What is the Statute of Frauds?
The statute of frauds (or SOF) is a legal concept that requires certain types of contracts to be executed in writing. Among others, these typically include those for the sale of land, of any goods over $500 in value, and contracts of a year or more in length.
The statute of frauds was adopted in the U.S. primarily as a common law concept—that is, as unwritten law—although it has since been formalized by statutes in certain jurisdictions, such as in most states. In a breach of contract case in which the statute of frauds applies, the defendant may raise it as a defense—indeed, they often must do do affirmatively for the defense to be valid. In such a case, the burden of proof is on the plaintiff to establish that a valid contract was indeed in existence.
Agreements Covered by the Statute of Frauds
As applied in the United States, the concept generally requires the following types of contracts to be written in order to be legally binding. The mnemonic MYLEGS is sometimes used to help recall the scope of these agreements; the relevant letters are capitalized below.
- 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 funds of the estate are not subject to the statute of frauds.)
- Contracts for the sale of Goods above a certain 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.
Requirements for Written Agreements Under the Statute
Not every written document is necessarily protected under the statute of frauds. The following attributes of the agreement are generally required in order for the contract to be considered valid and binding:
- To be in written form, though it needn't necessarily be written in formal language. That is, a bullet-point list, say, 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.
- The signatures of both parties, ideally. At minimum, however, the signature of the party that is being charged for the goods or services is typically required.
- The statute of frauds is a common law concept that requires written contracts for certain agreements to be binding
- It applies to land sales and most purchases of goods over $500, among other transactions
- Exceptions do apply, as do some variations by state
The Impetus for the Statute of Frauds
The statute of frauds has its roots in An 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 was struggling under the limitations of a lack of written evidence. With the law courts clogged with suits, cases were often settled by the use of professional witnesses who were paid to offer an opinion in favor of the higher bidder. Perjury and corruption became the norm.
As the founding fathers shaped government for the American people, 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 by providing a firm record of the agreement, written and signed contracts minimize ambiguity, reduce the opportunity for later litigation, and simplify the settlement of such suits if they do occur.
Limitations on the SOF When Work has Begun
In some situations, even some agreements that would ordinarily require a written contract under the statute of frauds may be enforceable without them. A mnemonic is in use here as well, namely SWAPP; the relevant letters are identified within the exceptions and limitations covered below.
Several exceptions relate to situations in which an oral agreement results in work beginning, or financial outlays being made, in connection with work. Take a situation in which steps are begun to make a series of Specially manufactured items (the S in the SWAPP mnemonic), 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 do 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 (one of the Ps in SWAPP), which is defined as a principle of “fundamental fairness” intended to right a substantial injustice.
The other P in SWAPP might apply here, as well. It refers to Partial Performance, in which the fact that one party has already performed their responsibilities under the agreement may serve to confirm that a contract indeed did exist.
Other Cases Where Written Records May Not be Required
A single, written formal document isn't always mandatory; several correspondences between the parties that clearly state the contract in material terms can sometimes suffice. For example, if the private seller of a car negotiates the price or other conditions of the sale over e-mail or through written letters to the buyer, the eventual agreement as memorialized 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.
Further, sending an invoice for work, along with the stated agreement that was orally agreed, can represent a binding contract, especially if the customer does not cancel the agreement within 5 days. This illustrates how a Written confirmation between merchants—the W in SWAPP—often suffices as proof of an agreement under the Statute of Frauds.
Then comes Admission in court, the A in SWAPP. It is an exception to the need for a written record if the party against whom the agreement is being enforced admits in court that there was, in fact, a valid oral agreement.
The requirement that all land sales require a written contract may not apply for certain easements, which are agreements that permit the use of real estate by someone who has no property interest in the land.
While many easement agreements are formalized in writing, often along with payment, a so-called easement by necessity is more liberal. When one party is required to use another person's property to access their own, such an easement does not require written agreement and is enforceable by local laws. An example of an easement by necessity would be when a person is required to use a neighbor's driveway in order to access his home.
State-to-State Variations in the Statute of Frauds
Provisions for the statute of frauds are enforced by states, based on federal codes. An example of such codes is the Universal Commercial Code, the standardized set of business laws that regulate financial contracts, and that has been fully adopted by most states in the U.S.
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 the statutes of every state. In addition, some states, including Texas and Louisiana, have some longstanding variations from the norm in the statute-of-frauds statutes or related regulations.
Before relying on the statute of frauds in any given situation, then, It's wise to research the statute-of-frauds provisions in your state or territory and seek legal advice as needed.