Statute of Frauds

What Is the Statute of Frauds?

The statute of frauds (SOF) is a legal concept that requires certain types of contracts to be executed in writing. The statute covers contracts for the sale of land, agreements involving goods worth over $500, and contracts lasting one year or more.

The statute of frauds was adopted in the U.S. primarily as a common law concept — that is, as unwritten law. However, it has since been formalized by statutes in certain jurisdictions, such as in most states. In a breach of contract case where the statute of frauds applies, the defendant may raise it as a defense. Indeed, they often must do so affirmatively for the defense to be valid. In such a case, the burden of proof is on the plaintiff. The plaintiff must establish that a valid contract was indeed in existence.

Understanding the Statute of Frauds

As applied in the United States, the concept generally requires the following types of contracts to be written to be legally binding.

History of the Statute of Frauds

The statute of frauds has its roots in the Act for Prevention of Frauds and Perjuryes, which was passed by the English Parliament in 1677. The legislation, which stipulated a written contract be used for transactions where a large amount of money was at stake, aimed to prevent some of the misunderstandings and fraudulent activity that can occur when relying on oral contracts.

Indeed, the English legal system of the time suffered from a lack of written evidence. The courts were clogged with lawsuits, and cases were often settled by using professional witnesses who were paid for their testimony. Perjury and corruption became the norm.

As the founders shaped the U.S. government, they drew on the 1677 Act to help shape how business transactions, and disputes over them, should be handled in the new world. Like their 17th-century British forebears, the founders decided that written and signed contracts minimized ambiguity by providing a clear record of the agreement. That reduced the opportunity for later litigation and simplified the settlement of such suits when they occurred.

Special Considerations

In some situations, even some agreements that would ordinarily require a written contract under the statute of frauds may be enforceable without them.

Several exceptions relate to situations in which oral agreements result in work beginning or financial outlays. Take a case in which steps are taken to create a series of specially manufactured items, such as monogrammed shirts. If the customer who commissioned them over the phone subsequently decides to cancel the order, they will likely still be responsible for at least partial payment.

The same will usually apply if improvements or modifications to a customer's possessions, based on oral agreements, are begun and then canceled.

Take a situation in which a house painter, after a homeowner so requests, purchases materials and begins to redecorate a house. If the homeowner then reverses course and claims no firm painting agreement was in place, the contractor would likely prevail. That's because of what's known as promissory estoppel. It is defined as a principle of "fundamental fairness" intended to remedy a substantial injustice. There are also cases of partial performance. The fact that one party has already performed its responsibilities under the agreement may serve to confirm that a contract existed.

Requirements of the Statute of Frauds

Not every written document is necessarily protected under the statute of frauds. The following attributes of the agreement are generally required for the contract to be considered valid and binding:

A formal document isn't always mandatory. Several correspondences between the parties that clearly state the contract in material terms can sometimes suffice. Suppose the private seller of a car negotiates the price or other conditions of the sale over email or through written letters to the buyer. Then, the eventual agreement recorded in those exchanges could satisfy the requirements for an enforceable contract.

Emails and invoices can sometimes satisfy statute-of-fraud requirements for an enforceable contract.

Furthermore, sending an invoice for work and the stated agreement that was orally agreed can represent a binding contract. That is especially true when the customer does not cancel the agreement within five days. A written confirmation between merchants often suffices as proof of an agreement under the statute of frauds.

Real World Examples of the Statute of Frauds

Provisions for the statute of frauds are enforced by states, based on federal codes. The Universal Commercial Code (UCC) in the U.S. provides a good example. It is the standardized set of business laws that regulate financial contracts. Most states have fully adopted the UCC.

In cases where articles of the UCC that affect the statute of frauds change, it may take time for those alterations to be reflected in every state's laws. Some states, including Texas and Louisiana, also have some long-standing variations from the norm in their statute of frauds and related regulations.

Before relying on the statute of frauds in any given situation, it is wise to research the statute-of-frauds provisions in your state or territory and seek legal advice as needed.