The Statute of Frauds in Business Disputes
By Henry J. Paoli, Attorney & Shareholder; Chair, Litigation; Chair, Appellate Law
On some occasions, business disputes are based on disagreements as to the terms of the written agreement or contract between the parties. But what happens when the dispute arises from a verbal agreement that is not corroborated by any written document that is signed by the parties?
Texas law requires that certain types of agreements be in writing to be enforceable in the courts. Subject to some limited exceptions, the statute of frauds requires that the following types of agreements be in writing:
(1) a promise by an executor or administrator to answer out of his own estate for any debt or damage due from his testator or intestate;
(2) a promise by one person to answer for the debt, default, or miscarriage of another person;
(3) an agreement made on consideration of marriage or on consideration of nonmarital conjugal cohabitation;
(4) a contract for the sale of real estate;
(5) a lease of real estate for a term longer than one year;
(6) an agreement which is not to be performed within one year from the date of making the agreement;
(7) a promise or agreement to pay a commission for the sale or purchase of: (i) an oil or gas mining lease; (ii) an oil or gas royalty; (iii) minerals; or (iv) a mineral interest; and
(8) an agreement, promise, contract, or warranty of cure relating to medical care or results thereof made by a physician or health care provider.
When it applies, the statute of frauds bars a party from seeking to enforce a verbal promise that the statute of frauds requires be in writing in order to be enforceable. Most frequently, the statute of frauds is asserted as a defense to a claim for breach of contract when the claim relies on a verbal agreement that is within the statute of frauds.
While the statute of frauds is most normally associated as a defense to breach of contract claims, it can also bar reliance on a verbal representation that forms the basis of a fraud claim. Haase v. Glazner, 62 S.W.3d 795, 798-99 (Tex. 2002). In Haase, the Texas Supreme Court held that the statute of frauds bars a fraud claim that is based on a verbal agreement when the plaintiff seeks to recover benefit of the bargain damages. The rationale of the court was that refusing to apply the statute of frauds to a fraud claim would allow parties to circumvent the statute of frauds by alleging fraud to seek to enforce a verbal contract that the statute of frauds mandates must be in writing.