Promoting or frustrating the statute of frauds? Implications from Holman v. Childersburg Bancorporation, Inc.

• Author: Franks, Johnni L.
• Position: Alabama

INTRODUCTION

In Alabama, a transfer of interest in real property must be in writing, signed by the party charged, and contain a recital of consideration or it is void by the Statute of Frauds. (1) However, the Alabama Supreme Court has held that partial performance of an oral agreement involving real property operates as an exception to remove the oral agreement from the Statute of Frauds. (2) Thus, an otherwise void oral agreement is removed from the Statute of Frauds when payment is made in full or in part, or when the purchaser is put in possession of the land by the seller, or when fraud is shown from the inception of the oral agreement. (3) In a recent opinion regarding an oral agreement to release a mortgage, the Alabama Supreme Court held in Holman v. Childersburg Bancorporation, Inc., (4) that 1) admittance of an oral agreement does not operate as an estoppel bar to remove the agreement from the Statute of Frauds 2) partial performance does not satisfy the Statute of Frauds if the requisite possession test is not met and 3) interrelated tort claims that require proof of an alleged oral agreement are also barred by the Statute of Frauds. (5)

The supreme court's holding in Holman v. Childersburg is significant because it clarifies the partial performance exception to Alabama's Statute of Frauds and explains the rationale of denying tort claims that arise from void oral agreements. This decision also reiterates that the Alabama Supreme Court will not allow the Statute of Frauds to be circumvented even if a party admits to the existence of an oral agreement. Likewise, the Holman decision could reflect a trend toward extending the Statute of Frauds to bar other claims that have previously been upheld. This Note addresses three issues related to Holman. The issues are 1) whether the purpose of the Statute of Frauds is promoted or frustrated by the holding in Holman v. Childersburg; 2) whether the Holman decision is consistent with precedent and whether it merely clarifies the partial performance exception to the Statute of Frauds or 3) whether the decision represents a new trend to limit recovery for oral agreements involving land transactions. The first part of this Note provides historical context of the Statute of Frauds and a brief overview of cases that have interpreted the partial performance exception to the Statute of Frauds. The second part provides a brief rendition of the facts of Holman and reviews the issues raised on appeal. The third part analyzes the Alabama Supreme Court's holding on estoppel, the possession requirement of partial performance, and denial of interrelated tort claims. Finally, part four is a brief summary of the issues.

HISTORICAL DEVELOPMENT

Alabama adopted the English Statute of Frauds in 1823 to prevent fraudulent practices and to prevent the enforcement of contracts that never existed. (6) The Statute of Frauds provides that certain agreements are void unless in a writing with a recital of consideration and signed by the party charged or by a lawfully authorized agent of the party charged. (7) The agreements which must be in writing to comply with the Statute of Frauds are: agreements which cannot be performed within one year from the time made; (8) promises made by an executor or an administrator to pay damages out of his own estate; (9) a promise to answer for the debt of another; (10) agreements made upon consideration of marriage; (11) contracts for the sale of lands or an interest in land, unless the purchase price or a portion is paid and the purchaser is put in possession of the land by the seller; (12) a promise to make a will or devise any real or personal property; (13) agreements to lend money or forebear repayment or modifications of an agreement; (except for consumer loans with a principal amount less than $25,000) (14) and every agreement for the sale or purchase of securities. (15)

Public policy is the foundation for the Statute of Frauds in that the statute protects the parties involved and aids judges or jurors in deciding whether an agreement existed. (16) The Statute of Frauds serves as a vital tool for judges or juries confronted with enforcing commercial and personal agreements because it "identifies defined categories of oral promises that are especially subject to fabrication and especially unworthy of enforcement." (17) Thus, when an oral agreement does not satisfy the requirements of the Statute of Frauds or involves inherent fraud, judges and juries have an easier job of determining whether an agreement is void and can further promote public polices by adhering to the requirements. (18)

The Alabama Supreme Court has identified partial performance as an exception to the Statute of Frauds in oral agreements concerning land and has been reluctant to waive the writing requirement. (19) Alabama case law contains numerous land transactions in which the court voided the agreements because the Statute of Frauds requirements were not met. (20) For example, in 1927 the Alabama Supreme Court held that an oral agreement to give a mortgage to secure a debt was void because it was not in writing. (21) The court further held that after the execution of a mortgage, the mortgage could not be altered by parol agreements nor could the obligations change from those in the original writing. (22) The court has also refused to uphold agreements in which one party asserted that a writing existed, but could not produce it as evidence, or only submitted an affidavit based on mere speculation instead of personal knowledge. (23) Therefore, the Alabama Supreme Court has decided several cases concerning oral agreements and generally has required strict compliance with the Statute of Frauds. (24)

However, the Alabama Supreme Court has held that equity may intervene, even when the partial performance exception has not been met, to deny a Statute of Frauds defense. (25) The court has held that a mere admission of an oral agreement or refusal to perform does not cause equity to intervene. (26) The court has denied affidavits as proof of oral agreements because of vagueness and failure to establish a genuine issue of material fact. (27) The court has not removed an oral agreement from the Statute of Frauds merely because a party admitted to the existence of the agreement because it would frustrate the purpose of the statute by tempting the breaching party to deny the existence of the agreement in an attempt to escape liability. (28) For example, in as early as 1881, the court recognized the difficulties concerning when equity should intervene and reasoned that "[i]t is far from being certain that these very exceptions do not assist parties in fraudulent contrivances, and increase the temptations to perjury, quite as often as they do assist them in promotion of good faith and the furtherance of justice." (29) The Statute of Frauds requirements serve to protect society and only in special circumstances will courts deny the Statute of Frauds defense. For instance in 1911, the court reasoned that equity will not permit a party "to retain property, obtained on the faith of a verbal contract, to consummate a fraud by retaining the property and refusing to perform the contract." (30) However, the court has only allowed estoppel to remove an oral agreement when the injured party detrimentally relied on the oral agreement and justice required enforcement. (31)

The Alabama Supreme Court has constantly been aware of the difficulties in determining when the partial performance exception removes an otherwise void oral agreement and in uniformly applying the exception to different factual scenarios. The Alabama Supreme Court has decided several cases concerning part performance and provided further clarity into the required type of possession. (32) Initially, mere possession of property was insufficient to take an oral agreement involving land out of the Statute of Frauds unless the possession was coupled with a contract of sale. (33) The court later encountered problems with possession that was acquired not through a sale, but through domestic or family relationships. Thus, the court held that family relationships did not operate to take an oral agreement out of the Statute of Frauds. (34) However, on at least one occasion, the court removed an oral agreement between family members from the statute when the purchase price was paid and possession was referable to the oral agreement. (35)

The possession requirement of partial performance developed rapidly over the years with attempts to remove agreements from the Statute of Frauds, requiring the Alabama Supreme Court to define and elaborate on certain language within the exception. As early as 1929, the court held that the required possession, to qualify as part performance, must be "clear, [and] definite, and referable exclusively to the contract, and by authority of the vendor." (36) The court further clarified the meaning of "referable exclusively to the contract" by holding that it must be such possession "that an outsider, knowing all the circumstances attending it save only the one fact, the alleged oral contract, would naturally and reasonably infer that some contract existed relating to the land, of the same general nature as the contract alleged." (37)

In 1958, the Alabama Supreme Court recognized the difficulty of evaluating possession when it resulted from other agreements or existing contracts and the need to further define the requisite possession to remove an oral agreement from the Statute of Frauds. (38) Thus, the court held that possession must be such that it "cannot be explained consistently with any other contract than the one alleged." (39) A recent opinion from the Alabama Court of Civil Appeals, the court held that the requisite possession must still be "referable exclusively to the contract" to save an oral agreement from the Statute of Frauds defense. (40) Therefore, the Alabama Supreme Court has...