What is the Statute of Frauds?
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When dealing with a contract dispute, particularly in the case of an oral contract, one may hear the term “statute of frauds” used. This does not refer to the commission of an actual fraud, but rather, whether the contract had to be in writing or not. So what is the statute of frauds and when does it apply?
As mentioned, the statute of frauds refers to the requirement that certain kinds of contracts be “memorialized” (i.e., written down) in a signed document that clearly outlines the agreement. Traditionally, the statute of frauds requires a signed writing for marriage contracts, prenuptial agreements, contracts that cannot be completely performed within one year, contracts transferring rights to land, contracts by the executor of a will to pay a debt with his/her own money, contracts for the sale of goods in excess of $500, or surety agreements. Law students often remember these categories using the mnemonic device “MY LEGS" (Marriage, Year, Land, Executor, Goods, Surety).
The term “statute of frauds” comes, as so many American laws do, from England. An Act of the Parliament of England called An Act for Prevention of Frauds and Perjuries required certain agreements to be in writing in order to avoid the possibility of fraud and perjured testimony at trials regarding these transactions. It has passed into modern American law both through the common law and, later, through the enactment of the provisions of the Uniform Commercial Code (UCC).
A defendant in a statute of frauds case who wishes to use it as a defense must raise the defense in a timely manner, typically in the pleadings. In most jurisdictions, the actual burden of proving that a written contract exists only comes into play when a Statute of Frauds defense is raised by the defendant (though most courts will anticipate this issue and expect a written agreement in most contract dispute cases). Often, even if the original writing has been lost or stolen, if the defendant admits that it once existed he may be barred from raising the statute of frauds as a defense.
In some cases, the statute of frauds may also be unavailable if partial performance has occurred. Indeed, in most jurisdictions, good faith performance by one party will lead to liability by the other party, regardless of a written contract, under equitable “quasi-contract” theories such as quantum meruit and unjust enrichment. Similarly, an agreement may be enforced even if it does not comply with the statute of frauds if it complies with the Merchant Confirmation Rule. This rule, found in the UCC, states that if one merchant sends a writing sufficient to satisfy the statute of frauds to another merchant, and the receiving merchant knows, or should know, about the contents of the written confirmation but fails to object within 10 days, the confirmation is sufficient to satisfy the writing/signing requirements of both parties. Some jurisdictions also recognize promissory estoppel when the party raising the statute of frauds has caused the other party to detrimentally rely on the otherwise unenforceable, unwritten agreement.
It is often too late to deal with the statute of frauds after something has gone wrong. That is why it is critical to consider these issues when an agreement is being made, not later. Talk to an attorney about the requirements of any agreement falling under the MY LEGS categories noted above. If, however, you are already embroiled in a dispute in which the statute of frauds has become an issue, you will certainly need the assistance of a skilled attorney with experience in both litigation and contract / commercial law in order to make the best of what may be a difficult case.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.