Marathon Oil Co. v. Collins

Court of Appeals of Indiana · 2001 · Contracts

Contractsstatute of fraudsoral contract for sale of landpart performancepossessionvaluable and lasting improvementsconstructive fraudduty to disclose

Facts

Collins wanted to buy a former gas station property from Marathon for $55,000 to use as a used car lot. Marathon's representative agreed on price but required Collins first to enter an eighteen-month lease while repairs and changes were made, and Collins took possession and spent $17,966.95 on repairs and improvements in anticipation of purchasing the property. Marathon later sent Collins an unsigned purchase offer, Collins obtained loan approval contingent on an environmental inspection, and then Marathon stopped responding; the property was later found contaminated and Collins was evicted when utilities were disconnected. Collins moved to a less desirable location, his business failed, and he incurred losses on inventory and a floor-plan loan.

Issue

Whether the statute of frauds barred Collins from recovering on an oral agreement to sell the property, whether the evidence supported constructive fraud based on Marathon's nondisclosure of contamination, and whether the damages awarded to both parties were proper.

Rule

An oral contract for the sale of real property is voidable, not void, and may be removed from the statute of frauds by clear and definite proof of part performance founded on and referable to the oral agreement, generally shown by some combination of payment, unequivocal possession pursuant to the contract, and valuable and lasting improvements. Constructive fraud consists of: (1) a duty arising from the parties' relationship; (2) violation of that duty by deceptive material misrepresentation of past or existing facts or by silence when there is a duty to speak; (3) reliance; (4) proximate injury; and (5) advantage gained by the party charged at the other's expense. Consequential damages are recoverable when they flow naturally and probably from the breach and were contemplated by the parties, and they must be supported by evidence permitting a fair and reasonable estimate rather than speculation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Fort Wayne, Olivia Mercer orally agreed to buy a vacant repair shop from Red Pike Properties for $90,000 after first signing a 12-month lease so the building could be converted for her bakery. She took possession for the first time after the oral agreement and spent $28,000 installing a commercial ventilation system, rewiring the premises, and replacing exterior doors, all in anticipation of owning the property.

If Red Pike later refuses to sell and argues the oral agreement is unenforceable under the statute of frauds, which is the strongest argument for Olivia?

Explanation. An oral land-sale contract is voidable, not void, and may be removed from the statute of frauds by clear and definite proof of part performance founded on and referable to the oral agreement. The majority emphasized that possession accepted and yielded in performance of the oral contract, together with valuable and lasting improvements that would be improvident absent the expected purchase, is sufficient. Olivia's first-time possession and substantial permanent improvements best fit that rule. (Derived from Marathon Oil Co. v. Collins (n.d.).)