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Real estate lease, sale: It's 'critical' it's in writing

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Tiffany Lashmet discusses the importance of written contracts when it comes to real estate in her latest Texas Agriculture Law Blog.

A recent Fort Worth Court of Appeals case, In the Estate of Terry Lynn Banta, Deceased, offers an important reminder of why it is critical to have any contracts regarding the purchase of real estate in writing.  [Read Opinion here.]

Statute of Frauds

This case revolves around the “statute of frauds.”

Generally speaking, a verbal contract is enforceable under Texas law.  There are certain types of contracts, however, that are required to be in writing to be legally enforceable pursuant to the statute of frauds. One such contract for which a written agreement is required is that for the sale of real estate.  A party pleading the statute of frauds must establish its applicability. Once that is done, the burden shifts to the other party to establish an exception.

There are a number of exceptions to the statute of frauds, including the partial performance exception. To prove the applicability of the partial performance exception, which would allow a verbal contract to be enforceable, the party claiming the exception must show three elements: (1) payment of the consideration; (2) possession by the vendee; and (3) making by the vendee of valuable and permanent improvements with the consent of the vendor (or without such improvements, the presence of such facts that would make the transaction a fraud upon the purchaser if it were not enforced).

Background

Mr. Banta died in 2020.  In May 2021, the administrator of his estate filed an application to sell a Forth Wroth property belonging to Banta’s estate. In the application to sell, the administrator noted that the property was subject to a potential claim by the residents of the property, the Herriotts. The Herriotts alleged they had an oral contract with Banta to purchase the property.  The administrator determined that because the statute of frauds requires contracts for the sale of real estate must be in writing, and this was not, the claim should be rejected.

The Herriotts explained that they had prepared a written contract to memorialize their agreement with Banta, but were unable to complete its execution before he died. They argued they should be exempted from the statute of frauds because they made a down payment of $40,000 and regular monthly payments pursuant to the oral contract ever since, paid property taxes and carried homeowners insurance on the property while living there, and made a number of repairs and improvements to the property.

At trial, the Herriotts argued the partial performance exception to the statute of frauds should apply and allow for their oral contract to be enforced. However, the Herriotts did not include any of their exhibits into evidence at the trial or present any other evidence to support their case for proper performance at trial.  The trial court sided with the administrator granting his application to sell the property and denying the Herriotts claim for failure to satisfy the statute of frauds.

The Herriotts appealed that decision and attached a number of documents related to their partial performance claim on appeal.

Court of Appeals Decision

The issue on appeal is whether the statute of frauds required the contract to be in writing, as the administrator argued or whether the partial performance exception applied as the Herriotts believe.  The court of appeals affirmed the trial court decision in favor of the administrator.  [Read opinion here.]

Because the administrator successfully proved the applicability of the statute of frauds since the contract involved the sale of real estate, the burden then shifted to the Herriotts to prove the partial performance exception.

The court held that the Herriotts failed to submit admissible evidence to prove these requirements.  They relied upon affidavits, documents attached to pleadings, and the argument of counsel, none of which are admissible as evidence.  However, even assuming that these documents were entered into evidence, the Herriotts would not have satisfied their burden for the reasons below:

  • Documents show that the Herriotts occupied the property and paid Banta $596.77 each month.  This would be just as consistent with a lease arrangement as they would an agreement to purchase property.
  • Documents would show they paid part of the alleged purchase price in a series of down payments, but even full payment of consideration, alone, is not sufficient to prove the partial performance exception.
  • As to the improvements to the property, the court said it could not say these expenses constitute conclusive proof of an agreement.

In light of this, the trial court was within its purview to reject the partial performance exception.  The court of appeals affirmed the trial court’s decision.

Key Takeaways

Simply put, it is critical that any contract relating to the sale of real estate be put in writing. The same is true for any contract for the lease of real estate lasting a year or more, so anyone with a long-term grazing, farm, hunting, or residential lease pay attention! Because these agreements are subject to the statute of frauds, they are extremely difficult to enforce without the required written agreement.  This is particularly important in factual situations like this where the Herriotts claim to have spent tens of thousands of dollars toward the purchase of the house but will walk away with nothing after this decision.

A secondary issue to flag in this case is the distinction between what may be admissible as evidence and what may not. It is critical in any lawsuit that the parties understand what evidence is admissible and how to ensure such admissibility in a case.

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