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Statute of Frauds Explained

14. When is a contract required to be in writing?

Some valid contracts are required to be in writing to be enforceable by a court of law. The requirement that a contract be in writing is generally dependent upon the subject matter of the agreement. A statute requiring that a contract be in writing is known as a “statute of frauds”. These statutes are designed to prevent fraud in the formation of contracts. Most statutes do not require that the entire contract be in a formal writing; rather, there must be sufficient writing (in any form) to demonstrate the core aspects of the agreement.

The following types of contract are generally required to be in writing in all jurisdictions:

•    Sale of an Interest in Land – Contracts concerning the transfer of an interest in land must be in writing to be enforceable. An “interest in land” includes contracts for mortgages, mining rights, easements, etc.

⁃    Example: I agree to sell you an easement to cross my land. Our contract must be in writing to be enforceable.

⁃    Note: A construction agreement is not a transfer of an interest in land.

•    Collateral Promise to Pay Another’s Debt – Debt surety or guarantee agreements are required to be in writing to be enforcement. These instruments document when one person promises to repay the debt of another. This includes situations where business owners guarantee the debts of their business.

⁃    Example: You approach your rich uncle and ask that he loan you money to buy a car. I am your friend and I promise to repay the loan if you are unable to do so. If you default, your uncle may not be able to recover against me because our agreement is not in writing. That is, your uncle and I do not have an enforceable contract.

•    Cannot Be Performed within One Year – A contract must be in writing to be enforceable if the duties under the contract cannot possibly be performed within one year after its making. The ability to carry out the contract must be impossible to a certainty.

⁃    Example: You and I enter into an oral contract for services that lasts for twenty months. This is not enforceable, as any service contract or a lease of longer than one year are generally not enforceable.

•    Sale of Goods of $500 or More – Sales of goods fall under the provisions of the UCC. The UCC requires that any contract for the sale of goods for $500 or more must be in writing to be enforceable. Modifications to any such agreement must also be in writing.

⁃    Example: I verbally agree to sell you a piece of equipment for $750. If I back out of our agreement, you may not be able to enforce our agreement through the courts because the agreement is not in writing.

States may establish other contracts that are required to be in writing to be enforced in that jurisdiction. For example, most states require insurance policies to be written.

•    Discussion: Why do you think that certain contracts are required to be in writing to be enforceable while others are not? Can you think of any other types of contract that you believe should be in writing to be enforceable? What is your reasoning?

•    Practice Question: Todd enters into a verbal agreement with Ashley to provide lawn serves at her rental property for the next two years. After performing his obligations for one month, he realizes that it is a very difficult property to service and he drastically underbid the job. What are his options?

 

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