The Statute of Frauds in Business Deals

Introduction

Business deals require some forms of contracts. This essay focuses on the Statute of Frauds with reference to certain cases in the field.

The Statute of Frauds

A ‘Statute of Frauds’ (SOF) is a rule of law requiring certain kinds of contracts to be “written (not oral or “verbal”) and be signed by all parties to an agreement in order to be legally binding” (Wechsler, 2009). However, type of contracts under the Statute of Frauds may differ from country to country. Most of contracts covered under the Statute of Frauds originated from “the English law, English Statute for Prevention of Frauds and Perjuries (1677)” (Cosgigan 1913).

The rationale of the Statute of Frauds

The main aim of the Statute of Frauds is to avoid cases that result from fraudulent activities. It prevents making of claims in situations where an executory contract does not exist (Applebey, 2001). In this case, the Statute of Frauds does not account for oral or verbal contracts. This contract law assumes that verbal agreements are unclear and do not offer sufficient evidence on the terms and conditions of an agreement between parties to a contract. In this case, a party may make a false claim, which may make the other party to provide evidence against such lies. However, written contracts have signatures of the parties to a contract, which act as a firm source of evidence of a deal. Therefore, both parties have assurances that they have reached a real agreement before drawing a contract.

In addition, written agreements with signatures of the parties reduce possibilities of litigation among parties. Still, the Statute of Frauds ensures that there is a clarity concerning the terms and conditions of the deal. It provides an opportunity for parties to review the contents of the contract prior to making a decision about the deal.

Types of contracts that fall under the Statute of Frauds

Developments in business other forms of contracts have led to identification of important deals, which may be prone to fraud. One must recognise that the precise terms of contracts may differ from country to country, but there are general areas in which the Statute of Frauds applies to most cases (Oughton and Davis, 2000).

Promises made regarding marriages should fall under a Statute of Frauds. In most cases, some partners in marriage have accused their spouses of falling to fulfil a promise made before or during marriage. Unless such promises are in writing, it is impossible to enforce them under the law (Downes, 1997).

Time is also an important factor to consider when initiating a contract. Any contract that extends beyond one year must have a Statute of Frauds based on the terms of the agreement. However, parties to contract must be careful with the time factor because some contracts can end within a year or extend beyond a year based on influencing circumstances. The case of Professional Bull Riders, Inc. v. AutoZone, Inc., 113 P.3d 757 (Colo. 2005) demonstrates the concept of ‘within one year’. AutoZone (defendant) sponsored the Bull Riders (plaintiff). The plaintiff prepared a written agreement for the defendant. However, AutoZone did not sign the agreement (Professional Bull Riders, Inc. v. AutoZone, Inc., 2005).

The contract had a clause that the sponsor could withdraw from its sponsorship at any time, but the contract was for two years. AutoZone withdrew ‘the sponsorship within the year, and Bull Riders sued for a breach of an oral contract” (Professional Bull Riders, Inc. v. AutoZone, Inc., 2005). The District Court of Colorado ruled in favour of the AutoZone because the other party could not perform an oral contract within one year. Thus, the agreement was not void within Colorado. The Court noted that AutoZone could fulfil its obligation within one year. As a result, the oral contract did not fall within a year was unenforceable.

Any contract that involves “transferring, buying, or selling of a real estate or land” (Wechsler, 2009) needs a written agreement. This contract does not include leasing of land or property to another party. However, in cases where the lease of land may exceed a year, then the parties may apply the Statute of Frauds. This is applicable under the terms of the agreement, which require that contracts should be within a year or a Statute of Frauds applies. The Radke v. Brenon, 271 Minn. 35, 134 N.W.2d 887 (1965) demonstrates a contract involving a sale of land. The court noted all elements, which must be in writing in order to avoid the case falling under the Statute of Frauds.

The court based its decision on a clear statement of consideration, specifications of the parcel of land for sale, signatures of the parties, and the identity of the parties in the land sale. The court noted that all these factors in available in the letter by Brenon (defendant). Consequently, the court ruled in the favour of the plaintiff (Radke). The court also established that a change in the price of the land was not a factor for consideration (Radke v. Brenon, 1965).

Contracts that involve a promise to settle an estate debt of others by using executors’ private funds usually require written contracts. However, in case where the payment of the debt involves the use of an estate’s funds, the parties may not need a written contract.

Any goods sold and are worth $500 or more needs contracts. For instance, in the U.S., the Uniform Commercial Code provides regulations for sales of goods. Any changes to a sale contract may require a written or oral agreement based on the value of the sold goods.

Contracts that involve surety require written contracts. In this case, a party promises to settle the debt of another party. Therefore, any contract that falls under surety requires a written contract to make it enforceable by law.

Conditions that a contract must fulfil under the Statute of Frauds

Typically, a contract must meet some conditions in order to meet the standards of the Statute of Frauds (Stone, 1997). Such requirements allow a contract to be legally binding between parties.

  • Written agreement
  • Have a subject matter for clarity e.g., sale of land no. 5555/020
  • Have the necessary terms of agreement
  • Bears signatures of the involved parties for validity purposes

The use and effects of the Statute of Frauds

Any successful defence under the Statute of Frauds results in a void and cancellation of a contract. The Statute of Frauds does not protect parties who engage in illegal business transactions. Still, an agreement may not be void simply because it does not meet the minimum threshold of the Statute of Frauds requirement. In addition, courts can recognise and enforce oral contracts among parties who agree to conduct a business based on the terms of the contract.

The Statute of Frauds and its exceptions

There are circumstances under which an agreement may be enforceable under the law even if it fails to meet conditions of the Statute of Frauds (Brownsword, 2000). First, specially manufactured products for specific and special order would be an exception under the Statute of Frauds. In this situation, the good can be identifiable with specific order provided by a party even in oral terms. Therefore, the nature of good makes it obvious that a contract exists between the parties to a business deal. Second, a written merchant’s confirmation offers sufficient proof for a contract between the two dealers, and meets conditions for the Statute of Frauds.

This does not cover consumers. The invoices that merchants have between them are adequate proofs of oral agreements that the parties have business deals. The law recognises such invoices. For instance, an invoice may have details of goods and prices. Unless a dealer does not terminate such invoices within five days, they remain enforceable. Third, courts may also consider an admission in a court from a party than an agreement existed between them. Under such circumstances, an oral contract becomes “valid and enforceable” (Wechsler, 2009). Therefore, this form of an agreement does not “qualify under the Statute of Frauds, but this does not make it void or unenforceable” (Wechsler, 2009).

Fourth, a partial performance on the contract can lead to enforcement of an oral agreement. Whereas such an agreement may be invalid under the Statute of Frauds, the performance offers sufficient evidence that can save an oral agreement between parties before a court of law. Such partial performances show that parties had an oral agreement with certain terms. Finally, there is the promissory estoppel. Promissory estoppel is a legal doctrine “designed to prevent fundamental unfairness” (Wechsler, 2009).

Promissory estoppel applies in cases where the potential injury may affect the entire society. For instance, a party may not claim ignorance in this case, particularly when he or she orally induces others to incur damages and costs. This is where the concept of fundamental fairness applies. The aim is to apply fairness to an obvious wrong that a party commits to another and assist the injured party recover costs of damages incurred. Thus, oral agreements are enforceable under such circumstances. The court may consider the following:

  • An offer that exists between the parties
  • Clarity of the offer based on the agreement details
  • Parties had reasonable expectations from the deal (no jokes in this case)
  • One party had reasonable reliance on the deal e.g., in terms of payment
  • Detrimental reliance exists in the deal i.e., a party incur losses based on the oral offer extended by another party.

In the case of McIntosh v. Murphy, 52 Haw. 29, 469 P.2d 177 (Haw. 1970), Murphy (defendant) made “an oral contract to employee McIntosh (the plaintiff) for a period of one year in his auto business” (McIntosh v. Murphy, 1970). However, the parties did not “put their agreement in writing” (McIntosh v. Murphy, 1970). Later, the plaintiff sent the defendant a “telegram that he would come the following day” (McIntosh v. Murphy, 1970).

The next McIntosh started working. However, after two months in the job, Murphy fired McIntosh. As a result, McIntosh sued for “injuries suffered and claimed that the employment contract was for a year” (McIntosh v. Murphy, 1970). On the other hand, the defendant noted that the contract did not meet conditions for the Statute of Frauds and was void. The court ruled in the favour of the plaintiff and rejected a direct verdict by the defendant. The issue in this case was whether an oral promise could be excluded from the Statute of Frauds in a case where the promise induced the action of the plaintiff. In this case, the defendant knew the consequences of his promise.

The court noted that the oral promise from the employer induced the action of the promisee. Thus, the only way to avoid injustice to the promisee was to enforce the oral contract between the two parties. The court also noted that the promisee had provided partial performance to the promissor. Therefore, it was only logical to estopp the defendant from applying the Statute of Frauds. The promissory estoppels made the oral contract enforceable in a case where the contract could have gone in the Statute of Frauds (McIntosh v. Murphy, 1970).

Conclusion

Although the Statute of Frauds may not be relevant in some circumstances, it is advisable for parties to reduce their contracts to written and signed agreements. An oral contract may be valid under certain terms of an agreement, but may be difficult to prove under the Statute of Frauds due to a lack of a written agreement. Moreover, the actual terms of transaction may also be difficult to establish.

It is important to note that a Statute of Frauds may not in itself make a deal void. There are exceptions to a Statute of Frauds. The court may still find some contracts enforceable based and valid. Thus, a party can still pursue a ‘voidable’ contract under the terms of the agreement because such deals are valid.

Reference List

Applebey, G 2001, Contract law, Sweet & Maxwell, London.

Brownsword, R 2000, Contract law: themes for the twenty-first century, Butterworths, London.

Cosgigan, G 1913, The Date and Authorship of Statute of Frauds. Harvard Law Review 26, pp. 329-334.

Downes, A 1997, Textbook on contract, Blackstone, New York.

McIntosh v. Murphy, 52 Haw. 29, 469 P.2d 177 (Haw 1970).

Oughton, D & Davis, M 2000, Sourcebook On Contract Law, Routledge, London.

Professional Bull Riders, Inc. v. AutoZone, Inc., 113 P.3d 757 (Colo 2005).

Radke v. Brenon, 271 Minn. 35, 134 N.W.2d 887 (Minn 1965).

Stone, R 1997, Principles of contract law, Cavendish, Singapore.

Wechsler, M 2009, The Statute of Frauds and Contracts: Business Law, Contracts. Web.