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Energy & the Law

More Title Work Needed? The PSA is Still Enforceable

Posted in Purchase and Sale Agreements

Maybe you’ve been there.  All signals are “go” for closing on your PSA.  Then the buyer chooses not to complete  the transaction.  What to do? A question your lawyer will think about when asked to enforce a purchase and sale agreement: Does it describe the property well enough to comply with the statute of frauds?  Preston Exploration v. Chesapeake Energy teaches several lessons on this subject:  First, in this case the need for title work before closing did not make the contract unenforceable.  Second, it isn’t always easy to know whether the statute has been complied with (The trial court held for the purchaser who backed out; the appellate court sided with the seller).  Third, related instruments can be read together to determine the intent of the parties.

The statute of frauds requires that a contract for the sale of real property be in writing.  The statute is satisfied when a writing furnishes, within itself or by reference to some other existing writing, the means or data by which the land to be conveyed may be identified with reasonable certainty.

The parties executed a PSA for a $110 million transaction.  The purchaser said it wouldn’t close, asserting that the exhibit describing the leases to be conveyed wasn’t final because title work had to be done.  The lower court said there was no meeting of the minds on what was to be conveyed.  The appellate court saw it another way: The question wasn’t about whether there was a meeting of the minds (a prerequisite to enforcement of any contract).The question  was whether the documents adequately described what was to be conveyed.  The court said they did.   The need for additional title examination meant only that some leases might not be conveyed, but the parties had agreed on the subject matter of the agreement.  The exhibit described the leases by recording information, which satisfied the statute of frauds.

For more than you want to know about the Texas statute of frauds, see a presentation I made on the topic. 2007-Statute of Frauds SBOT