DEFINITION of 'Statute of Frauds'

The statute of frauds is a legal concept that requires certain types of contracts to be executed in writing. The precise form of the statute of frauds varies between jurisdictions, but the form generally requires writing for the following types of contracts:

(1) Contracts for the sale of land
(2) Contracts for the sale of goods above a certain dollar amount
(3) Contracts that cannot be completed in less than one year
(4) Contracts where one party is to pay the debt of another party

In a breach of contract case wherein the statute of frauds applies, the defendant may raise it as a defense. In this case, the burden of proof is on the plaintiff to establish that a valid contract was in existence.

BREAKING DOWN 'Statute of Frauds'

The statute of frauds has its roots in an act of the English Parliament passed in 1677. The act was meant to help prevent some of the misunderstandings and fraudulent activity that can occur with oral contracts. Therefore, the parliament decided to require a written contract for important transactions where a large amount of money was often at stake. The statute of frauds was adopted by the United States primarily as a common law concept, though it has since been formalized by statutes in certain jurisdictions.

Limitations of the Statute of Frauds

There are some exceptions to what contracts must be in writing to be considered enforceable. An oral lease, for example, that covers a term that does not exceed one year might be deemed valid. A single, written formal document is also not required to make a contract enforceable. There could be several correspondences between the parties that state the contract in material terms that are agreed upon for the term. For example, if the private seller of a car negotiates over email or through written letters to the buyer over the price and rate of payment for the vehicle, their eventual agreement could satisfy the requirements for an enforceable contract.

However, the contract can still be broken through an oral statement because the statute of frauds pertains to the establishment of a contract and not the terms of dissolving of one. The statute was put into action in part to prevent one party from falsely claiming they had entered into a contract that in fact does not exist. The nature of the statute does not give it any authority over verbal agreements and contracts that were made between the parties.

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