The Statute Of Frauds

The Statute Of Frauds

What is the statute of frauds? According to a trial lawyer, the statute of frauds is a very important contractual obligation.   Adopted in a majority of states, the statute of frauds is intended to prevent fraud by specifying that certain agreements are required to be in writing and signed by the party against whom enforcement is sought.   In short, the statute of frauds make certain, but not all, verbal agreements (i.e., contracts) enforceable.

There are six (6) types of contracts that are required by the statute of frauds to be in writing, they are the following:

1. Contracts for the sale of an interest in land;
2. Contracts incapable of being performed within one (1) year of contract formation;
3. Contracts for the sale of personal property worth $5,000 or more*;
4. Contracts for the sale of goods in the amount of $500 or more;
5. A lease for the duration of more than one (1) year from the first day the lease is supposed to take effect; and
6. A promise made to a creditor to pay a debt owed by someone else (i.e., a third party).

The third type of contract, for the sale of personal property worth more than $5,000 or more is not required in all states.  The state of Wisconsin, for example, does have this requirement.  Also, as you may see from the fourth requirement, the statute of frauds differentiates the sale of goods from the sale of personal property.  Personal property is a good but, it was previously owned and is now being resold by the original purchaser.  A good, on the other hand, has not been previously owned by a purchaser which is why the monetary limit is lower and requires more contracts to be in writing.

The statute of frauds also lays out the writing requirements for each of these contracts.  There are two requirements.  First, the essential terms of the agreement must be in the contract.  The essential terms of the agreement includes the identity of the parties, the subject matter of the transaction, the terms of the deal, the price and quantity, and the signature of the party against whom enforcement is sought. Notably, this writing requirement has been deemed satisfactory even where multiple documents provide the essential terms so long as one of the writings contains a signature and the writings, when taken as a whole, can be linked together and relate to the same transaction.  Second, the contract must be signed by the party against whom enforcement is sought.  Certain cases have displayed parties who attempt to defraud another by trying to argue the insufficiency of signature on the contract.  Courts, however, generally only require that the signature must be somewhere on the writing.

Even if the writing requirement is not satisfied, an agreement can still be deemed enforceable through reliance.  Specifically, promissory estoppel (i.e., reliance) can be invoked to enforce an oral contract that is subject to the statute of frauds.  Additionally, there are two exceptions to contracts that, under the statute of frauds, must be, but are not in writing – land contracts and verbal contracts originally thought to be unable to be performed within one year.  A buyer who assumes possession of land via a verbal agreement and then makes improvements on the land even though there is no written contract can still have the contract enforced.  Moreover, if a party thinks that their performance will take longer than a year, but it in fact does not, a party is prohibited from refusing payment or other performance based on the argument that the project took less than one year to complete.  If you believe fraud has been involved in a contract, contact a lawyer near you.

Thanks to Eglet Adams Eglet Ham Henriod for their insight on the statute of frauds.