Contracts/Statute of frauds: Difference between revisions

Template:Contract law

The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a writing, signed by the party to be charged, with sufficient content to evidence the contract.^[1][2]

Traditionally, the statute of frauds requires a signed writing in the following circumstances:

• Contracts in consideration of marriage. This provision covers prenuptial agreements.
• Contracts that cannot be performed within one year. However, contracts of indefinite duration do not fall under the statute of frauds regardless of how long the performance actually takes.
• Contracts for the transfer of an interest in land. This applies not only to a contract to sell land but also to any other contract in which land or an interest in it is disposed, such as the grant of a mortgage or an easement.
• Contracts by the executor of a will to pay a debt of the estate with his own money.
• Contracts for the sale of goods totaling $500.00 or more.
• Contracts in which one party becomes a surety (acts as guarantor) for another party's debt or other obligation.

In an action for specific performance of a contract to convey land, the agreement must be in writing to satisfy the statute of frauds. The statute is satisfied if the contract to convey is evidenced by a writing or writings containing the essential terms of a purchase and sale agreement and signed by the party against whom the contract is to be enforced. If there is no written agreement, a court of equity can specifically enforce an oral agreement to convey only if the part performance doctrine is satisfied. In most jurisdictions, part performance is proven when the purchaser pays the purchase price, has possession of the land and makes improvements on the land, all with the permission of the seller. No jurisdiction is satisfied by payment of the purchase price alone.Template:Cn

Under common law, the statute of frauds also applies to contract modifications. For example, in an oral agreement for the lease of a car, immediately after taking possession the lessor may decides that he really likes the car and make an oral offer to the lessee to extend the term of the lease by six months. Although neither agreement alone comes under the statute of frauds, the oral extension modifies the original contract to make it a fifteen-month lease, thereby bringing it under the statute as the contract now exceeds twelve months in duration. In theory, the same principle works in reverse as well, such that an agreement to reduce a lease from fifteen months to nine months would not require a writing. However, many jurisdictions have enacted statutes that require a writing for such situations.

Terminology

The term statute of frauds comes from an Act of the Parliament of England (29 Chas. 2 c. 3) passed in 1677 (authored by Lord Nottingham assisted by Sir Matthew Hale, Sir Francis North and Sir Leoline Jenkins.^[3] and passed by the Cavalier Parliament), the title of which is An Act for Prevention of Frauds and Perjuries.^[4] Many common law jurisdictions have made similar statutory provisions, while a number of civil law jurisdictions have equivalent legislation incorporated into their civil codes. The original English statute itself may still be in effect in a number of Canadian provinces, depending on the constitutional or reception statute of English law, and any subsequent legislative developments.Template:Cn

Raising the defense

A defendant in a contract case who wants to use the statute of frauds as a defense must raise it as an affirmative defense in a timely manner.^[5] The burden of proving that a written contract exists comes into play only when a statute of frauds defense is raised by the defendant.

Exceptions

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

• Admission of the existence of a contract by the defendant under oath.^[6]
• A statute of frauds defense may also be affected by a showing of part performance by proving the existence of one of two different conditions. If the parties have taken action in reliance on the agreement, as in the case Riley v. Capital Airlines, Inc., the court held that part performance does not take an executory portion of a contract out of the statute of frauds. Each performance constitutes a contract that falls outside the Statute of Frauds and was enforceable to the extent it is executed. However, the unexecuted portion of the contract falls within the Statute of Frauds and is unenforceable. As a result, only the executed portion of the contract can be recovered, and the doctrine of part performance does not remove the contract from the statute. On the other hand, the court, in Schwedes v. Romain, held that partial performance and grounds for estoppel can make the contract effective.
• Promissory estoppel can be applied in many but not all jurisdictions when the charging party detrimentally relies on the otherwise unenforceable contract.^[7] In England and Wales, the circumstances where promissory estoppel may be used to overcome the statute are limited,^[8] and some jurisdictions deny this possibility altogether.
• The "main purpose rule" as it relates to guarantee or suretyship type contracts: where the promisor's promise to answer for the debt of another is made mainly for the promisor's own economic advantage, then it is a primary promise, and enforceable even without a writing.
• Easements by implication: easements, which are agreements that permit the use of real estate by someone who has no property interest in the land, may be created by operation of law rather than by written instrument. This may happen where, for example, a piece of land is partitioned between owners and pre-existing utilities routes or access paths that would otherwise be trespassory over one of the plots is reasonably necessary for enjoyment of the other plot. In such case, the pre-existing use must be apparent and continuous at the time of the partition for an easement to be created by implication. The implied easement constitutes an interest in land that does not require a writing to be enforceable.

In the United States, for contracts for the sale of goods that fall under the Uniform Commercial Code, additional exceptions may apply:

• Merchant confirmation rule. If one merchant sends a writing sufficient to satisfy the statute of frauds to another merchant and the receiving merchant has reason to know of the contents of the sent confirmation and does not object to the confirmation within 10 days, the confirmation is good to satisfy the statute as to both parties, even if the confirmation was not signed by the party to be charged.^[9]
• 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 Little League baseball team logo or wall-to-wall carpeting for an odd-sized room.^[10]

Canada

The Statute of Frauds recites that it was enacted for the “. . . prevention of many fraudulent practices which are commonly endeavored to be upheld by perjury . . .”. The mischief arising from claimants asserting oral agreements was to be avoided by requiring that certain contracts be evidenced by “some memorandum or note thereof . . . in writing and signed by the party to be charged therewith . . .”. Contracts respecting land “created by livery and seisen only or by parole” would not be enforced absent such a writing.Template:Cn

It quickly became apparent to the common law judges that the Statute might itself become an instrument of fraud (or at least injustice) if it was strictly enforced with respect to contracts that were wholly or partly performed.^[11]

The courts developed the concept of “part performance” as an exception. If a contract concerning land was partly performed, that could displace the need for a note or memorandum in writing signed by the party to be charged.

It was one thing to create an exception that displaced the need for a memorandum in writing, but something else to completely nullify the Statute’s operation. The thrust of the Statute was that contracts concerning land could not be proved by parol evidence alone. Thus, part performance might be an exception, but it could not, in effect, mean that the underlying contract could be proven by parol evidence. In developing the “part performance” exception, a balancing of the competing considerations was required. An important factor in the case law became that the part performance must be “unequivocally” related to the alleged contract.Template:Cn

Ireland

The Statute of Frauds was passed in 1695 in Ireland.^[12] The statute is one of the few pre-Independence laws that survived the Statute Law Revision (Pre-1922) Act 2005 and the Statute Law Revision Act 2007, and remains largely in force today.

Some effects of the law have been softened by equity, for example the requirement that all contracts for sale of land be evidenced in writing can be circumvented by reliance on the doctrine of part performance.

United Kingdom

England and Wales

The Statute of Frauds^[13] (1677) was largely repealed in England and Wales by the Law Reform (Enforcement of Contracts) Act 1954 (2 & 3 Eliz 2 c 34). The only provision of it that is still extant is that part of Section 4^[14] which provides that contracts of guarantee (surety for another's debt) are unenforceable unless evidenced in writing. This requirement is subject to section 3 of the Mercantile Law Amendment Act 1856^[15] (19 & 20 Vict 97) which provides that the consideration for the guarantee need not appear in writing or by necessary inference from a written document.

Section 6^[16] of the Statute of Frauds Amendment Act 1828^[17] (9 Geo 4 c 14) (commonly known as Lord Tenterden's Act)^[18] was enacted to prevent section 4 of the 1677 Act being circumvented by bringing an action for the tort of deceit (the tort in Freeman v. Palsey^[19]).

The provision in section 4 that related to contracts for the sale of land was repealed by Schedule 7 to the Law of Property Act 1925 (15 Geo 5 c 20), however the requirement that contracts for the sale of land be evidenced in writing was maintained by section 40 of that Act,^[20] subsequently replaced by section 2^[21] of the Law of Property (Miscellaneous Provisions) Act 1989 (c 34).

Scotland

Section 6 of the Mercantile Law Amendment Act Scotland 1856^[22] was derived from those parts of section 4 of the Statute of Frauds (1677) which relate to contracts of guarantee and from section 6 of the Statute of Frauds Amendment Act 1828.

It was repealed on 1 August 1995^[23][24] by the Requirements of Writing (Scotland) Act 1995, sections 14(2)^[25] and Schedule 5^[26] (with ss. 9(3)(5)(7), 13, 14(3)).

United States

State laws

Every state has a statute that requires certain types of contracts to be in writing and signed by the party to be charged. The most common requirements are for contracts that involve the sale or transfer of land, and contracts that cannot be completed within one year.^[27] When the statute of frauds applies, a typical statute requires that the writing commemorating the agreement identify the contracting parties, recite the subject matter of the contract so that it is reasonably identifiable, and include the important terms and conditions of agreement.^[28]

The statute of frauds in various states comes in two types:

1. those that follow the English Statute and provide that "no action shall be brought" on the contract or the contract "shall not be enforced"
2. Those that declare contracts "void"^[29]

Uniform Commercial Code

In addition to general statutes of frauds, under Article 2 of the Uniform Commercial Code (UCC), every state except Louisiana has adopted an additional statute of frauds that relates to the sale of goods. Pursuant to the UCC, contracts for the sale of goods where the price equals $500 or more fall under the statute of frauds, with the exceptions for professional merchants performing their normal business transactions, and for any custom-made items designed for one specific buyer.^[30]

The application of the statute of frauds to dealings between merchants has been modified by provisions of the UCC. There is a "catch-all" provision in the UCC for personal property not covered by any other specific law,^[31] stating that a contract for the sale of such property where the purchase price exceeds $500 is not enforceable unless memorialized by a signed writing. The most recent UCC revision increases the triggering point for the UCC Statute of Frauds to $5,000, but states have been slow to amend their versions of the statute to increase the trigger point.

For purposes of the UCC, 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 statute of frauds as a defense. However, a statute of frauds defense may still be available under a state's the general statute.

With respect to securities transactions, the Uniform Commercial Code has abrogated the statute of frauds.^[32] 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."

See also

• Oral contract
• Parol evidence rule
• Quia Emptores

References

External links

• Statute of Frauds definition at UCC § 2-201
• Template:UK-LEG
• Statutes of the Realm: volume 5: 1628-80 (1819), pp. 839-42.,

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