Contracts/Statute of frauds

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The statute of frauds refers to the requirement that certain kinds of contracts be made in writing and signed.

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 transfer of an interest in land.
• Contracts by the executor of a will to pay a debt of the estate with their own money.
• Contracts for the sale of goods above a certain value.
• 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).

It is important to note that in the United States, each State; in Canada, each province; and in Australia each State has its own variation on the statute of frauds, which may differ significantly from the traditional list.

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. ^[1] Many common law jurisdictions have such a statute (i.e., statutory law) or provision in a statute, while a number of civil law jurisdictions have similar requirements in their civil codes.

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 affected by a showing of part performance, actually there are 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 contract out of the Statute of Frauds. Each performance constitutes a contract that fall outside the Statute of Frauds and was enforceable to the extent it is executed. But 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. In the other hand, the court of case Schwedes v. Romain stated that partial performance and grounds for estoppel can make the contract effective. If the buyer takes possession by actually occupying the property, most courts will enforce the contract. Also, the Statute of Frauds will be suspended if the buyer has made permanent improvements to the property or rendered partial or full payment. This is the situation that 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.

Uniform Commercial Code

In the United States, 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) fall under the statute of frauds under the Uniform Commercial Code (article 2, section 201) [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.

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 at least in part by every state (Louisiana has enacted all of the UCC except for Article 2, as it prefers to maintain its civil law tradition governing the sale of goods). 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 receiver 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.

A curious title

The statute of frauds has an unusual name, as laws go. Indeed, there are very few laws with so long a history, that are used in so many jurisdictions, and which are generally referred to by a simple appellation (as opposed to a standardized formal citation). The name of this law is intriguing on least two points:

• The title comes from the so-called "bad act" that the law proposes to prevent - the perpetration of fraud. This is not the case with most laws. For example, most jurisdictions have laws proscribing theft. However, none of these laws are not called the "statute of theft." In fact, such laws against theft generally follow the standard practice of simply not having an informal, descriptive title.
• The title is something of a misnomer. Fraud is a traditionally recognized concept in the law. However fraud, which is typically a criminal offense, it is not the actual focus of the aspect of contract law discussed here. As explained above, the statute creates a defense under which a defendant may avoid the enforcement of a putative contract. The statute essentially says that, in certain cases, a mere claim by a plaintiff that a contract existed is, even if true, insufficient to make said contract enforcible. A writing is needed to prove the contract. Therefore, the statute of frauds is most akin to a rule of evidence, which is concerned with contractual formalities (here the term "formality" is used with its precise meaning as a legal term of art). A title such a as "the statute of writings" or "the statute of contract recording" would be more in keeping with the common model.

These alternative titles would not be as pithy, however. The statute of frauds holds a unique place in the minds of many who have read law. It is the paradigmatic example of law, with its general and widely applicable rule which is appended by a number of precise exceptions. The statute's name is concise; easy to use and remember. Therefore the statute readily comes to mind when one contemplates or discusses the law in general. At the same time, the negative content of the title gives the law something of a rebellious, or even a humorous, air. This certainly distinguishes the statute of frauds in the typically regimented and dry world of law.

See also

• Parol evidence rule

References

External links

• UCC § 2-201: Statute of Frauds definition
• Template:UK-SLD