Research Paper on "Statute of Frauds"

Research Paper 7 pages (2186 words) Sources: 3

[EXCERPT] . . . .

Statutes of Fraud

Fraud and Statute of Frauds

Fraud is generally defined as an act of intentional deception for the purpose of gain and at the expense of another person.

The Statute of Frauds or SOF is a law, which requires certain contracts to be written and signed by all the parties involved in order to become binding.

The purpose of the Statute is to prevent injury inflicted by fraud and fraudulent conduct. Oral or verbal agreements do not supply clear or sufficient proof of the terms of an agreement. This often leads to misunderstanding or false claims. A written agreement, in other hand, contains the signatures of the involved parties and the terms agreed upon. This reduces the likelihood of court action, makes the terms and intents clear to all, and allows them to review all the details of agreement before agreeing to finalize it.

Rationale

Justifications for the Statute are its cautionary function and its evidentiary function.

Cautionary function -- creating a written agreement indicates the seriousness of the involvement of the parties. It gives them time to consider the whole matter. It leads them to become more careful about it. But questions have been raised about the cautionary effect as occurring at all. Even if it does, the Statute applies to some categories only and not the others. If caution is important, the application should be extended to the other categories as well.

Evidentiary function -- the Statute is designed to prevent fraud. Without a written agreement or understanding, the parties can make false claims about it or its terms in court.

Types of Contracts Covered

The Statute governs agreements involving marriage, one-year-based matters, land, executors, goods and suretyships.

Specific considerations and conditions surrounding the contract of marriage should be made in writing and incorporated into the contract before they can become legally enforceable. Agreements to complete a task within a year are governed by the Statute. If they exceed one year, they are not covered by the Statute. Buying, selling and transfer of land should all be done in writing. Transfer, however, excludes leasing. Leasing is merely a right or privilege to use land. Thus, a verbal agreement to lease for about 3 months will not need to be executed in writing. A land lease, however, requires a written agreement because of a built-in section, which requires a written contract. The Statute also covers executors who promise to pay the debts of an estate from his private funds must do so in writing. A promise of payment from the estate's funds may be oral and is not subject to the Statute. Selling goods worth $500 or more must be done in writing. If the amount is changed to something lower, it can just be oral. The Statute also covers suretyship wherein a person, called a surety, promises to remit another person's debt. This promise should be made in writing and signed by the surety.

Exceptions

These are specially manufactured goods, written merchants confirmation, admission in court, partial performance, and promissory estoppel.

Specially manufactured goods are customized goods made as a special order between the manufacturer and the buyer. These goods are manufactured according to detailed specifications. Written confirmation between merchants, rather than consumers, provides sufficient proof of an exemption to the Statute. Merchants typically invoice each other after closing an oral agreement. The law recognizes this practice. An invoice identifies the good, the quantity and the price orally agreed upon and puts these specifications in writing is recognized by law unless canceled by either party within 5 days. An admission in court of a valid oral agreement does not render the agreement void. The partial performance of an agreement to a significant degree prevents an oral agreement from getting invalidated. That partial performance is strong proof of an intended but merely oral agreement to enforce according to agreed terms. And a promissory estoppel is used to prevent some injustice or unfairness to society when a party to an oral agreement agrees to perform an act to carry out the agreement and incurs time and cost to perform. There are elements that must be present in order to prove promissory estoppel. These are a clear and definite offer made; reasonable expectation to rely on the offer; reasonable reliance on the party receiving the offer and a detrimental reliance on the offer.

Formal Requirements

In order to become binding and enforceable, an agreement must be in written form, clearly identify the subject, contain the essential terms, and include the signature of both parties.

The sales of goods require only the party to be charged to sign. An example may be given. A agrees to sell B. 10 cases of imported beer at $400 and writes these details down on a notepad. B signs it. A few weeks later, B questions the validity of the contract. So a sues B. And presents the notepad as the contract in court. John agrees it is his handwriting and that the terms are valid. However, his signature is not required on the contract. But because B. is contesting the validity of the notepad contract, the Statute now requires B's signature in order to make the agreement enforceable by a. A gets bound t the terms of the agreement unless he has other explanation to show that the contract is not legitimate and accurate.

Application and Effect

If the use of the Statute as defense succeeds against a contested agreement, the contract becomes voidable or cancelable at the option of the party using the Statute. *

However, an agreement does not automatically become void if it does not comply with the Statute. An agreement to purchase heroin or cocaine, for example, is not valid because the sale of such drugs is illegal. In the case of an oral agreement to purchase, say $600 worth of beer, the two parties can agree that a valid contract was entered into and it can be enforced.

A Statute does not automatically void a contract. * it renders a contract voidable by either party when that party does not wish to continue with the agreement. A void contract cannot be enforced, while a voidable contract stays valid unless and until one of the parties decided to void it. There are times when a party to a contract that would be invalid under the Statute will still be enforceable on the strength of partial performance or promissory estoppel. When there is partial performance, the other party who has accepted it is usually prevented from using the Statute to avoid complying with obligations incurred from the contract. Promissory estoppel exists when significant unfairness will follow if a party is released from the contract. The party seeking that release knew or should have known about the unfairness at the time they came to an original agreement. As an example, if the party who seeks to be released from the contract knew that the other party would incur much expense in securing materials not transferable to other work, the court may decide the contract enforceable despite the Statute. When both or all parties to a contract agree to being bound by it, the contract remains enforceable despite the Statute.

Sufficiency of the Writing

A written contract with the signatures of both parties normally satisfies the requirements of the Statute of Frauds.* When this is not sufficient, a writing signed by the party against whom the validity is sought, a confirmation -- in the form of an invoice, sales slip, check or fax or a combination -- or documents, which contain the terms of the agreement. The signatures can be affixed anywhere on the written agreement. Initials are sufficient in place of signatures. The writings need only to contain the important terms of the agreement, such as the names of the parties, the subject matter of the agreement, the quantity, and considerations. The price is essential depending on the type of the contract.*

Restitution and Reliance Principles

Restitution Principle - the UCC explicitly provides that if some goods have already been delivered, the person can collect for them even without a written contract.

Reliance Principle -- if the ordered goods are customized for the buyer and the seller has begun manufacturing it, the promise become enforceable. Customized goods are not likely to be saleable to any other buyer. When the seller begins manufacturing the goods, he is impliedly relying on the contract.

The Parole Evidence Rule

This is a substantive rule of contract law under which a court will not admit evidence of prior negotiations, oral or written agreements or contemporaneous oral agreements if this contradicts or is different from the terms of the written contract in question.

The basis for the admission of parol evidence is integration. Integration means embodying the final expression of the agreement between the parties.

Exceptions

Under the Uniform Commercial Code,

these are:

Evidence of subsequent alteration or modification of the agreement;

Evidence of an error, fraud or misrepresentation in creating the written contract;

Evidence that may… READ MORE

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