Tuesday, September 1, 2009

Statute of Frauds and equitable exceptions to statutes of fraud

Traditional Statute of Frauds and Its Exceptions (promissory estoppel and partial performance)
The traditional statute of frauds in Texas, currently at Tex. Bus. & Com. Code Ann. § 26.01(a) (Vernon Pamph. 2008), provides that certain types of agreements, such as a promise to answer for the debt, default, or miscarriage of another, a contract for the sale of real estate, or an agreement which is not to be performed within one year of its making, are not enforceable unless the agreement, or a memorandum of it, is in writing and signed by the person to be charged or his authorized representative. See Footnote 5 However, equity will act to avoid the statute of frauds in circumstances where enforcing the statute would itself amount to a fraud. 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) (“Before using equity to circumvent the statute of frauds, the Texas Supreme Court has consistently required a showing that fraud would result in not doing so.”). Those circumstances are limited, however, because otherwise the exceptions would render the statute meaningless:

The Statute of Frauds is the Legislature's directive that courts enforce promises covered by the statute only if such promises are in writing. Equity can avoid the strictures of that directive only by “some positive rule which will insure its exercise for . . . the prevention of an actual fraud as distinguished from a mere wrong . . . so surely as to leave the statute itself, through the exactness of the exception, with some definiteness of operation.”Nagle, 633 S.W.2d at 799 (quoting Hooks v. Bridgewater, 111 Tex. 122, 128, 229 S.W. 1114, 1116 (1921)).
Promissory estoppel and partial performance have been recognized as equity-based exceptions to the traditional statute of frauds. Promissory estoppel allows enforcement of an otherwise unenforceable oral agreement when (1) the promisor makes a promise that he should have expected would lead the promissee to some definite and substantial injury; (2) such an injury occurred; and (3) the court must enforce the promise to avoid the injury. Nagle, 633 S.W.2d at 800; “Moore” Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934, 936 (Tex. 1972).
Promissory estoppel avoids the traditional statute of frauds when the alleged oral promise is to sign an existing document that satisfies the statute of frauds. See Nagle, 633 S.W.2d at 800 (discussing contract for sale of real estate provision of section 26.01); Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429, 438 (Tex. App.-Dallas 2002, pet. denied) (same); see also Birenbaum, 971 S.W.2d at 504 (promissory estoppel avoids statute of frauds only if oral promise “was to execute a document in existence that itself complied with the statute”; discussing statute of frauds formerly applicable to purchase of securities).
Under the partial performance equitable exception, an oral agreement that does not satisfy the traditional statute of frauds but that has been partially performed may be enforced if denying enforcement would itself amount to a fraud. Breezevale, 82 S.W.3d at 439; Carmack v. Beltway Dev. Co., 701 S.W.2d 37, 40 (Tex. App.-Dallas 1985, no writ) (discussing statute of frauds for agreements to pay a commission on sale or lease of real estate). The actions asserted to constitute partial performance must be “unequivocally referable” to the alleged oral agreement and corroborate the existence of that agreement; they “must be such as could have been done with no other design than to fulfill the particular agreement sought to be enforced; otherwise, they do not tend to prove the existence of the parol agreement relied upon by the plaintiff.” Breezevale, 82 S.W.3d at 439-40.


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