Statute of Frauds

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The term Statute of Frauds refers to a law that requires certain types of contracts be made in writing, and signed by the parties to the agreement. Such statutes, which vary by state, serve to protect the parties from fraudulent acts in respect to the contract. The contract need not be written in formal language, and it is not even necessary that both parties sign the agreement. Contracts written in accordance to the Statute of Frauds must be signed by the party against whom the contract will be enforced. To explore this concept, consider the following Statute of Frauds definition.

Definition of Statute of Frauds

Noun

  1. A rule of law requiring certain types of contracts to be made in writing.

Origin

1677    An Act for Prevention of Frauds and Perjuries (enacted by the Parliament of England)

History of Statute of Frauds

The concept of a Statute of Frauds in the U.S. finds its origins in an English law enacted by Charles II in 1677. This Act for Prevention of Frauds and Perjuryes sought to prevent the fraudulent practices that had burgeoned as the English Civil War came to an end. Whether these tactics were used as a type of round-about looting, or engaged in as a way to settle grudges, the common people were being taken advantage of.

The people petitioned the common law courts of the day in such numbers that the system became clogged with suits. Under this heavy burden, cases were pushed through with incapable witnesses, and professional witnesses who were paid to offer an opinion in favor of the higher bidder. Perjury and corruption became the order of the day.

Most agreements and contracts of the 17th century were verbal agreements, a simple exchange of coin, goods, or services, in which each party was to receive something of value. The 1677 Act required that certain types of contracts or transactions be put in writing, and signed by each party’s own hand. This served to provide proof to the court of the original agreement. As the founding fathers shaped the government of the new American people, they relied on the 1677 Act in shaping the requirements of business transactions, and the legal system’s role in disputes over such deals.

Purpose of the Statute of Frauds

While the law recognizes agreements made verbally, such contracts are often vague, and it is often impossible to prove in a court of law what the original terms were. If one party breaches an oral contract, the injured party may file a civil lawsuit, but it often becomes an issue of he said, she said, forcing the judge to determine which party is more believable.

By contrast, written contracts provide a tangible record of the specifics of the agreement. Some contracts involve high-value transactions, which have a high likelihood of ending in litigation if made only verbally. The Statute of Frauds requires some types of agreements or transactions to be made in writing, with signatures of the parties on the writing. In the event such an agreement leads to litigation, the court has a firm understanding of each party’s responsibility in fulfilling the terms of the contract.

Types of Contracts Subject to a Statute of Frauds

Throughout the centuries since the original statutes of frauds, certain types of contracts have emerged as being of such importance, such significant value, as to be most susceptible to fraudulent acts. While fraud statutes in the U.S. vary by state, there are certain types of agreements uniformly covered. Many legal professionals commit this to memory using the mnemonic “MY LEGS.”

  • M = Marriage – includes any promises made in consideration of marriage, including gifts given in consideration of marriage, such as an engagement ring.
  • Y = Year – any agreement that cannot be completed or fulfilled within one year must be made in writing. For instance, an agreement to pay back a personal loan in five years cannot be completed in one year.
  • L = Land – the sale or other transfer of real property must be made in writing. This does not apply to a lease, unless it falls under the Year requirement.
  • E = Executors – promises to pay an estate’s debt from the personal funds of the executor must be put in writing. Promises to pay such debt from the funds of the estate are not subject to the Statute of Frauds.
  • G = Goods – the sale of goods worth $500 or more must be made in writing. This gets tricky when dealing with a modified contract for sale of goods, however. In general, if the contract is modified to a value of less than the $500, is not subject to the Statute of Frauds. A modification raising the value over the $500 limit is required to be placed in writing.
  • S = Suretyship – 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.

Requirements for a Binding Agreement under the Statute of Frauds

Even when an agreement is put in writing, there are certain elements that must be contained in the writing in order for the contract to be considered valid and binding. Such agreements must:

  • Be in written form, though it does not need to be written in any type of formal language
  • Identify the subject of the contract in an easily understood manner
  • Spell out the essential terms of the agreement, including the exact nature of the goods or services, and the price or other consideration agreed upon
  • Include the signatures of both parties, or at a minimum, the signature of the party that is being charged for the goods or services

For example:

Samantha visits a local floral supply house, where she purchases 30 bundles of carnations on 30-days credit. The cashier writes down the purchase details, including the amount Samantha is being charged for the flowers. Samantha signs the supplier’s receipt book under the total, and takes the flowers back to her shop.

Two months later, Samantha claims that the carnations were not of good quality, and she refuses to pay the total amount. If the supplier takes Samantha to court to recoup its losses, Samantha’s signature in the notebook will be sufficient proof that Samantha agreed to the purchase price. No signature is required by the supplier. This simple notation, containing the buyer’s signature, serves as a legal contract in the eyes of the law.

Exceptions to the Statute of Frauds

There are, of course, exceptions to every rule. Certain types of agreement are enforceable under special circumstances, even if they would normally be invalidated by the Statute of Frauds. These can be remembered by the mnemonic “SWAPP.”

  • Specially Manufactured Goods – goods that were clearly custom-made for an order may not be subject to the Statute of Frauds.
  • Written Confirmation between Merchants – a written confirmation of an agreement between two or more merchants, not consumers, is often sufficient proof of an agreement under the Statute of Frauds. Merchants commonly make verbal agreements between them, then follow up with written invoices. This customary manner of doing business is recognized under the law.
  • Admission in Court – the party against whom the agreement is being enforced can admit in court that there was, in fact, a valid oral agreement.
  • Partial Performance – in the event the validity of an oral agreement is at question, the fact that one party has already performed his responsibilities under the agreement, may serve to confirm that a contract did exist.
  • Promissory Estoppel – a principle of “fundamental fairness” intended to right a substantial injustice. For instance, Sally promises to pay Bob $1,000 to fix her car. Bob goes out and buys $700 in parts and starts the repair job. A week later, Sally just wants her car back, and claims there was no agreement for payment. This is so unfair as to need to be fixed by the court.

One-Year Employment Agreement Subject to Statute of Frauds?

On Saturday, April 25, 1964, Dick McIntosh was offered a job as assistant sales manager at his employer’s Murphy Motors location in Hawaii, with a one-year commitment, which made moving worthwhile. The agreement was made over the phone, and McIntosh was on a plane to Hawaii the next day. He had moved some of his things with him, sold others, and moved into an apartment near his new job.

McIntosh began working at Murphy Motors on Monday, April 27, 1964. On July 16, 1964, McIntosh was let go from his job at Murphy Motors, after which he filed a civil lawsuit against his employer, claiming the contract was for a year, not three months. The defendant, Murphy Motors, asked the court for a directed verdict, as even if the defendant admitted there was a verbal contract, the case fell under the Statute of Frauds, in that the contract could not be fulfilled in one year.

The trial court ruled that, because of the plaintiff’s actual start date, and not counting the Saturday or Sunday, the case did not fall under the Statute of Frauds, and could be decided. The jury found in the plaintiff’s favor, and awarded him damages.

When the defendant appealed the verdict, the appellate court also applied the principle of fundamental fairness, in that the plaintiff had reasonably relied on the defendant’s offer of a job with a one-year contract when he disposed of his personal property and moved across the ocean to Hawaii. The defendant knew the plaintiff would have to make such a drastic move, and that was likely the reason the one-year contract had been offered. When the plaintiff was discharged from his position, he found himself in a strange place without employment. It would be unfair, then, to not enforce such a contract.

Related Legal Terms and Issues

  • Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
  • Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
  • Perjury – The willful telling of an untruth, or giving of false testimony, after having taken an oath.
  • Plaintiff – A person who brings a legal action against another person or entity, such as in a civil lawsuit, or criminal proceedings.