Face Challenges Confidently

377 Carpenter v. Phelps

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Carpenter v. Phelps, 391 S.W.3d 143 (Tex. App.—Houston [1st Dist.] 2011, no pet.) held that a description of real property does not satisfy the statute of frauds when the description contains no basis upon which the land can be identified with reasonable certainty and no “nucleus” that would allow for the admission of parol evidence. Carpenter sent out an email soliciting investors in the “M.T. Cole “A” lease in Gregg County, Texas”. Carpenter offered 1/6 for 1/3 and stated in his email, “I would like to sell a 1/3 interest for $80,000 with interest payable @ 8% on the principal until the original investment is returned….” In response to this solicitation, two investors paid a total of $40,000. Later, a dispute arose among the parties over whether the interest acquired by the investors was applicable to the entire lease or solely to the first of three development phases of the lease. Carpenter argued that any contract that may have existed with the investors failed to satisfy the statute of frauds and was therefore invalid. The investors argued that the emails they had exchanged and other documents and facts created an enforceable contract, the material terms of which gave them an ownership share in the entire lease. The investors’ evidence of an adequate legal description included:

  1. references in the initial “pitch package” to “the T. Cole ‘A’ lease in Gregg County, Texas” in a field that consists of “48 wells drilled to approximately 3,000 feet into the Woodbine formation”;
  2. a 2004 document Carpenter filed with the Texas Railroad Commission that lists “08294” as the “Oil/Lse/Gas ID no.” for a lease described as “Cole, M.T.”;
  3. an assignment and bill of sale of the “M. Cole ‘A’ lease”; and
  4. two drawings entitled “East Texas Well Location Map Lease Area 1 and 2,” neither of which contained any description of a location other than “East Texa”

In addition, a landman testified at trial that, based on the descriptions provided in the record, he would be able to physically locate the specific property.
To satisfy the statute of frauds, “a writing must furnish within itself, or by reference to some other existing writing, the means or data by which the land may be identified with reasonable certainty.” Under Gates v. Asher, when an instrument contains the “nucleus” of a description, the court may allow parol evidence to further identify the land. Here, the investors argued that the descriptions contained in the emails, combined with the testimony of the landman, were sufficient to satisfy the Gates test.   The court disagreed.   Under Gates, parol evidence  is  only  allowed  “when  there  is  a  ‘nucleus’  of  the  property’s  description.”    The documents in the record that described the land “only describe[d] land somewhere in Gregg County.” The documents did not constitute a “nucleus” of the description, the resort to parol evidence was improper and the description did not satisfy the statute of frauds. The court expressly rejected the contention that a Texas Railroad Commission (“TRC”) lease number can serve as the basis for a legal description, but its holding was based in part on the failure of the investors to present any evidence that their expert used the lease number to find the property.
The case illustrates the difficulty of enforcing a contract when there is no formal agreement. A string of emails may contain many of the key terms of an agreement, but an “agreement” itself may be elusive when all of the terms are not brought together in a formal document. These parties probably would not have had a dispute about the legal description if there had been no dispute about the terms of the deal. The holding is significant in that it continues a hard line on adequate legal descriptions and a rejection of TRC lease numbers as a substitute for a legal description.