When Actions Speak Louder Than Words: The Case for a Quasi-Estoppel Exception to the Statute of Frauds
James H. Stilwell
This article argues for a quasi-estoppel exception to the statute of frauds. The term “quasi-estoppel” refers to a situation in which a party is prevented from asserting a right that is inconsistent with a position previously taken by the party. In Texas, as in many other states, the statute of frauds requires certain agreements to be in writing. The goal of the statute of frauds is to prevent fraud. Texas courts have carved out exceptions by finding certain oral agreements to be valid even if a written contract was legally required. The key that courts have looked for in those situations is some action by the parties that indicates the existence of an oral contract despite the absence of a written contract.
Texas case law suggests that a quasi-estoppel exception to the statute of frauds should be recognized, because courts have recognized other circumstances in which it would not be equitable to enforce a literal interpretation of the statute of frauds. The article also provides pointers to practicing litigators for how to plead quasi-estoppel as an affirmative defense. Actions can often speak louder than words, and quasi-estoppel should be recognized in equity so that it does not nullify a legitimate handshake deal.
I. Introduction: Equity Speaks Softly and Wins in the End. n1
Good advice for the congenial entrepreneur or consultant is to "get it in
writing." Although many in society stand by their word and are willing to
operate on handshakes or verbal promises, dishonesty abounds. While oral
contracts are often valid, legislatures have enacted statutes commonly known
as "statutes of frauds" that require certain types of contracts to be in
writing and signed to be enforceable. This is the law in Texas. n2
However, "it would be a narrow conception of jurisprudence to confine the
notion of "laws' to what is found written on the statute books." n3 Because
statutes of frauds themselves may be instruments of fraud, judicially created
exceptions to these statutes, lodged in equity, thrive. Texas courts have
recognized circumstances where equity should, and does, uphold the validity of a
contract despite the lack of a writing, even when a writing appears to be
required by statute. One common thread runs through these judicial exceptions:
action. Courts act to prevent injustice when the parties' actions evidence the
existence of a contract despite the absence of a writing. Put differently,
sometimes actions speak louder than words.
This Article examines the Texas law pertaining to the statute of frauds and
makes the case for a quasi estoppel exception to the statute of frauds. Part II
examines the law of quasi estoppel and the statute of frauds. After the purpose
and reasoning behind the statute of frauds has been addressed, Part III looks at
the two Texas appellate opinions that indirectly support a quasi estoppel
exception to the statute of frauds. Because neither case is a straightforward
endorsement of a quasi estoppel exception to the statute of frauds, Part IV
explores three parallel exceptions to the statute that have been recognized by
Texas courts. Concluding that a solid argument exists for the extension of the
law to recognize a quasi estoppel
exception to the statute of frauds, Part V accordingly provides the
practicing litigator with suggestions: pointers on pleading a quasi estoppel
exception to the statute of frauds, guidance for understanding the burden of
proof, and proposed arguments concerning the question of whether the
determination of the fulfillment of the exception should be for the judge or the
jury.
When an otherwise gregarious client sits in your office expounding regret
over not having "gotten it in writing," depending on the circumstances, all may
not be lost. While there is no substitute in law for a signed, written contract,
in equity the action of the parties just may do. Actions sometimes speak louder
than words. Quasi estoppel may prevent the statute of frauds from nullifying the
client's handshake deal.
II. Quasi Estoppel and the Statute of Frauds
Quasi estoppel is a species of estoppel n4 created by equity n5 that acts as an
affirmative defense n6 and, by its assertion, may prevent injustice. n7
According to Black's Law Dictionary:
"Estoppel" means that party is prevented by his own acts from claiming a
right to detriment of other party who was entitled to rely on such conduct and
has acted accordingly. A principal that provides that an individual is barred
from denying or alleging a certain fact or state facts [sic] because of that
individual's previous conduct, allegation, or denial. A doctrine which holds
that an inconsistent position, attitude or
course of conduct may not be adopted to loss or injury of another. n8
Quasi estoppel, as the word "quasi" indicates, n9 resembles estoppel but bears
a material difference: it requires less proof. While other forms of estoppel
require proof of a false representation and proof of detrimental reliance on
that false representation, n10 quasi estoppel does not. n11 It could as easily
be called "estoppel light."
Quasi estoppel precludes a party from asserting, to another's disadvantage, a
right that is inconsistent with a position previously taken. n12 It is applied
where it would be unconscionable to allow a party to maintain a position
inconsistent with one in which it acquiesced, or from which it accepted a
benefit, n13 and precludes a party from accepting the benefits of a transaction
and subsequently taking an inconsistent position to avoid corresponding
obligations. Unlike other forms of estoppel, quasi estoppel does not require a
showing of a false representation or detrimental reliance. n14
In and of itself, quasi estoppel is not a new concept; it is an antique. n15
The form of estoppel called "quasi estoppel" was expressly recognized and set
forth by the Supreme Court of the United States at the end of the nineteenth
century in Simmons v. Burlington, Cedar Raids & Northern Railway. n16 In
Simmons, the U.S. Supreme Court, in discussing acquiescence of a party to a
transaction, set forth the equitable doctrine of quasi estoppel, quoting
Pomeroy's Equity Jurisprudence as follows:
"Acquiescence is an important factor in determining equitable rights and
remedies in obedience to the maxims: He who seeks equity must do equity, and he
who comes into equity must come with clean hands. Even when it does not work a
true estoppel upon rights of property or of contract, it may operate in analogy
to estoppel may produce a quasi estoppel upon the rights of remedy." n17
Despite the veritable antiquity of the doctrine of quasi estoppel, this Article
discusses a use for quasi estoppel that is cutting edge application of
quasi estoppel as an exception to the much maligned n18 statute of frauds. n19
The statute of frauds n20 is a legislative attempt to resolve the question of
when an agreement must be in writing and signed in
order to be enforceable. n21 Because inequity can result from the
literal application n22 of a statute of frauds, courts in Texas have recognized
a number of exceptions to the application of the statute. n23 Despite what
appears to be a natural fit for quasi estoppel as an exception to the
enforcement of the statute of frauds in Texas, no case has directly tackled the
subject, and only two cases have indirectly broached the concept. n24
III. Case Discussion of Quasi Estoppel Exception to the Statute of Frauds
Quasi estoppel attempts to preclude a party from asserting to another's
disadvantage a right inconsistent with a position previously taken. The very
nature of quasi estoppel, like other forms of estoppel, is defensive and
preventative. One such use would be to estop another party from contending that
an oral contract is void under the statute of frauds if the requisite
inconsistent position can be proven. The U.S. Supreme Court seemed to recognize
such a use in its early writing on the subject in Simmons, further quoting
Pomeroy:
"When a party, with full knowledge, ... of his rights, and of all the
material facts, freely does what amounts to a recognition of the transaction as
existing, or acts in a manner inconsistent with its repudiation, or lies by for
a considerable time and knowingly permits the other party to deal with the
subject matter under the belief that the transaction has been recognized, ...
there is acquiescence, and the transaction, although originally
impeachable, becomes unimpeachable in equity." n25
Despite this early dicta, there are no opinions in Texas case law that directly
address the application of quasi estoppel to the statute of frauds. n26 A review
of the case law does reveal, however, two cases indirectly broaching the
subject. Both cases address the application of quasi estoppel to contingency fee
contracts.
The Texas Disciplinary Rules of Professional Conduct allow contingency fee
contracts between attorneys and their clients. n27 However, one of the explicit
requirements is that such a contract must be in writing and signed by the
attorney and client. n28 This contingency fee contract writing and signature
requirement is analogous to the requirements of the statute of frauds. n29
A. Enochs v. Brown n30
In Enochs v. Brown, the Austin Court of Appeals considered the application of
quasi estoppel to an attempt to void a contingency fee contract. n31 The case
evolved out of an automobile bicycle accident that resulted in permanent brain
damage to the bicycle rider, Justin Vaught, a minor. Justin's mother, Kimetha
Brown, and her
husband, Chris Brown, signed a contingency fee contract with the firm of
Whitehurst, Harkness, & Watson. Although the Browns signed the contract, their
attorney did not. n32 Throughout the course of the representation, $ 2.325
million was secured from various insurance companies in settlement proceedings.
Because Justin Vaught was a minor, the court appointed a guardian ad litem,
Leland Enochs, to protect his interests. n33 After a friendly suit, n34 the
trial court apportioned the settlement proceedings, upheld the contingency fee
contract, and awarded a one third fee on all money received on behalf of Justin
Vaught. n35 The court issued findings of fact and conclusions of law, n36
including findings that Whitehurst provided valuable legal services by
successfully handling the claim and that Justin (through his guardian ad litem)
accepted, used, and enjoyed these services. The court concluded that, by
accepting the legal services, Justin Vaught was estopped from denying the
validity of the contingency fee contract. n37 The trial court further found that
the attorney's failure to sign the agreement did not render it void or voidable,
despite the signature requirement found in the Texas Government Code. n38
On appeal, Justin Vaught's natural father, Frank Vaught, and the guardian ad
litem sought to void the contingency fee contract on the basis that it was not
signed by the attorney, n39 an argument
analogous to the defense of the statute of frauds to the enforcement of
a contract. The attorney seeking to uphold his fee and enforce the contract
argued first that quasi estoppel applied to estop the attempt to void the
contract, and further argued that even if quasi estoppel did not apply, the
contract was enforceable as it was signed by the party to be charged (Justin's
mother, Kimetha Brown). n40
The Enochs court first addressed the quasi estoppel argument. The court
considered the trial court's findings of fact and concluded that they supported
the application of quasi estoppel. The court stated, "In this case, it is
unconscionable for Enochs, on Justin's behalf, to challenge the validity of the
contingent fee contract when Justin has accepted the benefits of Whitehurst's
services." n41
The Enochs court next addressed the argument that the contingency fee was
void, an argument that "were he not estopped" Enochs could have made. n42 The
court made a direct comparison between the contingency fee contract requirements
set forth in the Texas Government Code and the statute of frauds. The court
stated:
Section 82.065(a) can be sensibly construed to operate in a manner similar to
the statute of frauds. Under the statute of frauds, an agreement is enforceable
if it is in writing and signed by the party to be charged. A contract is not
void if these requirements are not met; rather, the statute renders the contract
voidable at the option of the party against whom the contract is to be enforced.
Other statutes requiring written agreements operate similarly. Both the statute
of frauds and the statute of conveyances are designed to prevent fraud. Under
these circumstances, we believe that section 82.065 accomplishes its purpose of
guarding against fraud in contingent fee contracts by requiring the party
enforcing the contract to produce a written contract signed by the party to be
charged. We are convinced
that the purpose of section 82.065(a) has been fulfilled in this case.
n43
Although the Enochs decision is not a straightforward application of the
doctrine of quasi estoppel to prevent the application of the statute of frauds,
it is exceedingly close. The statute analyzed by the court was directly
analogous to the statute of frauds, and had the case involved a successful
three year representation based on an oral hourly attorney fee (instead of a
mildly flawed contingency fee contract), the result should be the same. Enochs
stands for the proposition that quasi estoppel can act as an affirmative defense
to prevent the enforcement of the terms of a statute in an attempt to void a
contract. Quasi estoppel can act to estop the attempt to void an otherwise
flawed contract.
B. Tillery & Tillery v. Zurich Insurance Co. n44
A second case, Tillery & Tillery v. Zurich Insurance Co., considered the same
theory, but the party raising the quasi estoppel affirmative defense lacked the
facts to prove their claim. In Tillery & Tillery, the Dallas Court of Appeals
faced another contingency fee contract dispute. Zurich Insurance Company
contacted Dale Tillery about handling a medical malpractice case and a
subrogation claim on a contingent fee basis. n45 Tillery sent Zurich a letter
setting forth the terms of the contingency agreement, but this letter was not a
contract for Zurich to sign. Tillery pursued the subrogation matters for three
months before Zurich assigned them to other counsel and instructed Tillery to
take no further action on that part of the claim. n46 The subrogation claims
were successful, and Zurich recovered $ 143,620.96 on that aspect of the suit,
which it had taken away from Tillery. n47
Tillery continued to work on the remainder of the matter, a medical
malpractice claim, and eventually lost the suit, filed an appeal, and settled
for no monetary consideration. n48 Tillery then
proceeded to bring a claim against Zurich for one third of Zurich's
recovery on the subrogation claims taken away from Tillery. The trial court held
that Tillery was not entitled to one third of Zurich's recovery and made
findings of fact and conclusions of law in favor of Zurich. n49
On appeal, Tillery contended that his contingent fee agreement, which he
admitted did not meet the requisites of the Texas Government Code, was
enforceable under the quasi estoppel theory discussed in Enochs v. Brown. The
court discussed the argument, stating:
Tillery argues his contingent fee agreement with Zurich is enforceable under
the reasoning of Enochs v. Brown. In Enochs, the court held a contingent fee
agreement may be enforceable even though it does not meet the requirements of
section 82.065. But there are two significant differences between Enochs and
this case. First, the fee agreement in Enochs was signed by the client, but not
by the attorney. The court applied a statute of frauds analysis to hold that a
contract may be enforced under certain circumstances when it is signed by the
party to be charged. Because Zurich did not sign the fee agreement at issue
here, the statute of frauds analysis employed in Enochs does not apply.
Second, the attorney in Enochs had completed all of the work in the underlying
litigation before he sought to enforce his fee agreement. The court applied a
quasi estoppel theory of recovery to conclude it would be unconscionable to
allow the client to challenge an agreement he signed after accepting all the
benefits of the contract. In this case, the only benefit of Tillery's services
Zurich arguably accepted in the intervention case before refusing to honor the
agreement was the preparation and filing of the intervention pleadings. In fact,
Zurich specifically told Tillery to cease work on the intervention claim
and then transferred responsibility for the case to its in house
counsel. Based on the facts in this case, there is nothing unconscionable about
refusing to pay Tillery a contingent fee for a case in which he only filed the
original pleadings. Accordingly, we decline to extend Enochs to the facts
presented in this case. n50
The Dallas Court of Appeals did not reject Tillery's legal theory, and thus did
not reject quasi estoppel as an equitable means of preventing the enforcement of
a statute. Rather, the Tillery & Tillery court applied the argument, but found
that Dale Tillery had not fulfilled his burden of proof on the affirmative
defense of quasi estoppel. The Tillery & Tillery court distinguished the Enochs
result because the Tillery & Tillery plaintiff could not factually make out the
elements of quasi estoppel. Although neither Enochs nor Tillery & Tillery
directly endorse a quasi estoppel exception to the application of the statute of
frauds, both courts examine the application of quasi estoppel as an equitable
means of avoiding strict compliance with the terms of a statute spelling out
requisites for enforcement of a contract. Even though the courts have not
directly addressed a quasi estoppel exception to the statute of frauds, the move
from these indirect applications to the adoption of such an exception is more
akin to a baby step than a leap. When a party can meet the factual burden, the
law appears to support quasi estoppel's defensive, preventative applications to
preclude and estop another party from contending that a contract is void under
the statute of frauds.
IV. Parallel Support for a Quasi Estoppel Exception to the Statute of Frauds
Although no reported cases directly endorse a quasi estoppel exception to the
statute of frauds, n51 Texas case law has applied other forms of estoppel to
counter the application of the statute of frauds. Texas case law is clear that,
upon proof of the necessary elements, both promissory estoppel and equitable
estoppel can prevent the
application of the statute of frauds to a particular contract. n52 These
cases, by analogy, reinforce the position that under Texas law, quasi estoppel
eviscerates the application of the statute of frauds, and they further support
the concept that the actions that support estoppel sometimes speak louder than
the words of an otherwise unenforceable oral agreement.
A. The Promissory Estoppel Exception to the Statute of Frauds
Promissory estoppel is an exception to the statute of frauds n53 albeit a
narrow one. n54 As one appellate court put it:
The applicability of promissory estoppel as an exception to the statute of
frauds is limited to cases in which a party promised to sign a prepared, written
agreement that complies with the statute of frauds. A complete agreement on the
terms and wording of the written contract is required to permit the application
of promissory estoppel to a statute of frauds defense. A promise to prepare a
written agreement is not sufficient. n55
In "Moore" Burger, Inc. v. Phillips Petroleum Co., n56 the Texas Supreme Court
analyzed a scenario in which a potential purchaser ("Moore" Burger) of a
property up for auction was lulled into not bidding by a twofold set of
promises: (1) a set of promises from another bidder that he would purchase the
property and lease it
to "Moore" Burger for a 20 year period, accompanied by the bidder's
acceptance of a written lease from "Moore" Burger, which the bidder then never
signed; and (2) a set of promises from the trustee actually handling the
transaction that he would sign the lease, which he did not do. n57 "Moore"
Burger refrained from bidding on the property at auction in reliance on these
promises, not knowing that the lease was not signed. The property was purchased
by the promising bidder and trustee, who did not lease to "Moore" Burger and
instead sold to a third party. n58
In this case, the actions of the bidder and his trustee sufficed to take the
otherwise unenforceable oral contract outside the statute of frauds. The court
recognized the inequity, found that the actions, if enforced, would in essence
allow the statute of frauds to work a fraud on "Moore" Burger, and allowed the
promissory estoppel exception. n59
Texas case law has applied other forms of estoppel to counter the application
of the statute of frauds, albeit with different elements of proof required for
the different estoppel defenses. The cases on promissory estoppel discussed in
this section and the cases on equitable estoppel discussed in the next section,
by analogy, reinforce the position that under Texas law, quasi estoppel should
prevent the application of the statute of frauds.
B. The Equitable Estoppel Exception to the Statute of Frauds
The leading case on the equitable estoppel exception to the statute of frauds
is Schroeder v. Texas Iron Works, Inc. n60 This Texas Supreme Court case
involved an employment dispute over oral statements that allegedly modified the
employment at will status of Thomas Schroeder at Texas Iron Works, Inc. n61
Mr. Schroeder alleged that his supervisor made oral statements to him giving
him the impression that he would be employed by the company for eight to ten
years, up until his
retirement. n62 However, a contract such as this would not be capable of
performance within one year of its making, placing it in violation of the
statute of frauds. n63 As discussed above, the requirement of a writing
typically acts to prevent attempts to enforce fictitious verbal promises.
To avoid the application of the statute of frauds, Mr. Schroeder pled the
affirmative defense of equitable estoppel, which required him to prove "(1) a
false representation or concealment of material facts, (2) made with knowledge,
actual or constructive, of those facts, (3) with the intention that it should be
acted on, (4) to a party without knowledge, or the means of knowledge of those
facts, (5) who detrimentally relied upon the misrepresentation." n64 In essence,
the equitable estoppel affirmative defense focuses on the acts of the parties,
both in making representations and in relying on the representations.
If a preponderance of evidence of the actions of the parties exists, then the
true intent of the parties, manifested through their actions, obviates the need
for a written memorialization of the agreement. n65 The purpose behind the
statute of frauds' attempt to avoid the enforcement of fictitious promises is
fulfilled by the equitable estoppel affirmative defense through proof of the
existence of the promise as reflected in the parties' actions. n66 Actions speak
louder than words, and the equitable estoppel exception to the enforcement of
the statute of frauds speaks loudly in support of an analogous quasi estoppel
affirmative defense.
C. The Partial Performance Exception to the Statute of Frauds
In addition to the support for a quasi estoppel exception to the statute of
frauds found via analogy to other forms of estoppel, further undergirding can be
found in the partial performance exception to the statute of frauds. Partial
performance is one of the most well recognized exceptions to the writing
requirements of the statute of frauds. n67 A number of Texas cases recognize a
partial performance exception to the statute of frauds. n68 The partial
performance doctrine provides that, even if a contract falls within the purview
of the statute of frauds, it is nonetheless enforceable if the plaintiff has
partially performed pursuant to the agreement such that denying enforcement
would amount to a virtual fraud on the
plaintiff. n69 "Virtual fraud" exists when the plaintiff acted in
reliance on the agreement and suffered a detriment for which he has no remedy,
and the defendant would reap an unearned benefit if the contract were not
enforced. n70
An example of the partial performance exception to the enforcement of the
statute of frauds is found in Welch v. Coca Cola Enterprises, Inc. n71 In that
case, an individual vending machine services provider submitted a bid for a
vending machine contract for a high school campus in Troup, Texas. n72 The
provider, Robert C. Welch, Jr., was informed by the high school principal that
he had been awarded an exclusive five year contract, and proceeded to provide
machines and services to the Troup schools. n73 After performing for eighteen
months, Welch was told that Coca Cola had outbid him and that he must
immediately remove his machines. n74 Welch then brought suit.
After the trial court granted summary judgment for the defendants in the
suit, Welch appealed. One basis for the summary judgment involved the validity
of the contract, as the statute of frauds requires the contract to be signed by
the person to be charged with the obligations or by someone legally authorized
to sign for the party to be charged. n75 Defendants argued that the principal
lacked authority to bind the school district. n76
On appeal, Welch countered with the partial performance exception to the
statute of frauds, arguing that he had provided evidence to the trial court
sufficient to bear the burden of proof on his affirmative defense to the
enforcement of the statute. n77 Welch had provided an affidavit to the trial
court stating that he had relied upon the principal's representation that he had
been awarded a five year contract, that he had paid bonus payments to the
schools for the first two years of the contract despite being forced to remove
his machines prior to the end of the second year, and that he had
purchased machines that he would not have purchased but for the
agreement and did not need when the agreement was breached. n78 The court of
appeals found that this testimony "raised a fact issue that the school district
benefitted from these machines through the generation and payment to the
district of vending machine sales commissions." n79 The court then held that
"Welch raised a fact issue as to the inapplicability of the statute of frauds to
the agreement in question because of part performance," n80 reversed the grant
of summary judgment, and remanded the issue to the trial court. n81
In Welch, actions spoke louder than words. Although the contract may not have
been enforceable under the technical requirements of the statute, the parties'
behavior was what counted. For a year and a half, both parties performed as if
all was well. An equitable defense, partial performance, acted to prevent the
enforcement of the statute of frauds by showing persuasive evidence of the
existence and terms of the contract, as well as by showing an unearned benefit
to one party and a substantial detriment to the other in the instance the
contract was not enforced.
Partial performance and quasi estoppel require comparable proof. The partial
performance doctrine requires proof of a virtual fraud, while quasi estoppel
instead requires proof of an unconscionable result. n82 Partial performance
requires proof of the plaintiff's substantial detriment and the defendant's
unearned benefit; quasi estoppel also requires a benefit/detriment analysis. n83
However, unlike partial performance, quasi estoppel does not focus on the
plaintiff or require a showing of reliance. n84 Instead, it focuses on the
defendant's acquiescence or inconsistent actions.
The partial performance doctrine is a well recognized exception to the
enforcement of the statute of frauds. Its elements of
proof are analogous to quasi estoppel. The existence of a partial
performance exception provides a practitioner with a comparable legal position
and a good faith basis to argue for the extension of existing law. n85
V. Practical Pointers for the Practicing Texas Litigator
Because Texas cases discussing a quasi estoppel exception to the statute of
frauds are rare, the practicing litigator will not find form books, pleading
aides, model charges, or other litigator guides available for quick reference.
Rather than leaving the reader in a lurch, this Article provides some practical
pointers to smooth the way, including tips for: (a) pleading quasi estoppel; (b)
understanding the burden of proof; and (c) providing a basis to argue the
exception as a matter of law or as a question of fact. In the instance a jury
charge is warranted, this Article further provides a model charge question in
the Appendix.
A. Pleading Quasi Estoppel as an Affirmative Defense to the Statute of Frauds
The Texas Rules of Civil Procedure identify both estoppel and the statute of
frauds as affirmative defenses. n86 A party is required to set forth in its
pleading all matters constituting an avoidance or affirmative defense to the
opposing party's pleading. n87 Failure to plead a required matter may result in
waiver of the defense. n88
Practically speaking, and presuming no preemptive filings, three
salvos will be required to get to the quasi estoppel exception to the statute of
frauds: (1) plaintiff files an original petition raising a cause of action for
breach of an oral contract; (2) defendant files an original answer, likely with
a general denial, that includes the assertion of the statute of frauds as a
defense to the enforcement of the oral contract; and (3) plaintiff files a first
amended petition alleging that the defendant's acts fulfill the elements of
quasi estoppel and that the defendant should be estopped from seeking to render
the oral contract void via the statute of frauds. Assuming that the facts merit
the allegation, n89 it is entirely possible that the defendant could fire off a
return fusillade by filing a first amended answer adding the doctrine of
"unclean hands." n90
Although the Texas Rules of Civil Procedure are interpreted liberally, n91
and the Texas Supreme Court has adopted a "fair notice" standard with respect to
pleadings, n92 it is safer to err on the side of saying too much about
quasi estoppel than not enough, particularly because the law on it is sparse. A
sample pleading by a plaintiff seeking to enforce an oral contract by invoking
quasi estoppel to prevent the application of the statute of frauds might state:
AFFIRMATIVE DEFENSE: QUASI ESTOPPEL
Plaintiff further pleads the affirmative defense of quasi estoppel. Defendant
's prior conduct in doing X,
Y, and Z establishes Defendant's position that the oral contract is
valid and estops Defendant via quasi estoppel from denying its validity. It
would be unconscionable to allow Defendant to claim the oral contract is invalid
under the statute of frauds and attempt to avoid the obligations under the
contract after Defendant has acquiesced to the validity of the contract and
accepted a benefit under it.
B. The Burden of Proof on the Quasi Estoppel Exception to the Statute of
Frauds
Because quasi estoppel asserted to avoid the statute of frauds constitutes an
affirmative defense to an affirmative defense, the burden of proof may seem
confusing. However, Texas case law has been clear about the burden in similar
circumstances. When a plaintiff asserts an affirmative defense to negate a
defendant's affirmative defense, the defendant bears the initial burden. Once
defendant's affirmative defense has been proven, the burden shifts to the
plaintiff to void the proven defense. In short, the party asserting the
affirmative defense bears the burden of proof.
In Hammonds v. Calhoun Distribution Co., n93 a case involving a plaintiff's
assertion of the partial performance exception to the defendant's statute of
frauds defense, the Texarkana Court of Appeals properly analyzed the burden of
proof. n94 Clyde Hammonds brought suit against Calhoun Distributing Company for
breach of an oral lease agreement involving a Mobil service station in Denison,
Texas. n95 Hammonds alleged that the oral lease for his working life expectancy
of seven years was entered July 14, 1976, and that Calhoun ordered him off of
the premises after one month's partial performance. n96 Calhoun answered the
suit and pleaded the affirmative defense of the statute of frauds, arguing that
the law required a writing and signature for a real estate lease longer than one
year. n97 After some discovery, Calhoun brought a motion for
summary judgment on the defense of the statute of frauds, which Hammonds
opposed with claims of part performance. n98 Because the statute of frauds was
Defendant Calhoun's affirmative defense, Calhoun had the burden of proof on its
elements. However, once the affirmative defense was established, the burden
shifted to Plaintiff Hammonds to prove his claim of part performance. n99 The
court stated:
The judicial admissions and evidence make it clear that Calhoun has
established its defense of the statute of frauds as a matter of law... .
Hammonds is asserting part performance in an effort to avoid the statute of
frauds defense which has been established by Calhoun as a matter of law. The
burden was therefore on Hammonds, once Calhoun had established its statute of
frauds defense ... . n100
The court then found that Plaintiff Hammonds failed to meet his burden on two
of the three essential elements required to prove part performance, and
accordingly found in favor of Defendant Calhoun. n101
In Flameout Design & Fabrication, Inc. v. Pennzoil Caspian Corp., n102 the
Houston Court of Appeals similarly analyzed the burden of proof on an equitable
estoppel claim asserted against a statute of frauds defense to enforcement of an
oral contract. In this summary judgment case, Flameout Design and Fabrication,
Inc. ("Flameout") brought suit against Pennzoil Caspian Corporation ("PCC"),
seeking enforcement of an oral contract backed by several written
communications. n103 During the course of the case, PCC filed a motion for
summary judgment, which the trial court granted, on the basis of a statute of
frauds defense to the breach of contract claim. n104 On appeal, Flameout
contended that the trial court erred because the written communications were
sufficient to satisfy the statute of frauds and, alternatively, that the two
defenses of part performance
and equitable estoppel defeated the enforcement of the statute of
frauds. n105 The court of appeals found that the written communications were
insufficient to satisfy the requirements of the statute of frauds and then
discussed Flameout's affirmative defenses. n106 Part of this discussion dealt
with Flameout's contention that it had been improperly made to bear the burden
of proof; although the court found that Flameout had waived its objection, the
court discussed who bore the burden of proof on the various defenses:
Even if Flameout had made its objection to the trial court, this issue is
without merit. The applicability of the statute of frauds to Flameout's breach
of contract action was established by Flameout's petition, which showed on its
face that the complaint involved a contract that could not be performed within
one year and was for the sale of goods for more than $ 500. Therefore, it was
Flameout's burden to produce evidence that the statute of frauds was satisfied
or that Flameout was subject to some exception or defense to the statute of
frauds. n107
C. Arguing the Quasi Estoppel Exception as a Matter of Law or a Question of
Fact
Whether or not a quasi estoppel exception to the statute of frauds is a matter
of law or a question of fact remains unclear. Although a preponderance of the
cases discussing the statute of frauds identify the application of the statute
to a particular contract as a matter of law for the court, at least two opinions
raise the possibility of fact questions that must be addressed. Looking beyond
the actual application of the statute of frauds, the issue of whether the
elements of quasi estoppel raise questions of fact is unclear. The practicing
litigator seeking to void the application of the statute of frauds should be
prepared to argue that the quasi estoppel exception should be determined as a
matter of law for summary judgment and
directed verdict and, in the alternative, should be prepared to argue in
support of a jury question on the exception so as not to waive the defense.
1. The Exception is a Matter of Law for the Court
Because the concept of quasi estoppel will be even more foreign to a jury than
to a judge, the skilled practitioner should seek determination as a matter of
law. Cases abound in support of the proposition that whether or not a contract
is within the statute of frauds is a matter of law for the court, including at
least seven Houston Courts of Appeals and Texas Supreme Court cases. n108 Note,
however, that resolution of quasi estoppel adds another factor into the
equation. In order to determine whether or not the statute of frauds precludes
the enforcement of an oral agreement, the court must first determine whether or
not quasi estoppel acts to prevent the application of the statute. As discussed
above, success of the affirmative defense will require proof of elements such as
unconscionability and the opposing party's maintenance of a position
inconsistent with one in which the opposing party acquiesced, or from which it
accepted a benefit. n109 These elements appear to contain jury fodder. While the
overwhelming abundance of case law inspires a solid argument for determination
of the statute of frauds as a matter of law, the paucity of opinions on
quasi estoppel may give a court pause.
2. The Exception is a Question of Fact for the Jury
Two older cases suggest that whether or not the statute of frauds is applicable
in a particular case is a question of fact that the jury should decide. n110
Both cases deal with oral agreements involving indefinite times for performance,
that is, the agreements included no time element whatsoever. n111 While the
agreements addressed in these cases appear distinguishable from agreements with
a time factor such as "for life," "while living," "until remarried," "while the
well produces," or "for the life of the project," the skilled practitioner may
subtly suggest that a reversal for error in disallowing a proposed jury question
merits hearing what the jury has to say.
The Fifth Circuit opinion in Cunningham v. Healthco, Inc. n112 reflects a
Federal District Court's decision to allow the jury to determine the question:
As for the ongoing obligation of Healthco to provide management assistance
and consulting, "the rule is that, where the time for performance is indefinite
in that the agreement merely provides for the performance of a particular act or
acts which can conceivably be performed within one year, the Statute of Frauds
is inapplicable, however improbable performance within one year might be." The
jury specifically found that each of the three contracts was capable of being
performed in one year. Their finding is supported in the record, and dispositive
of the issue. n113
Regardless of whether the statute of frauds is for the jury, the
affirmative defense of quasi estoppel requires separate determination. Proof of
the affirmative defense will require fulfillment of elements such as
unconscionability and maintenance of a position inconsistent with one in which
the opposing party acquiesced, or from which it accepted a benefit. n114 These
elements should be argued to involve questions of fact.
Assuming that the court agrees with an argument that a quasi estoppel
affirmative defense contains fact issues for the jury to resolve, a jury
question on quasi estoppel becomes necessary. n115 The Texas Pattern Jury
Charge, which many practitioners rely on, does not contain a question pertaining
to quasi estoppel. n116 Where there is no generally accepted question, resort
must be made, and heed must be given, to case law. n117 In order to aid the
practitioner, the Appendix to this Article contains a sample jury question on
quasi estoppel, with instruction, providing citation to existing case law for
each portion of the question.
VI. Conclusion
Although it may appear that Joshua's trumpets brought down the walls of
Jericho, it was faith in action, not the sounds of trumpets, that did the job.
Sometimes actions speak louder than words. In representing a client seeking to
enforce an oral contract
that on its face appears to violate the statute of frauds, the
practicing litigator should carefully examine the various exceptions to the
enforcement of the statute. Although not yet recognized as an exemption under
Texas jurisprudence, Texas case law strongly supports the application of a
quasi estoppel affirmative defense to prevent the enforcement of the statute of
frauds.
A small spark on dry tinder can erupt into a consuming flame. However, it
takes the right tinder and proper guidance of the spark. Quasi estoppel may
provide the proper tinder to burn away a statute of frauds defense. An exception
to the enforcement of the statute of frauds does not exist for every oral
agreement, but where it does, it still takes proper guidance to nourish the
spark into a consuming verdict.
This Article has analyzed the law in Texas pertaining to the statute of
frauds and set forth a strong case for a quasi estoppel exception to the statute
of frauds. The Article has provided an in depth examination of the law of
quasi estoppel, the statute of frauds, and three parallel exceptions that have
been recognized by Texas courts. A solid basis exists for the extension of the
law to recognize a quasi estoppel exception to the statute of frauds. This
Article has further provided practical guidance for a litigator building a case.
Nourishing the argument requires proper pleading, developing the evidence with
an understanding of the burden of proof, and preparing arguments for resolution
by either the judge or jury.
Remember: even if the key contract is not in writing, depending on the
circumstances, all may not be lost. While there is no substitute in law for a
signed, written contract, in equity the action of the parties just may be such
that quasi estoppel can prevent the statute of frauds from nullifying the client
's handshake deal. Actions sometimes speak louder than words.
Appendix:
Sample Jury Question on Quasi estoppel Exception to Statute of Frauds
QUESTION uscore uscore uscore uscore uscore uscore uscore :
Is DEFENDANT estopped to deny the validity of the contract between PLAINTIFF
and DEFENDANT?
You are instructed that DEFENDANT is estopped to deny the validity of the
contract if:
1. Asserting otherwise would be inconsistent with a position DEFENDANT has
previously taken; n118 OR
2. DEFENDANT has acquiesced to the validity of the contract previously; n119 OR
3. DEFENDANT has accepted a benefit of the contract; n120
AND
It would be unconscionable to allow DEFENDANT to deny the validity of the
contract. n121 You are further instructed that "unconscionable" in this context
means "grossly unfair." n122
Answer "Yes" or "No".
Answer: _________________