This article is an explanation of how to properly identify the parties and property in a Texas real estate contract. We do not cover business or commercial contracts (and therefore do not discuss the Uniform Commercial Code, the Business & Commerce Code, and related statutes) although many principles mentioned in this article overlap with these other areas.
The contract principles discussed in this article are not intended to be an exhaustive or academic treatise on the subject of contract law. The intention is merely to hit upon certain practical and pragmatic highlights that affect Texas real estate contracts.
The standard Texas Real Estate Commission (TREC) and Texas Realtors (TXR) sales contracts and addenda are not addressed in this general discussion. For a detailed examination of these promulgated forms, read our companion web article entitled The TREC 1-4 Residential Sales Contract. Also relevant is our article Seller Disclosure and the “As Is” Clause in Texas Residential Transactions.
Identifying the Parties
The first step in a real estate contract is usually to ascertain the identity of seller and buyer. Is the party a sole proprietorship? A corporation? An LLC? A determination needs to be made as to who actually owns the property being transferred and who has authority to speak and sign for the ownership entity. These are not casual questions to be left until later.
If either party is a registered entity (such as an LLC, corporation, or limited partnership) then several key questions arise:
(1) What is the actual name of the entity, including capitalizations, commas, and the like? Lawyers are astonished at the number of clients who do not know the correct name of their LLCs. It must match the Certificate of Filing (the secretary of state’s approval) exactly, like a screenshot. Example: if the COF shows the name in all caps, then that is only correct way to show the name of the company on contracts.
If the approved name of the entity is ALAMO ASSET MANAGEMENT, LLC, and the contract is completed using the name Alamo Asset Management LLC (in lower case without the comma), do you have a contract? Possibly not. Technically, those are different company names.
(2) Is the entity in good standing with the Secretary of State and Comptroller? Registered entities that are not in good standing have no legal capacity to do business in Texas. The best practice is to check the status of an LLC before entering into a contract with it.
(3) Who has authority to sign on behalf of the entity and what is that person’s title? This should be established at the beginning and be accurately reflected on the signature line.
If the parties are individuals, are they married? Texas is a community property state so marital status should never be an unknown factor. What happens if only one spouse on title signs a contract but the other refuses to sign? Do you have a contract? Probably not.
Lawyers hear many excuses for not getting the signatures of both spouses on a real estate contract. These include:
(1) There is no need at this early stage to determine if the parties are married or to get both signatures. This is false. To be valid and comprehensive, a contract should bind and commit all interests in the property. For example, consider an actual case where someone owned a life estate. The realtors argued strenuously that it was not necessary to get the life tenant to sign as one of the sellers. The result was that the contract bound less than 100% of the property interest to be conveyed. The life tenant refused to sign at closing and the transaction failed.
(2) Not including the signature of a spouse on the contract is not a problem since the title company will find out about this and the spouse can sign at closing. This is false. Contracts can (and do) fail to close because a spouse refuses to sign closing documents.
(3) The property is not homestead (it is business or investment property) and therefore one need not obtain the spouse’s signature. This is false. Community property can extend beyond the homestead.
(4) The spouse is in China and we don’t need her signature because China does not recognize community property law. This is false. Texas law governs real property located in Texas. The residence or origin of the parties is not relevant.
(5) One spouse is about to get the property in a divorce so the other spouse does not have to sign. This is false. A divorce is not final until it’s final. Until then the parties remain married and the community estate still exists.
The marital status of neither buyer nor seller should be a mystery at the contract stage. Opening that package later can result in an unpleasant surprise.
The more professional approach is to clarify marital status up front and write the contract accordingly. This means getting all parties with even a potential property interest to sign the contract. Also, the word spouse should be included in the buyer and seller line since persons with the same last name could be siblings. Assume nothing.
Identifying the Property
A careful contract drafter should not be satisfied unless the legal description of the property is as correct as it can be at the contract stage. The Texas rule is that a property description is sufficient if it identifies the property with reasonable accuracy. Morrow v. Shotwell, 477 S.W.2d 538 (Tex. 1972). The property description should be such that an “examiner [can] ascertain that the description in the instruments involved in a chain of title sufficiently describes the land so that it can be identified and located on the ground with reasonable certainty.” Comments to Standard 5.10, Texas Title Examination Standards.
When drafting a contract relating to real estate, the best sources of the property description are the last deed in the chain of title or a recent title commitment or policy. Appraisal district records are not recommended as a source. They are often in error and may not match the official description as shown in the county clerk’s real property records (which are on a different computer).
If a legal description is outdated or if there is any doubt as to its present accuracy (e.g., it refers to an “old oak tree for corner” or a “stream for boundary”), then the contract should expressly provide that a new survey will be obtained within the due-diligence period.
If available documents show more than one description of the property, and there is a conflict, then the more specific metes-and-bounds description controls. Stribling v. Millican DPC Partners, LP, 458 S.W.3d 17 (Tex. 2015).
Strips and Gores Doctrine
Absent an express reservation to the contrary, legal descriptions in Texas deeds are presumed to also include and convey omitted narrow strips of land that should logically be included in the conveyance, given the nature of the property, and which would otherwise have little utility to the grantor. This is the “strips-and-gores” doctrine. Strait v. Savannah Court Partnership, 576 S.W. 3d 802 (Tex.App.—Fort Worth 2019, pet. denied). Another presumption is the centerline presumption, which states that a landowner is presumed to have ownership of the soil all the way to the centerline of an adjoining street (subject to the public’s right of passage), even if the legal description in the landowner’s deed does not specifically extend that far. As with the strips-and-gores doctrine, this presumption is rebuttable by evidence that the parties clearly intended a different outcome.
Double check the property description before finalizing the contract. Note also that legal descriptions can evolve over time. “While any title is only as good as the weakest link the chain of descriptions, practical considerations justify reliance upon corrections or improved land descriptions appearing in later conveyances and upon the passage of time if no apparent difficulties have arisen from a less than perfect land description.” Pickett v. Bishop, 223 S.W.2d 222 (Tex. 1949).
Contract Drafting Considerations
A well-drafted contract should be a comprehensive document. (If it is one page or less, something is amiss.) All duties and obligations of the parties should be expressly stated. Nothing should be assumed or implied. No one should be allowed to rely on anything unless expressly stated in writing within the four corners of the contract. Oral statements should be disclaimed. A contract that fails to thoroughly address key points of agreement, involves unwritten assumptions, or relies on oral statements can easily form the basis for future litigation.
Get a Good Attorney
Both buyer and seller should get an experienced real estate transactions lawyer and listen to his or her advice. Clients are often driven by emotions—the desperate desire to get rid of a property or an irrational determination to acquire one. Since the lawyer does not usually receive a commission, he or she has no stake in the transaction and may be the only person providing objective and disinterested advice.
Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well, since we do not give tax advice.
Copyright © 2023 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com.