DAVID J. WILLIS ATTORNEY
Copyright © 2016. All rights reserved worldwide.
STATUTE OF FRAUDS IN TEXAS REAL ESTATE
The Requirement of a Writing
By David J. Willis, J.D., LL.M.
This article addresses the requirement that agreements relating to real property be in writing, a requirement referred to as the “Statute of Frauds.” Most investors are aware that they need a written contract when real estate is bought or sold. The issue of whether or not a signed writing must exist most often arises in connection with oral modifications, amendments, and extensions to a written contract. As an example, a lawyer may be asked if a handshake agreement to add thirty days to a designated closing date is binding. Generally, the answer is no, but there may be exceptions.
Provisions of the Statute of Frauds applicable to real estate are found in the Business & Commerce Code sections 26.01 and 26.02(b):
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) promise by an executor or administrator to answer out of his own estate for any debt or damage due from his testator or intestate;
26.02. Loan Agreement Must Be in Writing
(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
(a) 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.
Section 26.02(b) is particularly important when those 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 Business & Commerce Code section 2.201, but these apply to the sale of goods, not real estate.
Although not labeled as such, there is another important Statute of Frauds in Texas, Property Code section 5.021, which is sometimes referred to as the “Statute of Conveyances:”
5.021 Instrument of Conveyance
A conveyance of an estate of inheritance, a freehold, or an estate for more than one year, in land and tenements, must be in writing and must be subscribed and delivered by the conveyor or by the conveyor's agent authorized in writing.
What does the statute of frauds require of a contract at a practical level? How complete must the written document actually be? “The statute of frauds requires that a memorandum of an agreement, in addition to being signed by the party to be charged, must be complete within itself in every material detail and contain all of the essential elements of the agreement so that the contract can be ascertained from the writings without resorting to oral testimony.” Sterrett v. Jacobs, 118 S.W.3d 877, 879-80 (Tex.App.—Texarkana 2003, pet. denied). Note, however, that the contract need not be contained with the four corners of a single document. “A valid memorandum of the contract may consist of numerous communiques [or emails] signed by the party to be charged. . . .” Key v. Pierce, 8 S.W.3d 704, 708 (Tex.App.—Fort Worth 1999, pet. denied).
A discussion of the requirement of a signed writing 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, the following 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. “Under the partial performance exception to the statute of frauds, contracts that have been partly performed, but do not meet the requirements of the statute of frauds, may be enforced in equity if denial of enforcement would amount to a virtual fraud.” Hairston v. SMU, 441 S.W.3d 327, 336 (Tex.App.—Dallas 2013, pet. denied).
These exceptions are not found in Property Code section 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. 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.
Alleged subsequent oral modifications are a particularly common issue for attorneys. “Generally, if a contract falls within the statute of frauds, then a party cannot enforce any subsequent oral material modification to the contract.” SP Terrace, L.P. v. Meritage Homes, 334 S.W.3d 275,282 (Tex.App.—Houston [1st Dist.] 2010, no pet.).
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 Co. v. PEC P’ship,669 F.3d 518 (5th Cir. 2012). On the other hand, a Texas appeals court concluded that the failure of one party to sign a lease did not cause the lease to fail under the Statute of Frauds. Thomas P. Sibley, P.C. v. Brentwood Inv. Dev. Co., 356 S.W.3d 659 (Tex. App.—El Paso 2011, pet. denied).
Property Description Issues
The Statute of Frauds is a factor in determining whether a contract adequately describes property to be conveyed. The description must be sufficient. Pick v. Bartel, 659 S.W.2d 636, 637 (Tex. 1983). 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. General Metal Fabricating Corp. v. Stergiou, 438 S.W.3d 737, 753 (Tex.App.—Houston [1st Dist.] 2014). This is Texas’ reasonable certainty standard, in effect since at least 1945.
What about situations where a contract makes references to other documents? 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, 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).
Since land trusts are discussed in this book, we should point out that there is a statute of frauds that pertains to trusts found in Property Code section 112.004: “A trust in either real or personal property is enforceable only if there is written evidence of the trust’s terms bearing the signature of the settlor or the settlor’s authorized agent.” Accordingly, the common (but careless) practice of showing a trust as grantee in a deed, without an underlying trust agreement, is insufficient as a matter of statute.
Get it in Writing
“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. There are very limited exceptions. A proper contract is best, but even an informal scribbling signed by the parties can be sufficient.
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 © 2016 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 website, http://www.LoneStarLandLaw.com.