Legal Definitions - frauds, statute of

The Statute of Frauds is a legal principle requiring certain types of contracts to be in writing and signed by the parties involved to be legally enforceable. Its main purpose is to prevent fraud and misunderstandings by ensuring that significant agreements have reliable written evidence, rather than relying solely on verbal promises that can be easily disputed or forgotten.

This statute typically applies to contracts that are considered particularly important or complex, where the potential for disputes over terms is high. Common categories of contracts covered by the Statute of Frauds include:

• Contracts for the sale or transfer of an interest in real estate (land, buildings).
• Contracts that, by their terms, cannot be performed within one year from the date they are made.
• Contracts where one person promises to answer for the debt or default of another (guarantee contracts).
• Contracts made in consideration of marriage (e.g., prenuptial agreements).
• Contracts for the sale of goods above a certain monetary value (often specified by the Uniform Commercial Code, or UCC).

Here are some examples illustrating the Statute of Frauds:

• Example 1: Real Estate Sale

  Imagine a homeowner verbally agrees to sell their house to a neighbor for a specific price. They shake hands and agree on a closing date. However, before any paperwork is signed, the homeowner receives a higher offer and decides to sell to someone else. Under the Statute of Frauds, the neighbor generally cannot force the homeowner to sell the house based solely on the verbal agreement. Because contracts for the sale of real estate must be in writing to be enforceable, the verbal agreement is not legally binding.

• Example 2: Long-Term Employment Contract

  A company verbally offers a new executive a four-year employment contract, outlining a specific salary, benefits, and job responsibilities. The executive accepts the offer verbally and begins working. Six months later, the company decides to terminate the executive without cause. If the executive tries to sue for breach of the four-year contract, they might face a challenge because the agreement, by its terms, could not be performed within one year. Without a written and signed contract detailing the four-year term, the verbal agreement would likely be unenforceable under the Statute of Frauds.

• Example 3: Guaranteeing a Loan

  A small business owner applies for a bank loan, but the bank requires a personal guarantee from a third party. The owner's friend verbally tells the bank, "Don't worry, if my friend can't pay, I'll cover the loan." The bank approves the loan based on this verbal assurance. If the business owner defaults on the loan, the bank generally cannot legally compel the friend to pay based solely on their verbal promise. The Statute of Frauds requires promises to answer for the debt of another to be in writing to be enforceable, protecting individuals from being held liable for verbal guarantees they may not have fully intended or understood.