Owens v. M.E. Schepp Ltd. Partnership

• Court: Arizona Supreme Court
• Writing for the Court: Hurwitz
• Citation: Owens v. M.E. Schepp Ltd. Partnership, 182 P.3d 664, 218 Ariz. 222 (Ariz. 2008)
• Decision Date: 08 May 2008
• Docket Number: No. CV-07-0349-PR.,CV-07-0349-PR.
• Parties: Hal OWENS, a married man dealing with his sole and separate property, Plaintiff/Counterdefendant/Appellee, v. M.E. SCHEPP LIMITED PARTNERSHIP, an Arizona limited partnership, Defendant/Counterclaimant/Appellant.

182 P.3d 664

218 Ariz. 222

Hal OWENS, a married man dealing with his sole and separate property, Plaintiff/Counterdefendant/Appellee, v. M.E. SCHEPP LIMITED PARTNERSHIP, an Arizona limited partnership, Defendant/Counterclaimant/Appellant.

No. CV-07-0349-PR.

Supreme Court of Arizona, En Banc.

May 8, 2008.

Perkins Coie Brown & Bain, P.A., by Jordan Green, Steven J. Monde, Phoenix, Attorneys for Hal Owens.

McCabe O'Donnell, P.A., by Joseph I. McCabe, Clifford J. Roth, Phoenix, Attorneys for M.E. Schepp Limited Partnership.

OPINION

HURWITZ, Justice.

¶ 1 This case involves a dispute about the partition of land held by family members as tenants in common. The issue for decision is whether an alleged oral partition agreement was removed from the statute of frauds by part performance.

I.

¶ 2 Hal Owens and the M.E. Schepp Limited Partnership ("the Partnership") own land at Missouri Avenue and 22nd Street in Phoenix ("the Parcel") as tenants in common. The Parcel consists of Lots 17 and 18, which are vacant, and Lot 20, which is improved. Owens owns an undivided two-thirds interest; the Partnership has the remaining third. Thomas Schepp, Owens's cousin, has lived in a house on Lot 20 since 1990; a guest house on that lot is rented to third parties. Thomas and his brother Rex Schepp manage the Partnership.

¶ 3 Owens filed this suit in May 2005, seeking to partition the Parcel pursuant to Arizona Revised Statutes ("A.R.S.") §§ 12-1211 to -1225 (2003). The Partnership counterclaimed, contending that statutory partition was inappropriate because the parties had entered into an oral voluntary partition agreement; the counterclaim sought specific performance of that agreement.

¶ 4 Owens moved for partial summary judgment, asserting that the alleged voluntary partition agreement did not exist, but that even if it did, it was unenforceable under the statute of frauds, A.R.S. § 44-101(6) (2003). The superior court granted the motion, ruling that there was no partition agreement. The court ordered the appointment of three commissioners to partition the Parcel. See A.R.S. § 12-1215(B).

¶ 5 A divided court of appeals reversed. Owens v. M.E. Schepp Ltd. P'ship, 216 Ariz. 273, 165 P.3d 674 (App.2007). The court of appeals first found a genuine issue of material fact as to whether the parties had entered into an oral voluntary partition agreement. Id. at 279 ¶ 27, 165 P.3d at 680. Turning to Owens's statute of frauds arguments, the court held that a voluntary partition agreement falls within the statute of frauds. Id. at 280-81 ¶¶ 29-33, 165 P.3d at 681-82. The court then concluded that no writing satisfied the statute. Id. at 281 ¶¶ 34-36, 165 P.3d at 682. It held, however, that the summary judgment was erroneous because the Partnership had produced sufficient evidence of part performance to take the contract out of the statute of frauds and that this issue should have been submitted to a jury. Id. at 281-84 ¶¶ 37-42, 165 P.3d at 682-85. The dissenting judge found the alleged acts of part performance insufficient as a matter of law to avoid the statute of frauds. Id. at 284-86 ¶¶ 44-50, 165 P.3d at 685-87 (Timmer, J., dissenting).

¶ 6 We granted review to consider the question that divided the court of appeals: Do the alleged acts of part performance remove the oral partition agreement from the statute of frauds? We have jurisdiction pursuant to Article 6, Section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24 (2003).

II.

¶ 7 Our consideration of the issue before us centers on the alleged acts of part performance. We review the facts in the light most favorable to the Partnership, the party against whom summary judgment was entered. See Myers v. City of Tempe, 212 Ariz. 128, 130 ¶ 7, 128 P.3d 751, 753 (2006).

A.

¶ 8 On June 18, 2004, the City of Phoenix issued a citation requiring cleanup of vegetation on the Parcel. The Schepp brothers and Owens met in early July to discuss the citation. At that meeting, Owens proposed removing trees along Missouri Avenue, the northern boundary of Lots 17 and 18; the Schepps objected, fearing complaints from neighbors. The parties eventually agreed to partition the Parcel, with the Partnership taking Lot 20 and Owens taking Lots 17 and 18. Because of its improvements, Lot 20 is arguably the most valuable of the three, so Owens claimed that the suggested partition should involve an equalization payment to him from the Partnership. No agreement was reached concerning a payment, but the Schepps understood that Owens might reiterate such a demand in the future.

¶ 9 Later in July, a contractor hired by Owens began the tree removal. Thomas Schepp confronted Owens and objected. Owens responded that Lots 17 and 18 belonged to him and that the decision to remove the trees was therefore his alone. After Owens reaffirmed that a partition agreement had been reached at the earlier meeting, Thomas withdrew his objection.

¶ 10 The Partnership later paid $16,600, one-third of the cost of the tree removal, directly to the landscaping contractor. The Partnership claims the payment was an installment on any equalization due Owens under the oral partition agreement.¹

B.

¶ 11 The Partnership contended below that the oral partition agreement was removed from the statute of frauds because of two acts of part performance: (1) Thomas Schepp's withdrawal of his objections to the tree removal, and (2) the payment to the contractor. The court of appeals panel unanimously agreed that alleged acts of part performance must be "unequivocally referable" to an alleged contract in order to remove the agreement from the statute of frauds. Owens, 216 Ariz. at 282 ¶ 38, 165 P.3d at 683 (majority opinion); id. at 284 ¶ 44, 165 P.3d at 685 (dissenting opinion).

¶ 12 The judges of the court of appeals parted company, however, on whether the two acts described above met this test. The majority believed that the Partnership's explanation that the two acts were undertaken in reliance on the partition agreement created an issue of fact as to part performance. Id. at 282-83 ¶ 39, 165 P.3d at 683-84. The dissenting opinion, on the other hand, maintained that a court can look only to the conduct itself when determining whether an act is unequivocally referable to an oral contract, not to a party's explanations of the acts. Id. at 284 ¶ 45, 165 P.3d at 685.

C.

¶ 13 The Arizona statute of frauds states, in relevant part:

No action shall be brought in any court in the following cases unless the promise or agreement upon which the action is brought, or some memorandum thereof, is in writing and signed by the party to be charged, or by some person by him thereunto lawfully authorized:

. . . .

Upon an agreement . . . for the sale of real property or an interest therein.

A.R.S. § 44-101(6). The court of appeals held, and the parties do not dispute, that an oral partition agreement among tenants in common is "for the sale of real property" and thus within the scope of § 44-101(6). See Owens, 216 Ariz. at 281 ¶ 33, 165 P.3d at 682; see also Restatement (Second) of Contracts § 128(2) (1981) ("A contract by joint tenants or tenants in common to partition land into separate tracts for each tenant is within the Statute of Frauds."). Nor does Owens contest the holding below that the superior court erred by granting summary judgment as to the existence of an oral partition contract. We therefore assume that such an agreement exists.

¶ 14 The statute of frauds is by its terms absolute, providing that "[n]o action" can be brought on oral contracts for the conveyance of land. Arizona courts, however, have long recognized limited exceptions to the statute. See, e.g., Latimer v. Hamill, 5 Ariz. 274, 277-78, 52 P. 364, 366 (1898) (characterizing the part performance exception as "too well settled to require citations of authority"). The cases reason that because the statute is intended to prevent fraud, specific performance of an oral contract is sometimes required to prevent the statute from becoming "an instrument by which fraud is perpetrated." Trollope v. Koerner, 106 Ariz. 10, 16, 470 P.2d 91, 97 (1970).

¶ 15 The "part performance" exception to the statute of frauds is grounded in the equitable principle of estoppel. Gene Hancock Constr. Co. v. Kempton & Snedigar Dairy, 20 Ariz.App. 122, 125, 510 P.2d 752, 755 (1973), disavowed on other grounds by Gibson v. Parker Trust, 22 Ariz.App. 342, 345, 527 P.2d 301, 304 (1974); 4 Caroline N. Brown, Corbin on Contracts § 18.1, at 501 & nn. 11-12 (rev. ed.1997); Restatement (Second) of Contracts § 129 reporter's note. The label "part performance" is in some ways a misnomer: the relevant acts need not be required by the oral agreement, but rather must be undertaken in reliance on the agreement. Restatement (Second) of Contracts § 129 cmt. a; 4 Corbin on Contracts § 18.7, at 513-14; Restatement (First) of Contracts § 197 cmt. b (1932).

¶ 16 In addition to providing an equitable basis for ordering specific performance, acts of part performance serve an important evidentiary function — they excuse the writing required by the statute because they provide convincing proof that the contract exists. See Restatement (Second) of Contracts § 129 cmt. b; 4 Corbin on Contracts § 18.11, at 521. So that this exception does not swallow the rule, the acts of part performance take an alleged contract outside the statute only if they cannot be explained in the absence of the contract. See Gene Hancock, 20 Ariz. App. at 125, 510 P.2d at 755; In re Marriage of Benson, 36 Cal.4th 1096, 32 Cal.Rptr.3d 471, 116 P.3d 1152, 1160 (2005); Glazer v. Dress Barn, Inc., 274 Conn. 33, 873 A.2d 929, 951 (2005); Martin v. Scholl, 678 P.2d 274, 276-78 (Utah 1983). Judge Cardozo eloquently described the part performance exception more than eighty years ago:

There must be performance "unequivocally referable" to the agreement, performance which alone and without the aid of words of promise is unintelligible or at least...