Statute of Frauds

What is the Statute of Frauds?

The statute of frauds is a foundational principle of common law that requires – for them to be enforceable – some types of contracts to be written rather than merely oral agreements. It is a longstanding and well-established legal principle, originating in 17^th century English law.

The original legislative act passed by the English Parliament in 1677 – titled An Act for Prevention of Frauds and Perjuries – may still be effective law in some Canadian provinces. In England and the United States, while the statute of frauds has been a guiding legal principle in common law for centuries, many of its elements have since been codified through specific legislation in most jurisdictions.

The statute of frauds exists primarily to serve two main purposes – evidentiary and cautionary. Requiring written contracts provides evidence in the case where a future dispute arises. Requiring parties to create written contractual agreements also, hopefully, induces the parties to only enter into such an agreement after due consideration and to avoid seriously obligating themselves without such appropriate consideration.

Oral contracts are usually just as enforceable as written contracts, but the statute of frauds requires that certain types of contracts must be put into writing and signed by the appropriate parties.

Types of Contracts Governed

The statute of frauds governs six specific types of contracts. Contracts that fall outside the statute need not be in writing to be enforceable. However, if only an oral contract exists where the statute requires a written contract, that oral contract will be considered legally voidable. The following are the six types of contracts that the statute of frauds requires to be in writing:

1. Contracts whose obligations cannot be completed within one year’s time from the date of the contract. There is, however, an exception to this rule – contracts whose duration is indefinite are not subject to the statute of frauds.
2. Contracts for the sale or other transfer of any interest in land – this may apply to anything from the granting of an easement to the outright purchase of a property.
3. Contracts or promises where the consideration for the contract is marriage. This includes things such as prenuptial agreements or the giving of an engagement ring.
4. Any contract for the sale of goods whose price or value is equal to or greater than $500.
5. Contracts of suretyship – these are contracts where one party agrees to act as a guarantor on behalf of another party concerning a debt or other obligation.
6. Contracts or promises by the executor of a will or an estate to pay a debt owed by the estate out of the executor’s own money if the estate does not contain sufficient funds to cover the obligation.

Where the statute of frauds necessitates a written contract, it does not typically require the contract to be a formal document. Any type of written agreement that is reasonably clear and signed by the appropriate parties will usually suffice, as long as it meets the following conditions:

• The written document must contain the essential terms of the contract, such as the price to be paid for goods received.
• The parties to the contract must be clearly identified in the contract.
• It must also be signed – preferably by both parties to the contract but, at minimum, by the party against whom the enforcement of the contract is being sought.

Exceptions to the Statute of Frauds

There are several legal exceptions to the statute of frauds, where only an oral agreement is found to exist, even though the statute would ordinarily require a written agreement to be enforceable.

One exception is where the party seeking to enforce a contract can show that they have acted in reliance on an oral agreement and that at least partial performance of the contractual obligations has been completed. In such instances, the courts will usually rule that the oral agreement is enforceable, at least to the extent that the contract has been completed. 

For example, if one party orally agrees to manufacture 1,000 t-shirts for another party for a specified price, and has manufactured and delivered 500 of the shirts, then a court will order the other party to pay for the 500 shirts already received. However, since the oral agreement violates the statute of frauds, the court may rule that the balance of the contract is unenforceable.

Another exception to the written requirement of the statute is in the area of real estate and known as an “easement by implication.” Suppose, for example, that Property Owner B can only access his property by driving over part of the driveway that is on Property Owner A’s land.

If Property Owner B can show that it is the only reasonable way to access his property and that there has been pre-existing, ongoing usage of Owner A’s driveway for access for some time, then a court will hold that an easement by implication exists and that no written contract for the easement is necessary.

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CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

• Definitive Purchase Agreement
• Negotiated Sale
• Statute of Limitations
• Void Contract
• See all valuation resources