Roe v. Austin – 11/29/2018

December 7, 2018

Arizona Court of Appeals Division Two holds that moving to property, working on the property, and paying for furnishings and finishings on the property is not sufficient to invoke the part-performance exception to the statute of frauds.

A divorcee received a settlement from her former spouse, which included sole ownership of a ranch, currently occupied by two residents. The divorcee demanded that the residents vacate; the residents filed a declaratory action claiming a life estate in the house stemming from an oral agreement.  The divorcee filed a counterclaim to quiet title and a third-party complaint against the former spouse alleging that the settlement agreement required the former spouse to defend and indemnify her.  The divorcee raised a statute-of-frauds defense to the alleged oral contract.  In response, the residents argued for the application of the part-performance exception based on selling their home, moving to the ranch, contributing money to furnishing and finishing the ranch, and working on the ranch.  Although the settlement agreement stated the former spouse would indemnify the divorcee against claims related to encumbrances not identified in the agreement, the former spouse argued this meant only indemnifications not known to the parties, and presented extrinsic evidence showing the divorcee knew about the alleged life estate.  After a jury trial, a judgment was entered in favor of the residents on the declaratory judgment and quiet title claims, and for the former spouse on the indemnification.  The divorcee appealed.

The Court of Appeals reversed on both issues.  The statute of frauds bars actions on oral contracts for the conveyance of land.  Arizona recognizes a part-performance exception, however.  To qualify for the exception, there must be part performance that unequivocally refers to the alleged agreement.  This means the acts of part performance must be consistent only with the explanation proffered in the alleged oral contract.  Merely selling one’s home, moving to a property, contributing money to furnishing and finishing the property, and working on the property is not consistent only with a contract for a life estate; other plausible explanations could explain those actions.  Because the allegations were not only consistent with an alleged agreement for a life estate, the statute of frauds barred an action on an oral contract.

Regarding the indemnification, the Court of Appeals held that Arizona’s permissive parole evidence rule applies only when the contract language is reasonably susceptible to the interpretation asserted by the proponent of extrinsic evidence.  Although a court may consider extrinsic evidence to determine whether an agreement is susceptible to an interpretation, it may not actually admit the evidence if it contradicts the agreements’ terms.  Here, the contract terms clearly stated that the indemnification applied to any encumbrance not mentioned in the agreement, and the extrinsic evidence to support the interpretation it covered an unmentioned encumbrance was improperly admitted.

Presiding Judge Staring delivered the unanimous opinion of the court; Chief Judge Eckerstrom and Judge Vásquez joined.