 Mich 82 (1931). And second, a contract lacks mutuality when one party is obliged to perform, but not the other. A cancellation clause releases both parties from the obligation. Therefore such an option in a contract does not render it invalid for lack of mutuality.

The final argument to be considered is defendant’s assertion that the plaintiffs failed to establish an adequate basis on which to compute damages. The record contained uncontradicted testimony which established the current market price of the property which was evidently used as a basis by the trial court in determining the amount of damages. Defendant’s argument is therefore without merit.

Affirmed.

Van Valkenburg, J., concurred.

*761Levin, P. J.

(dissenting). The provision of the statute of frauds which declares that a contract for the sale of any interest in land is void unless it is in writing and signed by or upon the written authorization of the party by whom the sale is to be made1 goes on to state that this requirement shall not "be construed to abridge the powers of the court of chancery to compel the specific performance of agreements, in cases of part performance of such agreements”.2

It is not claimed that any of the purchaser-plaintiffs acquired possession of a lot or made improvements on the lot or, indeed, did anything beyond payment of a relatively small deposit under a contract to purchase the lot entered into with a person not authorized in writing by the owner to sell the lot.

In these consolidated cases, three of the purchaser-plaintiffs made deposits of $200 and the fourth made a $400 deposit on a purchase price of $3,950 per lot. The deposits were turned over to a bank in trust; defendants have offered to cause the deposits to be returned to the purchasers.

Time and again the Michigan Supreme Court has declared that payment of money by a purchaser under a contract for the sale of land, without more, will not remove the contract from the operation of the statute of frauds and, accordingly, unless the purchaser can show conduct in addition to the payment of purchase money a court of equity may not grant specific performance.

"The rule is too well settled to require citation of authority that payment of money is not sufficient to remove a contract from the operation of the statute of *762frauds.” Daugherty v Poppen, 316 Mich 430, 439 (1947).3

Professor Corbin, in his treatise on Contracts, offers the following explanation of the rule:

"An oral promise for the conveyance of an interest in land is not made specifically enforceable by the mere fact that the plaintiff has paid the price, or a part thereof, in money to the defendant. Such a payment is, indeed, part performance; but the plaintiff can usually be put in statu quo by a judgment for the restitution of the money. The statute of frauds will not be disregarded if the injured party can be put in as good a position as he was in when the contract was made. Frequently restitution is far from the equivalent of the promised performance; but it prevents the defendant from making ill-gotten gains at the plaintiff’s expense and it leaves the plaintiff in substantially the same position that would have existed had there been no performance at all. The statute of frauds is an almost complete legal justification for the refusal of performance, even though it is no justification of profiting at the cost of the plaintiff.” 2 Corbin, on Contracts, § 431, pp 479-481.4

Both the Restatement of Contracts5 and the *763proposed Restatement of Contracts, Second,6 declare that payment of purchase money is insufficient to remove the contract from the statute.

In the cases relied on by the majority, the plaintiffs showed more than the payment of purchase money.

*764In Hatch v Wolack, 316 Mich 258 (1946), the purchaser-plaintiffs had entered into a separate contract with the seller-defendant under which the seller undertook to build a house for the purchasers, and the purchasers had obtained, in a period during which there existed a critical shortage of building materials, "the necessary priorities” to build the house based on the ill health of one of the purchasers. The damages, said the Michigan Supreme Court, "cannot be ascertained with certainty in the instant case”.

In Kent v Bell, 374 Mich 646, 652 (1965), the Supreme Court recognized the need to show special detriment when it noted that the purchaser had not pleaded with particularity what he had done "in addition to his actual hours of labor. It would be this performance, if not readily measurable by a pecuniary standard, which might be the consideration for decreeing specific performance”. (Emphasis by the Court.)

Lyle v Munson, 213 Mich 250, 260 (1921), is the typical case where relief is granted. The purchaser leased the property with an option to purchase. He took possession, made improvements and accumulated materials in preparation to erect buildings. The words quoted in the majority opinion from the opinion in the Lyle case — "misleading, fraudulent conduct by act or acquiescence is the underlying thought which moves the chancery court” to estop the seller from relying on the statute of frauds— are preceded by the following sentence: "Part performance, while an essential in the test, does not in itself comprehend the whole doctrine of equitable relief in this class of cases”.7 (Emphasis *765supplied.) Here, however, there was no part performance — payment of money by itself not constituting part performance for the purposes of granting equitable relief from the statute of frauds.

Professor Pomeroy, in his treatise on Equity Jurisprudence, discusses the kinds of seller conduct which will be regarded by a court of equity as a "virtual fraud”; he states that payment of the price in whole or in part does not constitute part performance within the doctrine:

"Fundamental ground of the jurisdiction. — The ground is equitable fraud; not an antecedent fraud in entering into the contract, but a fraud inhering in the consequence of setting up the statute as a defense. If the defendant knowingly permits the plaintiff to do acts in part performance of the verbal agreement, acts done in reliance on the agreement, which change the relations of the parties and prevent a restoration to their former condition, it would be a virtual fraud for the defendant to interpose the statute as a defense, and thus to secure for himself the benefit of the acts of part performance, while the plaintiff would be left not only without adequate remedy at law, but also liable for damages as a trespasser (see §§ 864-867, 921). It follows from this principle that the acts of part performance must be done by the party seeking to enforce the contract; and must be done in pursuance of the contract, and with the design of carrying the same into execution; and must be done with the consent, express or implied, or knowledge, of the other party; and must alter the relations of the parties.

"Acts of part performance. — The following acts do not constitute a part performance within the doctrine: Acts done prior to the contract; acts merely preparatory or *766ancillary to the agreement, such as delivering abstract of title, measuring the land, drawing up deeds, etc.; marriage alone; payment of the price in whole or in part.

"The important acts which do constitute a sufficient part performance are actual, open possession of the land; or permanent and valuable improvements made on the land; or these two combined; special acts, personal services, etc.” 4 Pomeroy’s Equity Jurisprudence (5th ed), § 1409, pp 1057-1058. (Emphasis by the author.)

In a word, "part performance” means conduct by the purchaser beyond the mere payment of purchase money. If the rule were otherwise, if payment of purchase money removed the contract from the statute of frauds, then, since payment of some deposit is customary, almost every contract otherwise void under the statute would become specifically enforceable — what is now the exception would become the norm, and enforcement of the statute of frauds would become so rare that it might be capricious to enforce it at all.8

*767Similarly, if an increase in the value of the land makes it inequitable or a “virtual fraud” not to enforce the contract, then every oral contract the purchaser desires to enforce would become enforceable — purchasers and sellers alike do not seek to enforce bad bargains.

Nor can the plaintiffs obtain alternative relief in damages for the nonperformance of the purchase contracts void under the statute of frauds. An action at law for damages — as distinguished from an action for restitution9— cannot be maintained as an alternative to specific performance unless an action for specific performance can be maintained.10 To state it differently, the purchase contracts being void, the plaintiffs may only obtain restitution of the deposit money. They may not enforce the contracts at law (damages) or in equity (specific performance).