In Texas a Statute of Frauds tells us that most contracts
must be in writing. Actually in Texas real estate law we have two Statutes of Frauds. The ‘generic’
one is in the Business & Commerce Code. The one that is unique to real
estate is in the Property Code.
But of
course everyone knows this. Well not every one . . .
In
January 2005 Randall May and Bill Buck (and others) signed a letter agreement
regarding mineral rights in Leon County, Texas. Exhibit A was attached which
provided a comprehensive description of four parcels of land, comprising 563
acres.
The
letter agreement, however, also said that Buck would assign to May “. . . all
the mineral rights and a 100-acre spacing centered around the David Morris Gas
Unit # 1 in Leon County, Texas.”
Buck did
not assign the mineral rights to May, so May filed a lawsuit. Buck defended based
on a failure to satisfy the statute of frauds, meaning the letter agreement was
unenforceable because the 100-acre parcel was not defined in the letter or in
an attachment.
It
appears that the issue at trial was not related to the location of David Morris
Gas Unit # 1, but rather the boundaries of the 100-acre parcel. Predictably,
one expert testified that he could not determine the location of the 100 acres.
Now here’s a big surprise. The other expert said he could determine with
reasonable certainty the shape and location of the 100 acres. I know you were
shocked to read that.
Then the
experts argued that the parcel was in the shape of “rectangular halo,” “donut”
or “picture frame,” while others were of the belief that since the well bore
was at the center, the spacing must resemble a circle, square or oblong.
You
can’t make this stuff up.
The
trial court ruled for Bill Buck and determined that the letter agreement
failed. Because it did not satisfy the Texas statute of frauds.
Randall
May appealed.
Texas
law is about as clear as mud on this point. Basically, if enough data appears
in the description that a person who is familiar with the area can find it, it
is sufficient.
The
Texas Court of Appeals concluded the description failed to meet the statute.
And that made the letter agreement unenforceable. The Judgment of the trial
court was affirmed.
Bill
Buck wins. Again. Randall May lost. Again.
See May v. Buck; No. 05-09-01501-CV; Texas
5th Court of Appeals; July 11, 2012.
Lessons learned:
1. There
are two Statutes of Frauds that relate to real property in Texas. Not just one.
2. References
in an agreement or lease or contract to attached exhibits work fine. Sometimes
even drawings are sufficient. But simply stating a “100-acre space” or similar,
without anything more, means the deal may fail if challenged.
3. If
the deal is challenged, and fails, bad things happen. Sellers, buyers,
landlords, tenants, lenders and others are not happy. Unhappy people tend to
sue those they think are responsible for their sense of unhappiness. Don’t be
on the receiving end of unhappiness. Don’t be that person.
Reprinted with the permission of North
Texas Commercial Association of REALTORS®, Inc.
