What Is the Statute of Frauds?
The statute of frauds (SOF) 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 certain jurisdictions, such as 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.
- 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.
Understanding the Statute of Frauds
As applied in the United States, the concept 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 it is subject to the statute of frauds.
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.
In some situations, even some 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, he or she 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, after a homeowner requests he does so, 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. It 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.
Requirements of the Statute of Frauds
Not every written document is necessarily protected under the statute of frauds. The following attributes of the agreement are generally required for the contract to be considered valid and binding:
- It must be in written form, though it needn't necessarily be written in formal language. For example, a bullet-point list will suffice.
- The subject of the contract must be identified in an easily understood manner. Nicknames and other cryptic identification should be avoided.
- The essential terms must be spelled out—including the exact nature of the goods or services, and the agreed price(s) or other considerations.
- Ideally, both parties should sign the agreement. At a minimum, the signature of the party being charged for goods or services is typically required.
A formal document isn't always mandatory. Several correspondences between the parties that clearly state the contract in material terms can sometimes suffice. Suppose the private seller of a car negotiates the price or other conditions of the sale over email or through written letters to the buyer. Then, the eventual agreement recorded in those exchanges could satisfy the requirements for an enforceable contract.
Emails and invoices can sometimes satisfy statute-of-fraud requirements for an enforceable contract.
Furthermore, sending an invoice for work and the stated agreement that was orally agreed can represent a binding contract. That is especially true when the customer does not cancel the agreement within five days. A written confirmation between merchants often suffices as proof of an agreement under the statute of frauds.
Real World 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, including Texas and 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.