Oral Agreements In Real Estate Transactions

An oral agreement is an agreement that is not in writing. This type of agreements may be valid in some circumstances but it can be difficult to prove in case of any dispute. Oral agreement is valid in real estate under certain circumstances though it is very important that real estate transactions are documented in other to obtain title and prove ownership. Most times in Nigeria and other African climes, real estate transactions always begin with family relationships, friendly relationship and as a result so many people do not bother to put their agreements in writing until problems start coming up. There are cases where a father will just point at a piece of land for a son to build on, no agreements, no transfer of titles and when it is time to share the father’s properties, problems will come up. Same is applicable with friends and relations, kings and family heads and their subjects etc. As a result of this unavoidable situations, we in Property Advisory Network decide to bring to the notice of persons intending to enter into any kind of real estate transactions to understand the implications of not putting their agreements in writing..

For oral agreements to be tenable even in equity, there are some essential elements that must be in existence. They are as follows;

Offer: This is when one party expresses the willingness to enter into an agreement with another party. The party who initiates the offer is known as the “offeror” while the party who receives the offer is known as the “offeree”.

There must be a proof that there was an offer made by the person who wants to sell the land or the house as the case may be.

Acceptance: This is when the offeree consents to the terms of the offer and agrees to enter into an agreement. Evidence must be shown that the buyer accepted the offer to buy. In this case there must be an agreement with regards to the amount to be paid for the property in question.

Consideration: This is the monetary value [purchase price] involved in the course of the transaction, it is an essential element because it shows the property was not gifted. There must be proof of payment of the purchase price. In this case there must be evidence that payment was made weather fully or part payments.

Competence/Capacity: An agreement is only valid when all the parties entering into it are considered to be competent that is the parties involved must not be infants (In Nigeria The Child’s Right Act defined the age of a child to be anyone bellow the age of 18 years) of unsound mind or have been declared bankrupt and if this is not complied with the agreement is invalid.

Illustration

If a property is found to meet the specifications of a buyer, and after negotiation a price is agreed upon without any written contract of sale. The buyer then issues a bank draft to the seller after he promised to sign the deed of assignment at a later date and he was not issued a receipt. Instead of fulfilling this promise, the seller / vendor went to the bank to cash the check and left the town immediately. From the above illustration, it is obvious there was an intention to defraud on the part of the seller and the buyer falls victim because he did not ensure necessary documents were on ground like receipt, the deed of assignment prepared by a legal practitioner before making payment. Here the seller has transacted orally therefore he must prove the transaction by producing some evidence.

 

Proving oral agreement in real estate transactions despite the equitable remedy which only a court of law can grant, is very difficult however, certain evidence can be adduced to establish the existence of such oral agreements between the buyer and the seller / vendor such as:

1) Witnesses: the testimony of a witness to the creation of the oral agreement is a way to proof that an oral agreement is in existence. Such witnesses must be willing to testify that they heard or saw the terms of the agreement. In the above illustration, providing a witness to the transaction could be necessary.

2) Performance: when one or both parties to the oral agreement performs the terms of the oral agreement, the agreement is in force in this case [the bank draft is evidence that the purchase price has been paid by the buyer to the seller].

3) Other evidence: the availability of other evidence such as emails, receipts, letters and bills, records of discussions will further establish the existence of an oral agreement. Also sufficient proof of payment like the receipt must be produced for such oral agreement to be valid.

The case of Mr Kingsley Nwanchukwu v. Mr Ulonnam Okaelu (2015) LPELR- 24276(CA) (The Court of Appeal of Nigeria) is a practical example and will go a long way to shed more light on the topic as it borders on the issue of land. The plaintiff/Appellant claimed against the Defendant/Respondent herein for declaration that he was entitled to the statutory right of occupancy over a piece of land called “Okporuama Amangwo”.

The case of the defendant/Respondent was that on 28/4/1985 the parties entered into an oral agreement contract of outright sale of the land in dispute; that the plaintiff sold the land to him for the building of their church at the cost of N6,000.00(six thousand naira) to be paid in installment, that he made an initial part payment of N200.00 (two hundred naira) on the said 28/4/85 and made another installment payment of N500.00 (five hundred naira)on the 24/5/85.

Subsequently within a period of 6 years (between 1985-1991)the Defendant said he made numerous additional installment payment of various amounts to the plaintiff totaling N4,865 leaving the balance outstanding at #1,135.00 which balance he attempted to settle on 15/12/91 but the defendant refused to accept. At the conclusion of the trial, after considering the evidence by both sides, the learned trial court entered judgment for the defendant/counter claimant in the consolidated suit.

Here the Appellate court upheld the decision of the lower trial court to the effect that the installment payments made by the defendant was enough proof of part performance despite the fact that it was an oral agreement, the contract of sale has to be concluded by the plaintiff by paying the balance and the defendant is to accept the final installment.

 

Note that there are various ways in which oral agreements occur in real estate transactions, it could also be that the sale of the property was orally concluded or a supplementary agreement to the originally written sale agreement which was not put into writing. In this instance, the transactions may have started in writing and other issues or changes were made latter in the cause of time. The issue here has always been weather you can vary an agreement already written by oral agreement. The answer is no, however there are some exceptions.

By virtue of the provisions of Section 128(1) of the Evidence Act 2011, there are exceptions to the rule that parole or oral evidence cannot be used to vary, alter or add to the contents of an existing agreement or document. The supreme court in F.I.B PLC v. Pegasus trading office (2004) 17 NSCQLR 688 at pg 677-679 per Uwaifo JSC said:   “Section 132(1) of the Evidence Act governs how written documents may be interpreted as regards the restriction against varying their contents with extrinsic oral evidence”. The provisions of Section 132(1) of the Evidence Act is fully entrenched in Section 128(1) of the Evidence Act, 2011. Deducing from the provisions of section 128(1) of the Evidence Act 2011, oral agreements cannot be admitted to contradict, alter, add to or vary a contract or document unless such evidence falls within the premise of any of the matters that may be proved by such oral evidence. The provisions only permit evidence which will not be inconsistent with the terms of the relevant contract or documents.

 

The Property Advisory Network hereby advise persons intending to enter into any kind of transaction in real estate to try to reduce what every agreement in writing. The reason is simple. Real estate business is not like any other business which elapses with time. Real estate transactions are long lasting. Most agreements would last more than the makers because the land or house will always be there while the owners and makers of the agreement passes on therefore it is important to reduce every agreement in real estate to writing to reduce the problems for the further generation.

Participants in real estate transactions should note that issues of real estate is dynamic and subject to changes in circumstances surrounding the participants. Things changes by days, the circumstances of the makers of the agreements could change for example by death or incapacitation and their defendants will not have any documents to really on to settle their disputes.

It is also important to note that though oral agreement in real estate is valid in circumstances outlined above, however you must reduce the oral agreement in writing to be able to obtain good title to the estate. You must have a deed of assignment between the parties to be able to process your documents of title.

3 thoughts on “Oral Agreements In Real Estate Transactions

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