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Tennessee Supreme Court Holds Statute Of Frauds Applies To Settlement Agreement

In a recent opinion in a real estate litigation case which originated in Murfreesboro, the Supreme Court of Tennessee examined the Tennessee statute of frauds and made two significant rulings about its application. The case involved a settlement agreement which was made after a breach of contract suit had been filed to settle that suit.

The plaintiff (“Buyer”) and the defendant (“Seller”) entered into a real estate contract. The Buyer paid the Seller $10,000.00 in earnest money. After the real estate contract was entered into and the earnest money paid, the Buyer discovered that the Seller had conveyed one-half of her interest in the property at issue to her niece (“Niece”).

The Buyer sued the Seller and her Niece for breach of contract, fraud, and negligent and intentional misrepresentation. Seller filed a cross claim against Niece alleging that the Seller’s transfer of her one-half interest in the property to Niece was the result of undue influence and requesting that the transfer be set aside.

Seller refunded to Buyer its $10,000.00, and Buyer and Seller settled. Thus, the only parties left just before trial were Niece and her aunt, Seller.

The day before trial, the attorney for Seller (aunt) sent an email to the attorney for Niece confirming the settlement reached between Seller and Niece. The email confirmed that Niece would deed her interest in the “property” back to Seller (aunt) as part of the settlement. The email did not specifically describe the property. The attorney for Niece sent a reply email confirming the settlement terms.

After the email settlement was reached, Niece reneged on the agreement. Niece’s attorney withdrew from representing her, and Niece obtained a new attorney. Seller (aunt) filed a motion requesting that the trial court enforce the settlement agreement reached between Seller’s attorney and Niece’s prior attorney. Niece argued against the motion.

Niece argued that the settlement agreement was not enforceable because it was not evidenced by a writing signed by Niece, as required by the Tennessee statute of frauds. The trial court (the Rutherford County Chancery Court) held that the settlement agreement was enforceable.

Niece appealed to the Tennessee Court of Appeals. That court affirmed the decision of the trial court on the grounds that the Tennessee statute of frauds does not apply to a settlement agreement just because its terms require the transfer of land.

The Supreme Court of Tennessee affirmed the decision of the trial court and appeals court that the settlement agreement was enforceable, but disagreed with the appeals court that the settlement agreement which had been reached in the case was not subject to the Tennessee statute of frauds. It held that, even though the agreement was a settlement agreement, as opposed to a conventional contract for the sale or transfer of real estate, nevertheless, it was subject to the statute of frauds.

The Supreme Court pointed out that the operative term in the section of the Tennessee statute of frauds which deals with property states that the statute applies to “any contract for the sale of lands.” While anyone unfamiliar with the case law interpreting that phrase might believe that the statute of frauds should apply only to real estate sales contracts, that is far from the case. As pointed out by the Supreme Court, “sale” is construed, in Tennessee, to include any “alienation” of real property, including even a gift of real property.

The next question before the Supreme Court was whether or not the settlement agreement complied with the statute of frauds. To be enforceable under the Tennessee statute of frauds, (1) the agreement had to be memorialized by some writing or writings which contained the essential terms of the contract; and (2) the writing had to be signed by the “party to be charged.”

The Supreme Court made a couple of points about the statute of frauds that are important. First, that statute does not require that an agreement be in a single document in order to comply with the statute. For years, Tennessee courts have held that, if multiple writings connected to the agreement collectively contain the essential terms of the agreement, that fact is sufficient to satisfy the statute of frauds. The Supreme Court held that, although the email of the attorney for the Niece only described the property by using the word “property,” that fact was of no consequence since the cross claim filed against the Niece by the Seller set forth a legal description of the property at issue.

The second point the Supreme Court made about the Tennessee statute of frauds is that an electronic signature can satisfy the statute. In the case before it, the Supreme Court held that the email signature of the attorney for the Niece was a sufficient signature. In reaching this conclusion, the Supreme Court relied on the provisions of the Uniform Electronic Transactions Act (the “UETA”) which was enacted in Tennessee in 2001. Under the UETA, generally, where the law requires a signature, an electronic signature is sufficient.