Contracts/Statute of frauds: Difference between revisions

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The statute of frauds refers to a statute (i.e., statutory law), or a provision in a statute, in many common law jurisdictions that requires certain kinds of contracts to be done in writing and to be signed by the party against whom enforcement is sought. In a number of civil law jurisdictions, there are similar requirements in their civil codes.

The term statute of frauds comes from an English statutory law (29 Car. II c. 3) passed in 1677 and more properly called the Statute of Frauds and Perjuries.

The writing that the Statute requires is a precondition to maintaining a suit for breach of contract (or other obligation). However, the Statute is used as a defense, which defense is waived if the person against whom enforcement is sought fails to raise in a timely manner. Thus, the burden of showing evidence that such a writing exists only comes into play when a Statute of Frauds defense is raised by the defendant. A defendant who admits the existence of the contract in his pleadings, under oath in a deposition or affidavit, or at trial, may not use the defense.

A statute of frauds defense may also be defeated by a showing of part performance. If the parties have taken action in reliance on the agreement, a court may uphold the contract despite a violation of the statute of frauds because the parties' subsequent actions verify that a contract existed. Courts are wary of parties misusing the statute of frauds as a "get out of jail free card" in breach of contract actions.

Under common law, the Statute of Frauds also applies to contract modification - for example, suppose party A makes an oral agreement to lease a house from party B for 9 months. Immediately after taking possession party A decides that he really likes the place, and makes an oral offer to party B to extend the term of the lease by 6 months. Although neither agreement alone comes under the Statute of Frauds, the extension modifies the original contract to make it a 15-month lease, thereby bringing it under the Statute. In practice, this works in reverse as well - an agreement to reduce the lease from 15 months to 9 months would not require a writing. However, almost all jurisdictions have enacted statutes that require a writing in such situations. The Uniform Commercial Code abrogated this requirement for contract modification, discussed below.

Traditionally, the statute of frauds requires a writing signed by the party against whom enforcement is sought in the following circumstances:

• Contracts in consideration of marriage.
• Contracts which cannot be performed within one year.
• Contracts for the sale of an interest in land.
• Contracts by the executor of a will to pay a debt of the estate with his own money.
• Under the Uniform Commercial Code (article 2, section 201), contracts for the sale of goods where the price equals $500.00 or more (with the exception of professional merchants performing their normal business transactions, or any custom-made items designed for one specific buyer) [1]. The most recent revision of UCC 2-201 increases the triggering point for the UCC Statute of Frauds to $5,000, but as of 2006 no U.S. state has adopted revised Section 201.
• Contracts in which one party becomes a surety (acts as guarantor) for another party's debt or other obligation.

Law students often remember these circumstances by the mnemonic "MYLEGS" (marriage, year, land, executor, goods, surety).

Uniform Commercial Code

In the United States, the application of the statute of frauds to dealings between merchants has been modified by provisions of the Uniform Commercial Code, which is a statute that has been enacted by every state (except Louisiana). Uniform Commercial Code § 1-206 [2] sets out a "catch-all" statute of frauds for personal property not covered by any other specific law, stating that a contract for the sale of such property where the purchase price exceeds $500.00 is not enforceable unless memorialized by a signed writing. This section, however, is rarely invoked in litigation.

Interestingly, with respect to securities transactions, the Uniform Commercial Code (section 8-113) has abrogated the statute of frauds. The drafters of the most recent revision commented that "with the increasing use of electronic means of communication, the statute of frauds is unsuited to the realities of the securities business."

Exceptions

An agreement may be enforced even if it does not comply with the statute of frauds in the following situations:

• Merchant's Firm Offer, under the UCC. If one merchant sends a writing sufficient to satisfy the statute of frauds to another merchant, the merchant has reason to know of the contents of the sent confirmation and the receivor does not object to the confirmation within 10 days, the confirmation is good to satisfy the statute as to both parties.
• Admission of the existence of a contract by the defendant under oath,
• Part Performance of the contract. The agreement is enforceable up to the amount already paid, delivered, etc.
• The goods were specially manufactured for the buyer and the seller either 1) began manufacturing them, or 2) entered into a third party contract for their manufacture, and the manufacturer cannot without undue burden sell the goods to another person in the seller's ordinary course of business-- for example, t-shirts with a baseball team logo or wall-to-wall carpeting for an odd-sized room.

See also

• Parol evidence rule

External links

• UCC § 2-201: Statute of Frauds Definition