Holman v. Childersburg Bancorporation, Inc.
2002 WL 31731031, 852 So. 2d 691, 2002 Ala. LEXIS 354 (2002)
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Rule of Law:
A tort claim is barred by the Statute of Frauds if an essential element of the claim requires proof of an oral agreement that is itself unenforceable under the Statute of Frauds. The partial performance exception to the Statute of Frauds is not satisfied if the party seeking to enforce the oral agreement was already in possession of the property before the agreement was made.
Facts:
- In 1995, Danita and D. Mark Holman borrowed $275,000 from First Bank of Childersburg ('the Bank'), secured by a mortgage on a 16-acre property.
- The property was subsequently subdivided into three parcels: tract I, tract II, and tract III.
- The Holmans alleged that in 1997, they entered into an oral agreement with Bank officer Byron Louie Henry.
- Under this alleged oral agreement, the Holmans would sell tract I and pay the Bank $175,000 from the proceeds.
- In exchange for this payment, the Bank allegedly promised to execute an instrument releasing its mortgage lien on tract II, which would allow the Holmans to obtain a construction loan to build a residence on that tract.
- In May 1997, the Holmans sold tract I, paid $175,000 to the Bank, and the Bank executed a release for tract I only.
- The Holmans later began constructing a house on tract II but discovered through multiple title searches between 1998 and 2000 that the Bank had never released the mortgage lien on tract II.
Procedural Posture:
- Danita Kim Holman and D. Mark Holman sued Byron Louie Henry and Childersburg Bancorporation, Inc. in an Alabama trial court.
- The Holmans amended their complaint to add First Bank of Childersburg as a defendant.
- The complaint included counts for breach of contract, negligence/wantonness, fraudulent misrepresentation, fraudulent suppression, slander of title, and negligent hiring.
- The defendants moved for summary judgment, arguing the contract claims were barred by the Statute of Frauds and the tort claims by the statute of limitations.
- The trial court granted summary judgment in favor of all defendants on all claims.
- The Holmans (appellants) appealed the summary judgment to the Supreme Court of Alabama, with the Bank, Corporation, and Henry as appellees.
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Issue:
Does the Statute of Frauds bar tort claims, such as negligence and fraud, that are premised entirely on the existence and breach of an unenforceable oral agreement to release a mortgage lien on real property?
Opinions:
Majority - Woodall, Justice
Yes. Where an element of a tort claim turns on the existence of an alleged agreement that is unenforceable under the Statute of Frauds, the Statute of Frauds also bars proof of that agreement to support the tort claim. An agreement to release a mortgage is an interest in land and must be in writing. The Holmans' tort claims for negligence, fraud, and slander of title all depend on proving the Bank had a duty to release the mortgage on tract II, a duty that could only arise from the alleged oral agreement. Allowing these tort claims to proceed would permit an end-run around the Statute of Frauds, as the damages sought are the benefit of the bargain from the unenforceable contract. Furthermore, the partial performance exception does not apply because the Holmans were never 'put in possession' of tract II by the seller as a result of the new agreement; they were already in continuous possession of the land since their original purchase in 1995. Their possession was not 'referable exclusively to the contract.'
Concurring - Johnstone, Justice
Yes, I concur in the judgment but differ on the rationale. First, the majority misconstrues the Holmans' primary argument that a written release existed but was lost. This argument fails not because of estoppel, but because their lawyer's affidavit, stating facts 'to the best of my knowledge and belief,' is not substantial evidence based on personal knowledge and is insufficient to survive summary judgment. Second, the majority incorrectly states that Alabama courts have not addressed whether tort claims can circumvent the Statute of Frauds. Prior cases like Hinkle v. Cargill have allowed promissory fraud actions based on promises void under the statute; the court should have acknowledged and expressly overruled those precedents rather than claiming the issue was novel.
Analysis:
This decision significantly strengthens the Statute of Frauds defense in Alabama by explicitly extending its application to tort claims that are functionally indistinguishable from breach of contract claims. It prevents plaintiffs from circumventing the statutory writing requirement for real estate transactions by merely re-pleading their contract claim under a tort theory like negligence or fraud. The ruling establishes a clear precedent that if the duty underlying a tort claim arises solely from an unenforceable oral promise, the claim will fail. This forces parties in real estate transactions to adhere strictly to the writing requirement and reduces litigation based on alleged verbal promises.
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