What Is the Statute of Frauds?
The statute of frauds is a legal concept that requires certain types of contracts to be executed in writing. The statute covers contracts for the sale of land, agreements involving goods worth over $500, and contracts lasting one year or more.
The statute of frauds was adopted in the U.S. primarily as a common law concept—that is, as unwritten law. However, it has since been formalized by statutes in most states. In a breach of contract case where the statute of frauds applies, the defendant may raise it as a defense. Indeed, they often must do so affirmatively for the defense to be valid. In such a case, the burden of proof is on the plaintiff. The plaintiff must establish that a valid contract was indeed in existence.
Key Takeaways
- The statute of frauds is a common law concept that requires written contracts for certain agreements to be binding.
- The statute applies to land sales and most purchases of goods over $500.
- There are significant exceptions, such as oral contracts where work has already started.
- The statute of frauds varies somewhat between states in the United States.
- Many aspects of the statute of frauds is included in the Restatement (Second) of the Law of Contracts.
History of the Statute of Frauds
The statute of frauds has its roots in the Act for Prevention of Frauds and Perjuryes, which was passed by the English Parliament in 1677. The legislation, which stipulated a written contract be used for transactions where a large amount of money was at stake, aimed to prevent some of the misunderstandings and fraudulent activity that can occur when relying on oral contracts.
Indeed, the English legal system of the time suffered from a lack of written evidence. The courts were clogged with lawsuits, and cases were often settled by using professional witnesses who were paid for their testimony. Perjury and corruption became the norm.
As the founders shaped the U.S. government, they drew on the 1677 Act to help shape how business transactions, and disputes over them, should be handled in the new world. Like their 17th-century British forebears, the founders decided that written and signed contracts minimized ambiguity by providing a clear record of the agreement. That reduced the opportunity for later litigation and simplified the settlement of such suits when they occurred.
Contracts Covered by the Statute of Frauds
As applied in the United States, the statute of frauds generally requires the following types of contracts to be written to be legally binding.
- Any promises made in connection with marriage, including such gifts as an engagement ring.
- Contracts that cannot be completed in less than one year.
- Contracts for the sale of land. (Leases need not be covered unless they're of a year or more in length.)
- Promises to pay an estate’s debt from the personal funds of the executor. (However, promises to pay such debt from the estate's funds are not subject to the statute of frauds.)
- Contracts for the sale of goods above a specific dollar amount, typically $500.
- A contract in which one person promises to pay the debt of another person is considered a surety, and is subject to the statute of frauds.
Various legislative bodies outline statute of frauds requirements. The Restatement (Second) of the Law of Contracts is a legal treatise that oversees general principles of contract common law. In addition, Uniform Commercial Code (UCC) Article 2 outline rules over the sale of goods.
Requirements of the Statute of Frauds
Not every written document is necessarily protected under the statute of frauds. Examples of some requirements of the statute of frauds include:
- Both parties must sign the agreement, otherwise the agreement is not enforceable.
- The quantity of goods shown in the written agreement is different than what is shown in writing.
- Written rejection of the agreement is given within a specified time.
- Written correspondence must be property dispatched; improper address or other failures to ensure safe transmission yield the correspondence invalid.
- A mistake by one party at the time the contract was made leads to a material effect on the agreed exchange, yielding the contract invalid.
There is extensive federal and state law that outline specific requirements for any given contractual situation.
Emails and invoices can sometimes satisfy statute-of-fraud requirements for an enforceable contract.
Exceptions to the Statute of Frauds
In some situations, agreements that would ordinarily require a written contract under the statute of frauds may be enforceable without them.
Several exceptions relate to situations in which oral agreements result in work beginning or financial outlays. Take a case in which steps are taken to create a series of specially manufactured items, such as monogrammed shirts. If the customer who commissioned them over the phone subsequently decides to cancel the order, they will likely still be responsible for at least partial payment.
The same will usually apply if improvements or modifications to a customer's possessions, based on oral agreements, are begun and then canceled. Take a situation in which a house painter, based on a homeowner’s request, purchases materials and begins to redecorate a house. If the homeowner then reverses course and claims no firm painting agreement was in place, the contractor would likely prevail. That's because of what's known as promissory estoppel.
Promissory estoppel is defined as a principle of "fundamental fairness" intended to
remedy a substantial injustice. There are also cases of partial performance. The fact that one party has already performed its responsibilities under the agreement may serve to confirm that a contract existed.
Examples of the Statute of Frauds
Provisions for the statute of frauds are enforced by states, based on federal codes. The Universal Commercial Code (UCC) in the U.S. provides a good example. It is the standardized set of business laws that regulate financial contracts. Most states have fully adopted the UCC.
In cases where articles of the UCC that affect the statute of frauds change, it may take time for those alterations to be reflected in every state's laws. Some states, like Louisiana, also have some long-standing variations from the norm in their statute of frauds and related regulations.
Before relying on the statute of frauds in any given situation, it is wise to research the statute-of-frauds provisions in your state or territory and seek legal advice as needed.
What Is the Meaning of Statute of Frauds?
The statute of frauds is a body of legislation that requires certain contracts be written to be valid. In addition, that written agreement often has stipulations such as delivery conditions or what must be included in that written agreement. The idea behind the statute of frauds is to protect parties entering into a contract from a future dispute or disagreement on the terms of the deal.
What Is an Example of Statute of Frauds?
Real estate such as the sale of land falls under the statue of frauds. In order to acquire land, you must enter into a written agreement. This is to ensure both parties agree to the exact area of land being sold, the exact terms of the agreement, and other relevant terms to the contract.
What Are Exceptions to the Statute of Frauds?
Some contracts, even when not written, may still be enforceable to protect one party that has been at a disadvantage. For example, one exception is when a seller makes specially manufactured goods for a buyer. If the seller can't easily sell the goods to others in the normal course of business, they are protected by different rules. Another exception is when payment has already been made and received by the seller. In this case, the seller is obligated to furnish the agreed terms to the buyer since they have already received payment.
The Bottom Line
The statute of frauds is a law that deems certain types of verbal contracts non-binding and unenforceable without written evidence to support them. As was the case when this concept was brought alive back in seventeenth-century England, its job is to make sure both parties in a contract are protected from fraudulent behavior.
Variations can exist, though, depending on where you live in the world. In the U.S., certain states have different rules regarding the statute of frauds. And there are situations when a written agreement can become void or an oral agreement enforceable, such as after payment is made or work commences.