What Is the Purpose of the Statute of Frauds?

The statute of frauds is a common law principle that mandates written contracts for specific agreements to be legally enforceable. It applies to land sales and most purchases of goods that exceed $500. However, there are notable exceptions, such as oral contracts that involve ongoing work. It's important to note that the statute of frauds may vary slightly across different states in the United States. The Restatement (Second) of the Law of Contracts incorporates many key aspects of the statute of frauds.

Basics

The statute of frauds is a legal requirement that certain contracts must be in writing. It applies to various types of contracts, such as land sales, agreements involving goods worth $500 or more, and contracts lasting one year or longer. Its main purposes are to provide written evidence of a legally binding agreement and to encourage careful consideration by both parties.

Originally part of the unwritten common law in the United States, statutes of fraud have now been formalized through specific statutes in many states. In a breach of contract case where the statute of frauds is applicable, the defendant can use it as a defense. This places the burden of proof on the plaintiff, who must demonstrate the existence of a valid written contract.

Brief History of the Statute of Frauds

The statute of frauds finds its origins in the 1677 Act for Prevention of Frauds and Perjuryes enacted by the English Parliament. This law required written contracts for transactions involving substantial amounts of money to prevent fraudulent activities and misunderstandings arising from oral agreements. The English legal system of that time suffered from a lack of written evidence, leading to congested courts and the reliance on paid witnesses, fostering perjury and corruption.

Inspired by the 1677 Act, the founders of the United States incorporated its principles into the shaping of the new government. They recognized the value of written and signed contracts in minimizing ambiguity by providing a clear and documented record of the agreement. This approach aimed to reduce the need for future litigation and simplify the resolution of disputes. By establishing the statute of frauds, the founders sought to ensure greater transparency and reliability in business transactions, drawing from the lessons learned from the shortcomings of the English legal system.

Covered Contracts

In the United States, the statute of frauds requires certain contracts to be in writing to be legally binding. These contracts include:

1. Promises are made in connection with marriage.
2. Contracts that cannot be completed within one year.
3. Contracts for the sale of land.
4. Promises by an executor to pay an estate's debt from personal funds.
5. Contracts for the sale of goods above a specified dollar amount.
6. Surety contracts, where one person promises to pay the debt of another.

To be enforceable, these contracts must meet the written requirement set by the statute of frauds.

The statute of frauds requirements are established by different legislative bodies. One example is the Second Restatement of the Law of Contracts, which provides general principles of contract common law. Another important reference is Article 2 of the Uniform Commercial Code, which specifically addresses rules governing the sale of goods.

What Are the Requirements of the Statute of Frauds?

Under the statute of frauds, written agreements must meet specific requirements to be protected. Here are the key points:

• Both parties must sign the agreement.
• The quantity of goods stated in the agreement must match the written record.
• Written rejection of the agreement must be given within a specified time.
• Written correspondence must be sent correctly to ensure validity.
• Mistakes made by a party during contract formation can render the agreement invalid.

Additionally, emails and invoices can sometimes satisfy the statute of frauds requirements for an enforceable contract.

Are There Any Exceptions?

Exceptions exist where agreements that typically require written contracts under the statute of frauds may still be enforceable without written documentation. One exception is when work has already begun or financial investments have been made based on an oral agreement. For instance, if a customer orders custom-made shirts over the phone and later decides to cancel, they would likely still be responsible for partial payment.

Similarly, if a contractor starts making improvements or modifications to a homeowner's property based on an oral agreement, the contractor would likely have a valid claim for compensation if the homeowner denies the existence of a firm agreement. This exception is rooted in the principle of promissory estoppel, which aims to address substantial injustice and uphold fairness.

Another exception is partial performance, where one party has already fulfilled its obligations under the agreement. In such cases, the party's performance serves as evidence that a valid contract existed. These exceptions recognize situations where the reliance or actions of the parties provide sufficient grounds for enforcing the agreement, even without a written contract.

What Falls Under the Statute of Frauds

The sale of land is subject to the statute of frauds, requiring a written agreement for its acquisition. This ensures that both parties are in agreement regarding the specific area of land being sold, the terms of the agreement, and other pertinent contract details.

States in the United States enforce provisions for the statute of frauds, following federal codes. The Universal Commercial Code (UCC) serves as a notable example, providing standardized business laws that govern financial contracts. The majority of states have fully embraced the UCC.

However, it is important to note that changes to the UCC provisions impacting the statute of frauds may not be immediately reflected in all state laws. This process may take some time. Additionally, certain states, such as Louisiana, have longstanding variations from the standard regulations in their statute of frauds and related laws.

Tips for Applying the Statute of Frauds

Before relying on the statute of frauds in any given situation, it is highly recommended to conduct comprehensive research and carefully examine the specific provisions of the statute of frauds in your respective state or territory. Seeking appropriate legal advice as needed can also contribute to a better understanding and application of these provisions, ensuring compliance and safeguarding your interests.

Conclusion

The statute of frauds is a law that requires certain contracts to be in written form to be legally binding. It aims to prevent fraud and protect both parties involved in a contract. However, the application of this law can vary between jurisdictions, including different rules in different states. In some cases, oral agreements may still be enforceable, especially when payment has been made or work has begun. It is important to understand the specific requirements of the statute of frauds in your jurisdiction and seek legal advice when needed.