National Property Holdings, L.P. v. Westergren
Supreme Court of Texas, No. 13-0081 (January 9, 2015)
Per Curiam (Opinion)
In a case involving a mediated settlement, an oral side agreement, and a subsequent written release arguably procured by fraud, the Supreme Court of Texas articulated several important, fundamental principles regarding releases, fraudulent inducement, and the “partial performance exception” to the statute of frauds. In the end, the Court affirmed in part, reversed in part, and left all parties with a take-nothing judgment.
Several parties contested the rights to a prime piece of real estate, and wound up in a lawsuit over that dispute. National Property Holdings (“NPH”) swooped in as the potential answer to the parties’ problems, offering to buy and develop the property. The original combatants and NPH entered into a written mediated settlement agreement that would allow NPH to make the purchase. To secure the agreement of Westergren (who had filed a lis pendens on the property), Plank (NPH’s consultant) orally promised to make Westergren a “partner” in the development and to pay him a million dollars plus a share of the profits from the project. Later, NPH sold a portion of the property, and Westergren demanded payment of his million dollars and a share of the profits. Plank replied that they could only pay Westergren $500,000 “right now.” When Westergren came to pick up the check, Plank presented him with a document entitled “AGREEMENT AND RELEASE” (the “Release”), which conspicuously and unambiguously released all of Westergren’s interest in the property and all his claims against NPH and Plank in exchange for the $500,000 payment. Plank told Westergren it was “a receipt. It’s nothing. You don’t have to worry about it.” He assured Westergren that he would be paid the balance of the million dollars plus profits during the second phase of the development. Having left his reading glasses elsewhere and being “in a hurry,” Westergren signed the document in front of a notary, without reading it, and took the $500,000.
When Plank and NPH refused to make any further payments, Westergren sued for breach of the oral contract and for fraud. Plank and NPH argued Westergren had released all claims, and they counterclaimed, contending Westergren’s lawsuit constituted breach of the Release contract. Westergren, in turn, argued the Release had been fraudulently induced. A jury found for Westergren, but the trial court granted a JNOV and entered a take-nothing judgment as to all parties. The court of appeals reversed and rendered judgment for Westergren. The Supreme Court, however, essentially reinstated the judgment of the trial court.
The Court first rejected Westergren’s fraudulent inducement claim with respect to the Release. Westergren had ample opportunity to read the Release and see that it directly contradicted what he was being told by Plank, but he simply chose not to. So, the Court held as a matter of law that, however misleading Plank’s statements may have been, Westergren was not justified in relying on them.
The Court found Westergren’s oral agreement with Plank and NPH was unenforceable under the statute of frauds, because it dealt with the sale of real estate. Westergren conceded that, but attempted to invoke the “partial performance exception” to that doctrine, relying on the $500,000 payment. While declining to articulate an exhaustive explanation of this exception, the Supreme Court made clear that it “requires more than one party’s performance under the alleged oral contract,” and that even full payment of the agreed consideration will not suffice. Moreover, the evidence here did not demonstrate unequivocally that the $500,000 payment was made in partial fulfillment of the oral agreement; instead, it was equally likely to have been paid to fulfill the subsequent written Release agreement.
But the news for Westergren wasn’t all bad. The Supreme Court affirmed the lower courts’ rulings that Westergren’s having filed suit against NPH and Plank did not constitute breach of the Release contract. Absent a covenant not to sue—which was not included in the Release or the mediated settlement agreement—a releasor does not breach a release agreement by filing suit against the releasee. A release provides an affirmative defense to such a suit, not a promise not to sue.
