Verbal agreements may be enforceable where they contain all of the legal elements necessary to form a contract. That is, there is an offer made by one party, an acceptance of the offer by another party, consideration exists, and the agreement is not otherwise illegal or against public policy. Consideration may be in form of goods or money, or may be nothing more than mutual promises of each party to perform in accordance with the agreement. Certain contracts which have been held to be illegal or against public policy in Texas are gambling debts, Mary Carter agreements, and unreasonable non-compete agreements.
In situations where it appears that an otherwise enforceable contract exists, the law will not enforce a verbal contract or promise unless it is in writing and signed by the person sought to be charged (or his or her authorized agent). This legal rule is called the Statute of Frauds and is codified in Section 26.01 of the Texas Business & Commerce Code.
The Statutes of Frauds applies to the following types of promises and agreements:
- promises from an executor or administrator to pay the debts or damages of the decedent;
- guaranty agreements;
- an agreement made in consideration of marriage or nonmarital conjugal cohabitation;
- a contract for the sale of real estate;
- a lease of real estate for a term longer than one year;
- an agreement that is not to be performed within one year;
- an agreement to pay a commission on the sale or purchase of an oil or gas
lease, royalty, or mineral interest; and
- an agreement, promise, or warranty of cure relating to medical care or results
by a physician or health care provider (excluding pharmacists).
There are other types of agreements which must be in writing and signed by the party to be bound, such as:
- loans from certain financial institutions (Tex. Bus. & Com. Code Section 26.02);
- contracts for the sale of goods for a price of $500.00 or more (Tex. Bus. &
Com. Code Section 2.201(a)).
- agreements between parties or attorneys concerning a lawsuit (Texas Rules of
Civil Procedure 11); and
- agreements seeking commissions from the sale or purchase of real estate
(Texas Occupations Code Section 1101.806(c)).
Where a contract appears to meet the terms of the Statute of Frauds, the writing must contain within itself or by express reference to another writing all of the essential or material terms of the parties' agreement. The contract terms must be ascertained from the writing without resort to outside verbal testimony or writings not referenced in the contract. Certain terms of a contract may be implied by a court if not specifically addressed, such as the time for performance, time and place of payment, and in certain situations, price.
In a contract involving the sale or lease of real estate which is subject to the statute of frauds, the writing must contain within itself, or by reference to another existing writing, sufficient data or other means by which the land may be identified with reasonable certainty Failure of the contract to contain a proper legal description in these situations will render the contract unenforceable under the Statute of Frauds.
Of course, these are always exceptions. WHere one of the parties to an agreement partially performs the agreement, a court will not apply the Statute of Frauds. "Partial performance" occurs when one party to the agreement performs his part of the agreement in reliance suffers a substantial detriment for which there is no legal remedy, while the other party would reap an unearned benefit. For example, Seller agrees to sell his house to Buyer for a specified price, but the agreement is never reduced to writing and no deed to the property is ever delivered to the Buyer. In reliance of such verbal agreement, the Buyer takes possession of the house, pays the agreed price, maintains and improves the residence, pays the property taxes, insures the dwelling, and otherwise does all the things that an owner would do. If the Seller then refuses to deed the property to the Buyer following the Buyer's performance, the law will not render the verbal agreement enforceable under the Statute of Frauds.
Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial Real Estate Law and may be reached at [email protected]