THRESHOLD DOLLAR AMOUNT FOR STATUTE OF FRAUDS IN LOAN CONTRACTS
The statute of frauds provides that 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 . . . [his] authorized representative." TEX. BUS. & COM. CODE § 26.02(b). The statute also provides that in such a loan agreement, the financial institution must give the debtor the following notice:
This written loan agreement represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.
Id. § 26.02(e). This notice "must be in type that is boldface, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous." Id. "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 of Tex., LLC, 334 S.W.3d 275, 282 (Tex. App.-Houston [1st Dist.] 2010, no pet.) (citing Dracopoulas v. Rachal, 411 S.W.2d 719, 721 (Tex. 1967)).
SOURCE: HOUSTON COURT OF APPEALS - 01-13-00855-CV – 12/30/2014
Statute of Frauds: Tex. Bus. & Com. Code § 26.01 and 26.02
In this case, both the deed of trust and the promissory note executed in 2001 are subject to the statute of frauds as contracts involving a loan agreement in excess of $50,000 in value. Tatum argues that the statute of frauds does not bar evidence of a subsequent oral modification because the deed of trust does not include the statutory language. However, the statute specifies that the language about the nullity of oral agreements may be contained in "a separate document signed by the debtor . . . or incorporated into one or more of the documents constituting the loan agreement." TEX. BUS. & COM. CODE § 26.02(e). In this case, the statutory notice appears in boldface, capitalized type at the bottom of the promissory note that Tatum signed. Thus, the terms of the promissory note prohibit enforcement of a subsequent oral modification.
In Ellen v. F.H. Partners, LLC, No. 03-03-00310-CV, 2010 WL 4909973 (Tex. App.-Austin Dec. 1, 2010, no pet.) (mem. op.), the court of appeals held that a subsequent oral statement by a bank representative could not be enforced as a contract. After Sonny Ellen defaulted on a $500,000 mortgage for the purchase of real property, he approached the note holder's loan officer and asked for time to refinance or sell the property before the initiation of foreclosure proceedings. Ellen, 2010 WL 4909973, at *1. Ellen contended that the loan officer said such delay was "doable," which he interpreted as a promise to delay foreclosure. Id. But the property was sold at a foreclosure auction, and Ellen sued for promissory estoppel. Id. at *2. The court of appeals affirmed the trial court's take-nothing summary judgment. The appellate court held that because the loan agreement included a signed, written notice of invalidity of oral statements and because the loan agreement was subject to the statute of frauds, Ellen could not enforce an oral modification to the loan agreement. Id.
The same logic applies to this appeal: because the promissory note was subject to the statute of frauds and it included the statutory notice of invalidity of oral statements, any oral modification to Tatum's loan is unenforceable. See id.
Nevertheless, Tatum argues that his contract claims are not barred by the statute of frauds because the partial-performance exception applies.
PARTIAL PERFORMANCE EXCEPTION TO STATUTE OF FRAUDS AS BAR
Partial performance of a contract is an equitable exception to the statute of frauds. See Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429, 439 (Tex. App.-Dallas 2002, pet. denied); Resendez v. Maloney, No. 01-08-00954-CV, 2010 WL 5395674, at *7 (Tex. App.-Houston [1st Dist.] Dec. 30, 2010, pet. denied) (mem. op.). "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." Exxon, 82 S.W.3d at 439. Virtual fraud means that due to reliance on a contract, a party has suffered a substantial detriment for which he has no adequate remedy, and the other party would reap an unearned benefit if permitted to invoke the statute of frauds. See id. However, the acts constituting partial performance must be unequivocally referable to the agreement and corroborative of the fact that a contract actually was made, such that they serve no purpose other than to fulfill the particular agreement sought to be enforced. Id. Otherwise, they do not tend to prove the existence of the otherwise unenforceable agreement relied upon by the plaintiff. Id. at 439-40.
SOURCE: HOUSTON COURT OF APPEALS - 01-13-00855-CV – 12/30/2014
ORAL MODIFICATION OF LOANS UNDER THE STATUTE OF FRAUDS
See Tex. Bus. & Com. Code Ann. § 26.02(a)(2) (requiring a writing for loan agreements involving loans of $50,000 or more); see also Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 256 (5th Cir. 2013) (holding that the statute of frauds applies to oral modifications to loan agreements).
SOURCE: FIFTH CIRCUIT: Guajardo v. JP Morgan Chase Bank, NA, Court of Appeals, 5th Circuit Jan 12, 2015
STATUTE OF FRAUDS AS AFFIRMATIVE DEFENSE
The statute of frauds is an affirmative defense, and it is waived if not pled. TEX.R.CIV.P. 94; Phillips v. Phillips, 820 S.W.2d 785, 791 (Tex. 1991).
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