DAVID J. WILLIS ATTORNEY
Copyright © 2013. All rights reserved worldwide.
STATUTE OF FRAUDS IN TEXAS REAL ESTATE SALES
The Requirement that a Real Estate Contract be in Writing
By David J. Willis, J.D., LL.M.
This article addresses the requirement that contracts for the sale of Texas real property be in writing, a requirement called the "Statute of Frauds." Most people are aware that they should have a written contract when real estate is to be bought or sold; the issue of whether or not a signed writing must exist most often arises in connection with modifications, amendments, and extensions to a contract. For instance, lawyers are often asked if an oral agreement (for example) to add 30 days to a contractually-designated closing date is binding. Generally, the answer is no, but there are exceptions.
The Statute of Frauds is found in the Texas Business & Commerce Code:
Sec. 26.01. PROMISE OR AGREEMENT MUST BE IN WRITING.
(a) A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is
(1) in writing; and
(2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.
(b) Subsection (a) of this section applies to:
(1) a promise by an executor or administrator to answer out of his own estate for any debt or damage due from his testator or intestate;
(2) a promise by one person to answer for the debt, default, or miscarriage of another person;
(3) an agreement made on consideration of marriage or on consideration of nonmarital conjugal cohabitation;
(4) a contract for the sale of real estate;
(5) a lease of real estate for a term longer than one year;
(6) an agreement which is not to be performed within one year from the date of making the agreement;
(7) a promise or agreement to pay a commission for the sale or purchase of:
(A) an oil or gas mining lease;
(8) an agreement, promise, contract, or warranty of cure relating to medical care or results thereof made by a physician or health care provider as defined in Section 74.001, Civil Practice and Remedies Code.
(B) an oil or gas royalty;
(C) minerals; or
(D) a mineral interest; and
Sec. 26.02(b) is also relevant to real estate: "A loan agreement in which the amount involved in the loan agreement exceeds $50,000 in value is not enforceable unless the agreement is in writing and signed by the party to be bound or by that party´s authorized representative." This requirement is particularly important today as many homeowners who are seeking loan modifications find themselves unwittingly foreclosed upon – despite an alleged "oral agreement." These unfortunate homeowners likely have no recourse unless a written agreement signed by both borrower and lender was in existence at the time of the foreclosure.
Additional Statute of Frauds provisions are found in Sec. 2.201, but these apply to the sale of goods, not real estate.
The statutory provisions cited above comprise the general rule. However, a discussion of the requirement of a signed written instrument for the purchase or sale of real property would not be complete without addressing the equitable exceptions. "Equity" is that branch of the law which provides relief in cases where strict application of a statute or common-law rule would result in unfairness or injustice. In the case of the Statute of Frauds, these exceptions apply:
(1) when enforcement of the Statute of Frauds would itself amount to an actual fraud (but not a mere wrong);
(2) when the doctrine of "promissory estoppel" applies, the three elements of which are:
(A) a person makes a promise that he or she should have expected would lead another person to sustain some definite and substantial damage or injury;
(B) such damage or injury occurred; and
(C) the court must act to relieve or avoid the damage or injury; or
(3) when significant partial performance of an oral agreement has occurred and denying enforcement of the agreement at that point would amount to an actual fraud.
These exceptions are not found in Sec. 26.01 but in case law that has evolved interpreting the Statute of Frauds. Their use is strictly limited since widespread allowance of these exceptions would effectively void the rule. See Nagle v. Nagle, 633 S.W.2d 796, 799-800 (Tex. 1982); Birenbaum v. Option Care, Inc., 971 S.W.2d 497, 503 (Tex. App.-Dallas 1997, pet. denied); Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429, 438 (Tex. App.-Dallas 2002, pet. denied).
Occurrence of Statute of Frauds Issues
Lawyers tend to encounter Statute of Frauds issues in two contexts: first, when a client inquires whether or not a certain oral agreement is legally enforceable; and second, in litigation when a plaintiff seeks to enforce an oral agreement and the Statute of Frauds must be raised as an affirmative defense. Note that if the Statute of Frauds is so raised, then the burden shifts back to the plaintiff to demonstrate how one of the exceptions would apply – a difficult task, inasmuch as these exceptions are narrowly construed.
An example of the strictness of the Statute of Frauds in Texas is found in a recent Fifth Circuit case where the court denied enforcement of a written contract merely because exhibits to the contract (describing oil and gas leases to be conveyed) had not been finalized. See Preston Exploration Company, L.P.; PEC Partnership; T.S.C. Oil & Gas, Inc.; and Frank Willis, III v. GSF, L.L.C. and Chesapeake Energy Corporation (5th Cir. 2012).
Property Description Issues
The Statute of Frauds is relevant in determining whether a contract adequately describes the real property to be conveyed. The description must be sufficient. Pick v. Bartel, 659 S.W.2d 636, 637 (Tex. 1983). And how is "sufficient" defined? A property description is sufficient if the writing furnishes within itself, or by reference to some other existing writing, the means or data by which the particular land to be conveyed may be identified with reasonable certainty. Wilson v. Fisher, 188 S.W.2d 150, 152 (Tex.1945). This is Texas' reasonable certainty standard.
What about situations where a contract makes references to other documents? Is that sufficient? Again, the courts are strict. Only in limited circumstances may extrinsic evidence be used and then "only for the purpose of identifying the [property] with reasonable certainty from the data in the [writing]." Pick v. Bartel, 659 S.W.2d at 637 (quoting Wilson, 188 S.W.2d at 152). "The written memorandum, however, need not be contained in one document." Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex. 1995) (citing Adams v. Abbott, 254 S.W.2d 78, 80 (Tex. 1952)). The Texas Supreme Court has repeatedly held that multiple writings pertaining to the same transaction will be construed as one contract. Owen v.Hendricks, 433 S.W.2d 164 (Tex. 1968); see also Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000).
"Get it in writing" is not just valid folk wisdom, it is Texas law when it comes to the purchase and sale of real property – subject to very limited exceptions. Even an informal scribbling on piece of scrap paper that is signed by the two parties can be adequate. Consult a lawyer who is a specialist in this area.
Information in this article is proved for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. This firm does not represent you unless and until it is expressly retained in writing to do so.
Copyright ® 2013 by David J. Willis. All rights reserved worldwide. David J. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his web site, http://www.LoneStarLandLaw.com.