The statute of frauds is an affirmative defense in a breach of contract suit that, where applicable, renders a contract unenforceable.[1] It exists to “prevent fraud and perjury in certain kinds of transactions by requiring agreements to be set out in a writing signed by the parties.”[2] In order to be enforceable, a contract that is subject to the statute of frauds must be in writing and signed by the person to be charged with the promise or agreement (or by someone lawfully authorized to sign for them).
The statute, in other words, bars claims arising out of unenforceable oral promises, unless the defendant’s fraud prevented the necessary writing.[3] If contract provisions that are subject to the statute of frauds are not severable from those outside the statute, the entire contract is unenforceable unless it satisfies the statute.[4]The question of whether the statute of frauds applies is a matter of law.[5] The statute of frauds does not apply to a fully executed contract.[6] Generally, the statute of frauds applies to contracts regarding marriage, suretyship, sales of real estate, goods priced at $500.00 or more under the Uniform Commerical Code (UCC), and contracts that are not performable in one year. There are, however, a few applications that are specific to Texas.
Texas-Specific Statute of Frauds Considerations
In Texas, the statute of frauds is located in chapter 26 of the Texas Business and Commerce code. Section 26.01(b) applies the statute to contracts regarding: marriage (“or on consideration of nonmarital conjugal cohabitation”), suretyship, contracts that are not to be performed within one year from the date of making the agreement, promises by an executor or administrator to answer out of his own estate for any debt or damage due from his testator or intestate, certain medical arrangements, and sales of real estate or leases of real estate for a term longer than one-year,[7] and certain payments related to mineral interests.
Marriage
Contracts involving marriage, or on consideration of nonmarital conjugal cohabitation, fall within the scope of the statute of frauds. For example, Texas courts have long held that any agreements regarding engagement rings, which are traditionally given in contemplation or consideration of marriage, must be in writing to be enforceable.[8]
Suretyship
The suretyship provision in Texas, which applies to “a promise by one person to answer for the debt, default, or miscarriage of another person,” applies regardless of “whether [the debt was] already incurred or to be incurred in the future.”[9] To comply with the statute of frauds, a memorandum of suretyship must contain (1) the parties involved, (2) a manifestation of intent to guarantee the obligation, and (3) a description of the obligation being guaranteed.[10]
Contracts Not to be Performed Within One Year
Agreements that demand performance at or for a specified amount of time are easily determined by the court either to fall or not fall under section 26.01(b)(6).[11] Texas courts have generally held that if the date of performance is not stated or cannot be readily ascertained, then the statute of frauds does not apply if performance could conceivably be completed within one year of the agreement’s making.[12] Agreements where the time at or for performance is not specifically provided—but where it can be readily ascertained from the context of the agreement—can also be easily determined to be within or outside section 26.01(b)(6).[13]
Agreements requiring performance for an indefinite duration, and which do not depend on any conditions for their perpetuation, are generally held not to require a writing under the statute of frauds because “there is nothing in the agreement itself to show that [the agreement could not] be performed within a year according to its tenor and the understanding of the parties[.]”[14]Agreements to last the lifetime of one of the parties would also not require a writing because the party upon whose life the duration of the contract is measured could die within a year of the agreement’s making.[15]
Promises by an Executor or Administrator to Answer out of his Own estate for Any Debt or Damage due from his Testator or Intestate
A testator is a person who makes a will. A person who dies without having made a will is said to have died intestate. Thus, under the Statute of Frauds, § 26.01(b)(1), promises made by a representative to answer out of their own estate for any debt or damage due from the person they represent who either did or did not make a valid will, require a valid signed writing to be effective. Texas courts have held the representative personally responsible for necessary services contracted by the representative and performed for the estate.[16] The estate, however, remains primarily responsible.[17] The Texas Supreme Court has held that the Statute of Frauds, § 26.01(b)(1), does not apply to estate obligations incurred after the death of the decedent.[18]
Medical Arrangements
Under section 26.01(b)(8), the statute of frauds applies to certain medical arrangements or results thereof made by a physician or health care provider, but not pharmacists, as defined by section 74.001 of the Civil Practice and Remedies Code. The definition of “health care provider” includes, registered nurses, dentists, podiatrists, pharmacists, chiropractors, optometrists, health care institutions, or any person, partnership, professional association, corporation, facility, or institution duly licensed, certified, registered, or chartered by the State of Texas to provide health care.[19]
Sales of Real Estate
The statute of frauds applies to a contract for the sale of real property and leases longer than one year.[20] In Texas, many contracts regarding real estate diverge into matters relating to oil, gas and mineral contracts. Texas courts have held, however, that the statute of frauds is not implicated merely because a real estate transaction may be incidentally involved.[21]
A promise or agreement to pay a commission for the sale or purchase of: (A) an oil or gas mining lease; (B) an oil or gas royalty; (C) minerals; or (D) a mineral interest.
Generally, mineral interest and oil and gas leaseholds have been treated as real property interests and thus subject to the statute of frauds.[22] Texas courts have held that the statute of frauds requires oil and gas leases, and contracts for their transfer, be in writing.[23]Additionally, under Texas law, a conveyance of a working interest in oil and gas is a real property interest that subjects the agreement conveying the interest to the statute of frauds.[24] Courts have held that the statute of frauds is not implicated merely because a real estate transaction may be incidentally involved.[25] For example, an interest in a product sharing contract (PSC) is not considered an interest in real estate and thus not subject to the statute of frauds.[26] Likewise, an oral agreement to pay a royalty on minerals removed from a tract as compensation for services rendered in pointing out unleased land containing the mineral deposits has also not been held as a transfer of interest in real estate and thus not subject to the statute of frauds.[27]
Exceptions to the Statute of Frauds
Promissory Estoppel
Though it can be raised by the defendant as an affirmative defense, it is more often raised by a plaintiff as a counter defense to nullify the defendant’s statute of frauds defense. Promissory estoppel applies to bar the application of the statute of frauds and allow the enforcement of an otherwise unenforceable oral agreement when (1) the promisor makes a promise that he should have expected would lead the promisee to some definite and substantial injury; (2) such an injury occurred; and (3) the court must enforce the promise to avoid the injury.[28] In order to successfully raise promissory estoppel, the agreement that is the subject of the promise be in writing at the time of the oral promise to sign it.[29] Damages recoverable in a case of promissory estoppel are not the profits that the promisee expected, but only the amount necessary to restore him to the position in which he would have been had he not relied on the promise.[30]
Partial Performance
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.[31] The partial performance must be “unequivocally referable to the agreement and corroborative of the fact that a contract actually was made.”[32]
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[1]TEX. BUS. & COM.CODE ANN. § 26.01.
[2] Haase v. Glazner, 62 S.W.3d 795, 799 (Tex.2001).
[3] Weakly v. East, 900 S.W.2d 755 (Tex. App.—Corpus Christi 1995, writ denied); see § 19:271 (estoppel as exception to statute of frauds defense).
[4] Walker v. Tafralian, 107 S.W.3d 665 (Tex. App.—Fort Worth 2003, pet. denied).
[6] Frost National Bank v. Burge, 29 S.W.3d 580 (Tex. App.—Houston [14th Dist.] 2000, no pet.).
[7] TEX. BUS. & COM.CODE ANN. § 26.01(b).
[8] Curtis v. Anderson, 106 S.W.3d 251, 255 (Tex. App.—Austin 2003, pet. denied).
[9] Dynegy, Inc. v. Yates, 422 S.W.3d 638, 642 (Tex. 2013) (citing RESTATEMENT (SECOND) OF CONTRACTS § 112 cmt. b (1981).
[10] Hartford Fire Ins. Co. v. C. Springs 300, Ltd., 287 S.W.3d 771, 778 (Tex. App.—Houston [1st Dist.] 2009, pet. denied).
[11] Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795, 796 (1961).
[12] Young v. Ward, 917 S.W.2d 506, 509 (Tex. App.—Waco 1996, no writ).
[13] Young , 917 S.W.2d at 508.
[14] Bratcher, 346 S.W.2d at 796 (quoting 49 AM.JUR. Statute of Frauds § 27 (1943)).
[15] Young, 917 S.W.2d at 510.
[16] McGloin’s Ex’rs. v. Vanderlip, 27 Tex. 366 (1864).
[17] Connor v. Wright, 737 S.W.2d 42, 46 (Tex. App.—San Antonio 1987, no writ).
[18] Id.
[19]Tex. Civ. Prac. & Rem. Code Ann. § 74.001.
[20] TEX. BUS. & COM.CODE ANN. § 26.01(b)(4).
[21] Bridewell v. Pritchett, 562 S.W.2d 956, 958 (Tex.Civ.App.—Fort Worth 1978, writ ref’d n.r.e.); Hydrocarbon Horizons, Inc. v. Pecos Dev. Corp., 797 S.W.2d 265, 267 (Tex. App.—Corpus Christi 1990), writ denied, 803 S.W.2d 266 (Tex. 1991).
[22] Cherokee Water Co. v, Forderhause, 641 S.W.2d 522, 525 (Tex.1982); Hill v. Heritage Res., Inc., 964 S.W.2d 89, 134 (Tex. App.—El Paso 1997, pet. denied).
[23] Hill, 964 S.W.2d at 134.
[24] Hill, 964 S.W.2d at 134; Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429, 436 (Tex. App.—Dallas 2002, pet. denied).
[25] Bridewell v. Pritchett, 562 S.W.2d 956, 958 (Tex.Civ.App.—Fort Worth 1978, writ ref’d n.r.e.); Hydrocarbon Horizons, Inc. v. Pecos Dev. Corp., 797 S.W.2d 265, 267 (Tex. App.—Corpus Christi 1990), writ denied, 803 S.W.2d 266 (Tex. 1991).
[26] Breezevale Ltd., 82 S.W.3d at 436.
[27] Hydrocarbon Horizons, Inc., 797 S.W.2d at 267 (citing Waco–Tex Materials Co. v. Lee, 210 S.W.2d 886, 888–89 (Tex.Civ.App.—Waco 1948, writ ref’d n.r.e.)).
[28] ”Moore” Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex.1972).
[29] Breezevale Ltd., 82 S.W.3d at 438.
[30] Frost Crushed Stone Co., Inc. v. Odell Geer Const. Co., Inc., 110 S.W.3d 41, 47 (Tex. App.—Waco 2002, no pet.); Fretz Const. Co. v. Southern Nat. Bank, 626 S.W.2d 478, 483 (Tex.1981).
[31] Carmack v. Beltway Dev. Co., 701 S.W.2d 37, 40 (Tex.App.-Dallas 1985, no writ).
[32] Wiley v. Bertelsen, 770 S.W.2d 878, 882 (Tex.App.-Texarkana 1989, no writ) (citing Chevalier v. Lane’s, Inc., 147 Tex. 106, 213 S.W.2d 530, 533–34 (1948)); Breezevale Ltd., 82 S.W.3d at 439.
