Statute of Frauds: Everything You Need to Know
The statute of frauds involves certain contracts that must be executed in written form. 3 min read
2. Types of Contracts
3. Limitations of the Statute of Frauds
4. Sufficiency of the Writing
The statute of frauds involves certain contracts that must be executed in written form. While the statute varies across jurisdictions, these contracts generally involve a written contract when one party is paying another party's debt; during the sale of land; with contracts that take more than one year to complete; and when goods are sold above a certain dollar amount.
Information About Statute of Frauds
All U.S. states have a form of the statute of frauds in place. The purpose of the statute is to prevent nonexistent agreements between two parties being "proved" by fraud or perjury. It is an English law dating back to 1677 created for specific types of contracts in order to serve as a means of defense in breach of contract lawsuits.
The objective of the statute of frauds is to not enforce particular contracts unless there is a written memorandum or note signed by the persons involved with the contract. An authorized representative may also sign the written document.
In a breach of contract action, a defendant may invoke the statute of frauds. They must then establish that the unfulfilled contract is legally unenforceable because of its failure to satisfy the requirements of the statute. If the contract is found to be unenforceable, the defendant is not liable for a breach of contract.
Types of Contracts
Several types of contracts should be in writing in case a situation arises where the contract must be enforced. This includes:
- Contracts involving the sale, lease, or mortgage of real property, such as a parcel of land.
- When the terms of a contract cannot be performed within one year from the date of the contract's formation.
- Contracts involving collateral when a promise is made to guaranty the debt of another person.
- Prenuptial agreements when promises are made regarding a marriage.
- When goods valued at $500 or more are being sold.
- Contracts of suretyship.
The categories that the statute apply to have been expanded in some states. In some states, for example, a life insurance contract will not be enforced during the lifetime of the person named in the contract. The statute also applies to contracts that bequeath property by a will and to contracts where an authorized agent can sell real property and be paid a commission.
There are exceptions to the statute of frauds wherein a contract that is considered unenforceable because it is not in written form may be enforced. The first example is considered "partial performance accepted" and involves a situation where a buyer takes partial possession of personal or real property and pays the price attributed to the received property. If the parties involved cannot return to their positions prior to the contract, a court could order that the contract must be performed exactly as stated.
Under the principle of "promissory estoppel," a promisor making a promise to a promisee who then relies on the promise to their detriment may be estopped. This means the promisor cannot deny the existence or the validity of the contract.
Limitations of the Statute of Frauds
A single written document is not always required for a contract to be enforceable. This would be the situation when several pieces of correspondence shared between the parties state the contract in actual terms that are agreed to by the parties. An example would be when a private individual selling a car corresponds to a buyer through written letters or email to negotiate the price and payment terms. Once agreed to by both parties, the agreement could satisfy the requirements to make it an enforceable contract.
Sufficiency of the Writing
A written contract with the signatures of both parties will suffice as satisfying the requirements of the statute of frauds. Signatures may be located anywhere on the agreement. Initials are also acceptable when there is no signature. The written information needs to contain only the essential terms, which includes the names of the parties, the subject of the contract, quantity, and consideration.
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