Opinion
NO. 01-16-00296-CV
08-15-2017
BILL WYLY DEVELOPMENT, INC., Appellant v. ERON SMITH AND HANNA SMITH, Appellees
On Appeal from the 212th District Court Galveston County, Texas
Trial Court Case No. 14CV1126
MEMORANDUM OPINION
Appellant, Bill Wyly Development, Inc. ("Wyly"), challenges the trial court's judgment, rendered after a trial to the court, in favor of appellees, Eron Smith and Hanna Smith, in Wyly's suit against them for breach of contract. In its sole issue, Wyly contends that the trial court erred in concluding that the statute of frauds bars its claim.
See TEX. BUS. & COM. CODE ANN. § 26.01 (Vernon 2015).
We affirm.
Background
In its First Amended Petition, Wyly alleged that it is a "builder/developer" that constructs houses in the Tiki Island subdivisions of Galveston County. For many years, Wyly has marketed individual lots in the subdivisions on behalf of property owner Theresa Brady ("Brady") "with the understanding that the sales of the properties were to be joined with and conditioned on [Wyly] contracting with the purchasers of those properties to construct residential improvements on the properties sold."
In June 2013, the Smiths contacted Wyly about purchasing one of Brady's lots. "[A]t that time," the Smiths were "made aware" that their purchase of a lot "would be conditioned" upon their engagement of Wyly to "prepare plans for the construction of [a] residence on that lot, and then to construct such a residence in accordance with those plans." And, "[b]ased on that understanding," the Smiths purchased a lot ("the lot"). Subsequently, Wyly began drafting house plans for the Smiths, and, over a period of several months, it "repeatedly prepared, revised and provided" plans to them. Wyly also arranged for repairs to the bulkheading on the Smiths' lot, and the work was performed "with the knowledge and acquiescence" of Mr. Smith.
In June 2014, the Smiths informed Wyly that they did not intend to engage it to construct improvements on the lot. Wyly further alleged that in doing so, the Smiths "breached a contractual commitment to [it] by refusing to carry out their agreement for [it] to construct improvements" on the lot. As a result, Wyly suffered damages through its loss of the reasonable value of its "effort expended to produce plans and drawings" and the reasonable profit it expected from the construction of the improvements. Wyly also brought claims against the Smiths for statutory and common-law fraud, seeking actual and exemplary damages.
See TEX. BUS. & COM. CODE ANN. § 27.01 (Vernon 2015).
The Smiths answered, generally denying Wyly's claims and asserting various affirmative defenses, including that the statute of frauds bars Wyly's breach-of-contract claim. The Smiths also asserted counterclaims for trespass and intentional infliction of emotional distress.
The Smiths then filed a summary-judgment motion, arguing that they were entitled to judgment as a matter of law on Wyly's breach-of-contract claim because it is barred by the statute of frauds. The Smiths asserted that the basis of Wyly's claim is that their purchase contract with Brady (the "purchase contract") "contained a condition that the conveyance of the [lot] was contingent on the Smiths hiring Wyly to make improvements." However, they purchased the lot solely from Brady, who wholly owned the lot, and no such condition is written in the purchase contract "as required by the [s]tatute of [f]rauds." The purchase contract neither mentions Wyly nor made the sale contingent upon any condition that the Smiths construct improvements on the lot, let alone that they hire Wyly to do so. And it expressly states that it alone constitutes the parties' "entire agreement." Further, nothing in Brady's deed conveying the lot to the Smiths mentions Wyly. Although Wyly had approached the Smiths about constructing improvements on the lot, they never entered into an agreement. Rather, Wyly simply provided them with some "generic plans and a generic price sheet for the improvements." After the Smiths reviewed the plans and price sheet, spoke with Wyly's clients in the area, and observed its work, they simply declined to hire Wyly. In support of their summary-judgment motion, the Smiths attached a copy of the purchase contract and deed, the addendums, and the affidavit of Mr. Smith.
In its response to the Smiths' summary-judgment motion, Wyly argued that the statute of frauds does not bar its breach-of-contract claim because the statute "does not apply to a contract to build a house." It asserted that the summary-judgment evidence establishes that its agreement with the Smiths was to provide design and construction services, labor, and materials, and not a sale of real estate; Wyly's "contract, as well as its third-party beneficiary status with the real estate sales contract," is "sufficiently corroborated by" its performance; and "[w]hen the [Smiths] agreed to have [Wyly] build a house for them, they made an enforceable oral contract."
In support of its summary-judgment response, Wyly attached the affidavit of its owner and principal officer, William Wyly. In his affidavit, Mr. Wyly testified that when the Smiths approached him about purchasing a lot, he explained Wyly's role as builder and developer for Brady's Tiki Island lots. And he expressly stated that the Smiths purchase of a lot would be conditioned on their engagement of Wyly as their builder. Mr. Smith stated that he and Mrs. Smith were not yet ready to initiate the construction process, however, they wished to move forward with the purchase of the lot in order to take advantage of the then current interest rates. Mr. Smith "assured" Mr. Wyly that he and Mrs. Smith would, "when ready, and within 60 days after their closing of the purchase of the [lot], have [Wyly] prepare plans for the home to be built" and enter into a "form[al] contract for that construction." Mr. Wyly asserted that the "formal contract was to be executed when the plans were prepared, and the then current prices for building materials could be fixed." When he and Mr. Smith spoke in October 2013, Smith postponed the process. When they spoke in December 2013, Mr. Smith again postponed, however, he "agreed to begin that process after the end of the year."
In March 2014, Wyly began preparing plans for the Smiths' house. During March and April 2014, he and Mr. Smith met "at least six" times to review and revise the plans. Once Mr. Smith was satisfied with the plans, Mr. Wyly, in order to "finalize" the plans, paid a professional draftsman $1,000. Wyly also "arranged for" repairs to be made to the bulkheading on the lot. After the bulkhead repairs were completed and the house plans finalized, Mr. Smith informed Mr. Wyly that he was not going to hire Wyly to build a house on the lot.
The trial court did not rule on the Smiths' summary-judgment motion. Rather, the case proceeded to trial. And after the trial court impaneled a jury, the parties agreed to discharge the jury and submit to the trial court, in written form, Wyly's evidence in support of its alleged oral agreement with the Smiths, so that the trial court could, by separate trial, determine from the evidence the sole issue of whether Wyly's breach-of-contract claim is barred by the statute of frauds.
Wyly then submitted to the trial court, as additional evidence, a copy of the purchase contract; Brady's deed conveying the lot to the Smiths; an invoice from High Tide Land Surveying, LLC ("High Tide") to Wyly; the house plans Wyly created for the Smiths; an excerpt of the deposition of Mr. Smith; and a second affidavit of Mr. Wyly.
In his second affidavit, Mr. Wyly further testified that at his initial meeting with the Smiths about their purchase of a lot, he provided to them a "spec sheet," itemizing certain materials and allowances, quoted a price of $160,000 for the lot purchase, and quoted a price of $160.00 per square foot for constructing a home. The final price for the construction of the home for the Smiths was to be determined by multiplying the price per square foot by the total number of square feet of the home to be constructed, as reflected in the final plans. Although the Smiths had "agreed to this arrangement," they further explained to Mr. Wyly that they were not yet ready to initiate the construction process. They assured him, however, that they would, within 60 days after their closing on the purchase of the lot, begin the process by having Wyly prepare plans for the home to be built on their lot. Mr. Wyly then submitted the information to Brady's employees, who produced the purchase contract, and the sale of the lot was consummated.
Mr. Wyly noted that prior to the closing on the sale of the lot, he arranged for High Tide to provide a survey of the Smiths' lot and an elevation certificate. These documents were obtained in order to facilitate the closing of the transaction, and, specifically in regard to the elevation certificate, to provide information necessary to determine the quantity of fill dirt required to elevate the lot to the level required for approval of the construction by the city of Tiki Island and the calculation of windstorm insurance premiums for the home to be built. Mr. Wyly paid $618.05 for the survey and elevation certificate.
Mr. Wyly further testified that in December 2013, he and Mr. Smith agreed to begin the construction process after the first of the new year. Between January and April 2014, Mr. Wyly met with the Smiths "on at least eight occasions" to review and revise the plans. In order to finalize the plans, Wyly hired a professional draftsman, John Trantham, who also met with Mr. Smith, at a cost to Wyly of $1,000. The plans completed by Trantham provided for the construction of a residence consisting of 2741 square feet. And the agreed price for the construction of the residence at $160.00 per square foot would have totaled $438,560.00.
The trial court, after considering the evidence presented, including the evidence previously filed by the Smiths in support of their summary-judgment motion, found that Wyly's breach-of-contract claim is barred by the statute of frauds. It ordered that Wyly "take nothing" "by its suit for damages from the alleged breach by the [Smiths] of an oral agreement for the construction of a residence." And then, in accordance with an agreement between the parties, the trial court severed Wyly's remaining claims and the Smiths' counterclaims into a separate suit, making its judgment final as to Wyly's breach-of-contract claim.
Statute of Frauds
In its sole issue, Wyly argues that the trial court erred in concluding that the statute of frauds bars its breach-of-contract claim against the Smiths because the statute does not apply to a contract to build a house. TEX. BUS. & COM. CODE ANN. § 26.01(a), (b)(4) (Vernon 2015). It asserts that the evidence establishes that it had an "oral contract" with the Smiths to provide design and construction services, labor, and materials. Wyly further argues that its claim is subject to an exception to the statute of frauds because it "partially performed" its agreement with the Smiths by "arranging and paying for a survey and elevation certificate," "providing repairs on the Smiths' property," and "generating a set of plans for the construction of a house."
Whether a contract comes within the statute of frauds is a question of law, which we review de novo. Nat'l Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 426 (Tex. 2015); Sewing v. Bowman, 371 S.W.3d 321, 329 (Tex. App.—Houston [1st Dist.] 2012, pet. dism'd). The statute of frauds provides, in pertinent part, as follows:
(a) A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is
(1) in writing; and
(2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.
(b) Subsection (a) of this section applies to:
TEX. BUS. & COM. CODE ANN. § 26.01(a), (b)(4). The statute requires that, "with respect to the agreements defined therein, there must be a written memorandum which is complete within itself in every material detail, and which contains all of the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony." Cohen v. McCutchin, 565 S.W.2d 230, 232-33 (Tex. 1978); Walker v. Tafralian, 107 S.W.3d 665, 668 (Tex. App.—Fort Worth 2003, pet. denied); see also Tex. Builders v. Keller, 928 S.W.2d 479, 481-82 (Tex. 1996) (parol evidence may explain or clarify written agreement, but may not supply essential terms). "The purpose of the [s]tatute of [f]rauds is to remove uncertainty, prevent fraudulent claims, and reduce litigation." Givens v. Dougherty, 671 S.W.2d 877, 878 (Tex. 1984).. . . .
(4) a contract for the sale of real estate . . . .
Here, it is undisputed that the purchase contract, which constitutes a contract for the sale of real estate, comes within the statute of frauds. See TEX. BUS. & COM. CODE ANN. § 26.01(a). Thus, it must be "complete within itself in every material detail, and . . . contain[] all of the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony." See Cohen, 565 S.W.2d at 232-33; Walker, 107 S.W.3d at 668; see also Tex. Builders, 928 S.W.2d at 481-82. Whether a term is "material" is a legal question that we review de novo, "taking each contract on a case-by-case basis." Parker Drilling Co. v. Romfor Supply Co., 316 S.W.3d 68, 74 (Tex. App.—Houston [14th Dist.] 2010, pet. denied). "[M]aterial and essential terms are those that parties would reasonably regard as 'vitally important ingredient[s]' of their bargain." Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 237 (Tex. 2016); see Potcinske v. McDonald Prop. Invs., Ltd., 245 S.W.3d 526, 531 (Tex. App.—Houston [1st Dist.] 2007, no pet.). A "material term" is "[a] contractual provision dealing with a significant issue such as subject matter, price, payment, quantity, quality, duration, or the work to be done." Tonkin v. Amador, No. 01-07-00496-CV, 2009 WL 1424724, at *3 (Tex. App.—Houston [1st Dist.] May 21, 2009, no pet.) (quoting Material Terms, BLACK'S LAW DICTIONARY (8th ed. 2004)).
Wyly, in its amended petition, alleged that the Smiths' "contractual commitment" was based on their "purchase of the lot," which was "conditioned upon" their engagement of Wyly to construct a house on the lot. The Smiths were "made aware" that their purchase of a lot "would be conditioned" upon their engagement of Wyly to "prepare plans for the construction of [a] residence on that lot, and then to construct such a residence in accordance with those plans." And they purchased their lot "[b]ased on that understanding."
However, nothing in the written terms of the purchase contract requires the Smiths to construct a house on their lot. Thus, the addition of a condition subsequent that the Smiths hire Wyly to construct a $438,560.00 house on their $160,000.00 lot would significantly increase the Smiths' price and obligations under the purchase contract, and this cannot reasonably be regarded as anything less than "material." See Fischer, 479 S.W.3d at 237 ("[M]aterial . . . terms are those that parties would reasonably regard as 'vitally important ingredient[s]' of their bargain."); Tonkin, 2009 WL 1424724, at *3 ("[M]aterial term[s]" are "contractual provision[s] dealing with . . . significant issue[s] such as . . . price . . . or the work to be done[.]" (internal quotations omitted)); see also Parker Drilling, Co., 316 S.W.3d at 74 (whether term is material is question of law); Litton v. Hanley, 823 S.W.2d 428, 430 (Tex. App.—Houston [1st Dist.] 1992, no pet.) (condition subsequent "excuses an already binding agreement").
Because the alleged condition is a material term of the purchase contract, it is subject to the statute of frauds. See Cohen, 565 S.W.2d at 232-33. Further, because it is undisputed that the purchase contract does not contain such a condition and oral testimony is necessary to complete the terms of the contract, as alleged, we conclude that the alleged condition does not satisfy the statute of frauds and, thus, is unenforceable. See id.; Walker, 107 S.W.3d at 668; see also Tex. Builders, 928 S.W.2d at 481-82; see, e.g., Dobson v. Metro Label Corp., 786 S.W.2d 63, 66 (Tex. App.—Dallas 1990, no pet.) ("Since resort to oral testimony is necessary to complete the material terms of the contract, we hold that as a matter of law the memorandum does not satisfy the Statute of Frauds.").
Wyly further argues that its agreement with the Smiths is subject to the "partial performance" exception to the statute of frauds because "the parties engaged in conduct which could only be construed as corroborating a contract to build a house on the Smiths' property." Specifically, Wyly (1) "arrang[ed] and paid for a survey and elevation certificate," (2) "provid[ed] repairs on the Smiths' property," and (3) "generated a set of plans for the construction of a house for the [Smiths]." Wyly asserts that it had "no feasible motivation" for undergoing this "extraordinary process" other than "the fact that the parties had a made a deal."
Whether an exception to the statute of frauds applies is generally a question of fact. Adams v. Petrade, Int'l, Inc., 754 S.W.2d 696, 705 (Tex. App.—Houston [1st Dist.] 1988, writ denied). Partial performance of a contract is an equitable exception to the statute of frauds. Resendez v. Maloney, No. 01-08-00954-CV, 2010 WL 5395674, at *7 (Tex. App.—Houston [1st] Dist. Dec. 30, 2010, pet. denied). Under the partial performance exception to the statute of frauds, contracts that have been partly performed, but do not meet the requirements of the statute of frauds, "may be enforced in equity if denial of enforcement would amount to a virtual fraud in the sense that the party acting in reliance on the contract has suffered a substantial detriment, for which he has no adequate remedy, and the other party, if permitted to plead the statute, would reap an unearned benefit." Zaragoza v. Jessen, 511 S.W.3d 816, 823 (Tex. App.—El Paso 2016, no pet.). The partial performance must be "unequivocally referable to the agreement and corroborative of the fact that a contract actually was made." Exxon Corp. v. Breezevale Ltd., 82 S.W.3d 429, 439-40 (Tex. App.—Dallas 2002, pet. denied); see also Westergren, 453 S.W.3d at 426 ("In other words, the purpose of the alleged acts of performance must be to fulfill a specific agreement."). Further, the partial performance at issue "must be such as could have been done with no other design than to fulfill the particular agreement sought to be enforced." Duradril, L.L.C. v. Dynomax Drilling Tools, Inc., 516 S.W.3d 147, 161 (Tex. App.—Houston [14th Dist.] 2017, no pet.).
Here, although Wyly asserts that it paid $618.00 to High Tide for a survey of the Smiths' lot, the purchase contract, at section C(1), provides as follows:
Within 120 days after the effective date of this contract, Seller [Brady] shall furnish to Buyer [the Smiths] and Title Company [Brady's] existing survey of the Property and a Residential Real Property Affidavit . . . . If [Brady] fails to furnish the existing survey or affidavit within the time prescribed, [the Smiths] shall obtain a new survey at [Brady's] expense no later than 3 days prior to Closing Date.(Emphasis added.) Handwritten at section C(1) is a notation: "Survey Attached." Attached is a July 31, 2013 survey by High Tide. However, because the purchase contract shows that Brady, and not the Smiths, agreed to pay for a survey of the lot, the Smiths did not "reap an unearned benefit" from Wyly. See Zaragoza, 511 S.W.3d at 823.
Next, although Mr. Wyly testified in his affidavit that after the Smiths had "completed their purchase" of the lot, he "arranged for repairs" to the bulkhead caps along several properties, including the Smiths' lot, he further testified that the "approximate cost to Mrs. Brady" for the portion of the repairs attributable to the Smiths' lot was $8,500.00. (Emphasis added.) Thus, Brady, and not Wyly, provided the repairs, and Wyly has not demonstrated that it suffered a "substantial detriment." See id.
Finally, Wyly asserts that it "generated a set of plans for the construction of a house for the [Smiths]." The record shows that Mr. Wyly testified that a "formal contract [with the Smiths] was to be executed when the plans were prepared, and the then current prices for building materials could be fixed." It is undisputed that no formal contract was executed. Wyly does not direct us to any authority in support of its assertion that generating various versions of house plans, without more, constitutes a "substantial detriment" to it, for which it has "no adequate remedy." See id.
We conclude that Wyly has not demonstrated that it is entitled to the partial performance exception to the statute of frauds. See id.; see also Nat'l Floral Serv., Inc. v. Weingarten Realty Inv'rs, No. 14-99-00079-CV, 2000 WL 257822, at *4 (Tex. App.—Houston [14th Dist.] Mar. 9, 2000, no pet.) ("Equity may enforce an otherwise unenforceable oral agreement when nonenforcement of the agreement would itself amount to a fraud.").
Accordingly, we hold that the trial court did not err in concluding that Wyly's breach-of-contract claim is barred by the statute of frauds.
We overrule Wyly's sole issue.
Conclusion
We affirm the judgment of the trial court.
Terry Jennings
Justice Panel consists of Chief Justice Radack and Justices Jennings and Bland.