USA

CHAPTER 5 - THE STATUTE OF FRAUDS

110 Classes of Contracts Covered

1. The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:

  • a contract of an executor or administrator to answer for a duty of his decedent (the executor administrator provision);
  • a contract to answer for the duty of another (the suretyship provision);
  • a contract made upon consideration of marriage (the marriage provision);
  • a contract for the sale of an interest in land (the land contract provision);
  • a contract that is not to be performed within one year from the making thereof (the one-year provision).

The following classes of contracts, which were traditionally subject to the Statute of Frauds, are now governed by Statute of Frauds provisions of the Uniform Commercial Code:

  • a contract for the sale of goods for the price of $ 500 or more (Uniform Commercial Code § 2-201);
  • a contract for the sale of securities (Uniform Commercial Code § 8-319);
  • a contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $ 5,000 in amount or value of remedy (Uniform Commercial Code § 1-206).

3. In addition the Uniform Commercial Code requires a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or fixtures not in the possession of the secured party.

4. Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or interest.

5. In many states other classes of contracts are subject to a requirement of a writing.

Topic 1 - The Executor-Administrator Provision

111 Contract of Executor or Administrator

A contract of an executor or administrator to answer personally for a duty of his decedent is within the Statute of Frauds if a similar contract to answer for the duty of a living person would be within the Statute as a contract to answer for the duty of another.

Topic 2 - The Suretyship Provision

112 Requirement of Suretyship

A contract is not within the Statute of Frauds as a contract to answer for the duty of another unless the promisee is an obligee of the other's duty, the promisor is a surety for the other, and the promisee knows or has reason to know of the suretyship relation.

113 Promises of the Same Performance for the Same Consideration

Where promises of the same performance are made by two persons for a consideration which inures to the benefit of only one of them, the promise of the other is within the Statute of Frauds as a contract to answer for the duty of another, whether or not the promise is in terms conditional on default by the one to whose benefit the consideration inures, unless

  • the other is not a surety for the one to whose benefit the consideration inures; or
  • the promises are in terms joint and do not create several duties or joint and several duties; or
  • the promisee neither knows nor has reason to know that the consideration does not inure to the benefit of both promisors.

114 Independent Duty of Promisor

A contract to perform or otherwise to satisfy all or part of a duty of a third person to the promisee is not within the Statute of Frauds as a contract to answer for the duty of another if, by the terms of the promise when it is made, performance thereof can involve no more than

  • the application of funds or property held by the promisor for the purpose, or
  • performance of any other duty owing, irrespective of his promise, by the promisor to the promisee, or
  • performance of a duty which is either owing, irrespective of his promise, by the promisor to the third person, or which the promisee reasonably believes to be so owing.

115 Novation

A contract that is itself accepted in satisfaction of a previously existing duty of a third person to the promisee is not within the Statute of Frauds as a contract to answer for the duty of another.

116 Main Purpose; Advantage to Surety

A contract that all or part of a duty of a third person to the promisee shall be satisfied is not within the Statute of Frauds as a promise to answer for the duty of another if the consideration for the promise is in fact or apparently desired by the promisor mainly for his own economic advantage, rather than in order to benefit the third person. If, however, the consideration is merely a premium for insurance, the contract is within the Statute.

117 Promise to Sign a Written Contract of Suretyship

A promise to sign a written contract as a surety for the performance of a duty owed to the promisee or to sign a negotiable instrument for the accommodation of a person other than the promisee is within the Statute of Frauds.

118 Promise to Indemnify a Surety

A promise to indemnify against liability or loss made to induce the promisee to become a surety is not within the Statute of Frauds as a contract to answer for the duty of another.

119 Assumption of Duty by Another

A contract not within the Statute of Frauds as a contract to answer for the duty of another when made is not brought within it by a subsequent promise of another person to assume performance of the duty as principal obligor.

120 Obligations on Negotiable Instruments

1. An obligation on a negotiable instrument or a guaranty written on the instrument is not within the Statute of Frauds.

2. A promise to pay a negotiable instrument, made by a party to it who has been or may be discharged by the holder's failure or delay in making presentment or giving notice of dishonor or in making protest, is not within the Statute of Frauds.

121 Contract of Assignor or Factor

1. A contract by the assignor of a right that the obligor of the assigned right will perform his duty is not within the Statute of Frauds as a contract to answer for the duty of another.

2. A contract by an agent with his principal that a purchaser of the principal's goods through the agent will pay their price to the principal is not within the Statute of Frauds as a contract to answer for the duty of another.

122 Contract to Buy a Right From the Obligee

A contract to purchase a right which the promisee has or may acquire against a third person is not within the Statute of Frauds as a contract to answer for the duty of another.

123 Contract to Discharge the Promisee's Duty

A contract to discharge a duty owed by the promisee to a third person is not within the Statute of Frauds as a contract to answer for the duty of another.

Topic 3 - The Marriage Provision

124 Contract Made Upon Consideration of Marriage

A promise for which all or part of the consideration is either marriage or a promise to marry is within the Statute of Frauds, except in the case of an agreement which consists only of mutual promises of two persons to marry each other.

Topic 4 - The Land Contract Provision

125 Contract to Transfer, Buy, or Pay for an Interest in Land

1. A promise to transfer to any person any interest in land is within the Statute of Frauds.

2. A promise to buy any interest in land is within the Statute of Frauds, irrespective of the person to whom the transfer is to be made.

3. When a transfer of an interest in land has been made, a promise to pay the price, if originally within the Statute of Frauds, ceases to be within it unless the promised price is itself in whole or in part an interest in land.

4. Statutes in most states except from the land contract and one-year provisions of the Statute of Frauds short-term leases and contracts to lease, usually for a term not longer than one year.

126 Contract to Procure Transfer or to Act as Agent

1. A contract to procure the transfer of an interest in land by a person other than the promisor is within the Statute of Frauds.

2. A contract to act as agent for another in endeavoring to procure the transfer of any interest in land by someone other than the promisor is not within the Statute of Frauds as a contract for the sale of an interest in land.

127 Interest in Land

An interest in land within the meaning of the Statute is any right, privilege, power or immunity, or combination thereof, which is an interest in land under the law of property and is not "goods" within the Uniform Commercial Code.

128 Boundary and Partition Agreements

1. A contract between owners of adjoining tracts of land fixing a dividing boundary is within the Statute of Frauds but if the location of the boundary was honestly disputed the contract becomes enforceable notwithstanding the Statute when the agreed boundary has been marked or has been recognized in the subsequent use of the tracts.

2. A contract by joint tenants or tenants in common to partition land into separate tracts for each tenant is within the Statute of Frauds but becomes enforceable notwithstanding the Statute as to each tract when possession of it is taken in severalty in accordance with the agreement.

129 Action in Reliance; Specific Performance

A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.

Topic 5 - The One-Year Provision

130 Contract Not to Be Performed Within a Year

1. Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance.

2. When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties.

Topic 6 - Satisfaction of the Statute by a Memorandum

131 General Requisites of a Memorandum

Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which

  • reasonably identifies the subject matter of the contract,
  • is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
  • states with reasonable certainty the essential terms of the unperformed promises in the contract.

132 Several Writings

The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.

133 Memorandum Not Made as Such

Except in the case of a writing evidencing a contract upon consideration of marriage, the Statute may be satisfied by a signed writing not made as a memorandum of a contract.

134 Signature

The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.

135 Who Must Sign

Where a memorandum of a contract within the Statute is signed by fewer than all parties to the contract and the Statute is not otherwise satisfied, the contract is enforceable against the signers but not against the others.

136 Time of Memorandum A memorandum sufficient to satisfy the Statute may be made or signed at any time before or after the formation of the contract.

137 Loss or Destruction of a Memorandum

The loss or destruction of a memorandum does not deprive it of effect under the Statute.

Topic 7 - Consequences of Non-Compliance

138 Unenforceability

Where a contract within the Statute of Frauds is not enforceable against the party to be charged by an action against him, it is not enforceable by a set-off or counterclaim in an action brought by him, or as a defense to a claim by him.

139 Enforcement by Virtue of Action in Reliance

1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

2. In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

  • the availability and adequacy of other remedies, particularly cancellation and restitution;
  • the definite and substantial character of the action or forbearance in relation to the remedy sought;
  • the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;
  • the reasonableness of the action or forbearance;
  • the extent to which the action or forbearance was foreseeable by the promisor.

    • 140 Defense of Failure to Perform

    The Statute of Frauds does not invalidate defenses based on the plaintiff's failure to perform a condition of his claim or defenses based on his present or prospective breach of the contract he seeks to enforce.

    141 Action for Value of Performance Under Unenforceable Contract

    1. In an action for the value of performance under a contract, except as stated in Subsection (2), the Statute of Frauds does not invalidate any defense which would be available if the contract were enforceable against both parties.

    2. Where a party to a contract which is unenforceable against him refuses either to perform the contract or to sign a sufficient memorandum, the other party is justified in suspending any performance for which he has not already received the agreed return, and such a suspension is not a defense in an action for the value of performance rendered before the suspension.

    142 Tort Liability for Acts Under Unenforceable Contract

    Where because of the existence of a contract conduct would not be tortious, unenforceability of the contract under the Statute of Frauds does not make the conduct tortious if it occurs without notice of repudiation of the contract.

    143 Unenforceable Contract as Evidence

    The Statute of Frauds does not make an unenforceable contract inadmissible in evidence for any purpose other than its enforcement in violation of the Statute.

    144 Effect of Unenforceable Contract as to Third Parties

    Only a party to a contract or a transferee or successor of a party to the contract can assert that the contract is unenforceable under the Statute of Frauds.

    145 Effect of Full Performance

    Where the promises in a contract have been fully performed by all parties, the Statute of Frauds does not affect the legal relations of the parties.

    146 Rights of Competing Transferees of Property

    1. Where a contract to transfer property or a transfer was unenforceable against the transferor under the Statute of Frauds but subsequently becomes enforceable, the contract or transfer has whatever priority it would have had aside from the Statute of Frauds over an intervening contract by the transferor to transfer the same property to a third person.

    2. If the third person obtains title to the property by an enforceable transaction before the prior contract becomes enforceable, the prior contract is unenforceable against him and does not affect his title.

    147 Contract Containing Multiple Promises

    1. Where performance of the promises in a contract which subject it to the Statute of Frauds is exclusively beneficial to one party, that party by agreeing to forego the performance may render the remainder of the contract enforceable, but this rule does not apply to a contract to transfer property on the promisor's death.

    2. Where the promises in a contract which subject it to the Statute have become enforceable or where the duty to perform them has been discharged by performance or otherwise, the Statute does not prevent enforcement of the remaining promises.

    3. Except as stated in this Section, where some of the unperformed promises in a contract are unenforceable against a party under the Statute of Frauds, all the promises in the contract are unenforceable against him.

    148 Rescission by Oral Agreement

    Notwithstanding the Statute of Frauds, all unperformed duties under an enforceable contract may be discharged by an oral agreement of rescission. The Statute may, however, apply to a contract to rescind a transfer of property.

    149 Oral Modification

    1. For the purpose of determining whether the Statute of Frauds applies to a contract modifying but not rescinding a prior contract, the second contract is treated as containing the originally agreed terms as modified. The Statute may, however, apply independently of the original terms to a contract to modify a transfer of property.

    2. Where the second contract is unenforceable by virtue of the Statute of Frauds and there has been no material change of position in reliance on it, the prior contract is not modified.

    150 Reliance on Oral Modification

    Where the parties to an enforceable contract subsequently agree that all or part of a duty need not be performed or of a condition need not occur, the Statute of Frauds does not prevent enforcement of the subsequent agreement if reinstatement of the original terms would be unjust in view of a material change of position in reliance on the subsequent agreement.