The Statute of Frauds is a legal doctrine requiring that certain types of contracts must be documented in writing and signed by the party against whom enforcement of the contract is being sought.
Types of Contracts Subject to the Statute of Frauds
The main categories of contracts generally subject to the statute of frauds include:
- Contracts involving the transfer of interests in land. This not only includes the sale of real property but also leases. Furthermore, even if such a contract is in writing, omitting an essential term, such as price, will also be deemed to violate the statute of frauds.
- Contracts that cannot be performed within one year, as is often the case with multi-year employment contracts.
- Contracts for the sale of goods over a certain amount under the Uniform Commercial Code (UCC). The UCC has been adopted by all U.S. states other than Louisiana, and applies to contracts between merchants and other merchants and between merchants and consumers for the sale of goods valued at $500 or more, subject to certain state-specific variations.
- Agreements for the assumption or guarantee of another's debt.
- Contracts involving marriage, such as prenups.
Exceptions to the Statute of Frauds
There are several exceptions to the statute of frauds, which allow for the enforcement of oral contracts under specific circumstances that courts will apply to uphold the principles of fairness and equity in contractual dealings. These include:
- Promissory Estoppel: If one party has relied on the promise to their significant detriment, courts may enforce an oral agreement to prevent one of the parties from arguing that the agreement was unenforceable due to the statute of frauds. For example, if an employee quits their current job in reliance on an oral promise of employment, the court may enforce the employment agreement even though it was not in writing.
- Custom-Made Goods: The UCC provides an exception for custom-made goods that cannot be sold to others in the ordinary course of the seller's business. That is, if the seller has made a substantial beginning of the manufacture or made commitments to procure the goods, the contract may be enforceable even if it's not in writing. For example, if a furniture maker has already begun constructing a custom-made piece of furniture for a buyer, the court may enforce the contract even though it was not in writing.
- Partial Performance: In some cases, oral contracts may be enforceable even if they fall under the statute of frauds if one party has rendered partial performance under the agreement.
Example: A caterer orally contracts with a company to provide lunch for their employees for a 2-year term at $1,000 per month (since this agreement could not be performed within a year, it falls under the statute of frauds). After providing catering services for three months, the company terminates the contract. Since the caterer had partially performed under the agreement, they may be entitled to damages or other remedies.