Monday, March 8, 2010

The Supreme Court of Virginia and the Statute of Frauds: Vaughan v. Catholic Diocese of Richmond

Last June we wrote about Virginia's Statute of Frauds as applied to real estate transactions. Our post (here) examined the Supreme Court of Virginia's decision in Moorman v. Blackstock, in which the Court held that draft, unsigned versions of a purchase contract did not satisfy the Statute of Frauds requirement of a "memorandum or note ... in writing."

In its recent opinion in C. Porter Vaughan, Inc. v. The Catholic Diocese of Richmond (Record No. 090110, February 25, 2010), the Supreme Court re-visited the Statute of Frauds. On this set of facts, the Court concluded that the Statute did not act as a bar to a potential claim.

Justice Lemons wrote the Court's opinion, the full text of which you can read here. The facts of Vaughan are nothing-less-than fascinating.

C. Porter Vaughn, a real estate brokerage, alleged that it was owed a real estate commission of $242,400 for services performed by its agent Marie Beitz on behalf of the Catholic Diocese.

Vaughan alleged (1) that it had marketed on the Diocese's behalf certain buildings located in Richmond's Fan District and (2) that Vaughan and the Diocese entered into an oral agreement for Vaughan to act as the Diocese's broker and to be paid a commission in the event of a sale.

Aha!, said the Diocese: Code of Virginia § 11-2(7) (not to be confused with §11-2(6), the provision examined in Moorman v. Blackstock) states that the Statute of Frauds applies to "any agreement or contract for services to be performed in the sale of real estate." Since the agreement between Vaughan and the Diocese was an oral agreement, argued the Diocese, it was not enforceable in Virginia's courts.

The trial court upheld the Diocese's demurrer on the grounds that the Statute of Frauds indeed bars Vaughan's claim for the real estate commission.

The Supreme Court, however, reversed the demurrer and remanded the case to the trial court for consideration on its merits. The Court's reasoning was as follows:

Vaughan had been able to produce several written documents bearing the signature of representatives of the Diocese. Those documents included a ratified purchase contract for a sale of the property which eventually fell through -- but which contained language stating that Marie Beitz would be paid a 4% commission, by the Diocese, from the sale proceeds.

In a well-crafted and thoughtfully reasoned opinion, Justice Lemons found that the prior contract -- together with the other written documents -- served to remove the bar of the Statute of Frauds.

Addressing the Diocese's argument that the prior contract should not be used in connection with a claim on a later transaction, Justice Lemons reasoned as follows:
When the bar [of the Statute of Frauds] is removed, it is the oral contract which is subject to enforcement, not the memorandum. Because the memorandum serves only to remove a bar to the enforcement of the oral contract, the validity of the oral contract may be established by other evidence.
The "other evidence" included the other written documents that tended to establish the existence of a brokerage agreement.

A particularly interesting aspect of the the opinion in Vaughan is its emphasis on justice (as opposed to technicalities) as the primary objective of the law -- and its implication that Beitz/Vaughan may have had a duly-earned fee wrongfully withheld by the Diocese:

The object of the statute of frauds is to prevent frauds and perjuries, and not to perpetrate them, so that the statute is not enforced when to do so would cause a fraud and a wrong to be perpetrated.