February - Statute of Frauds

“Get It In Writing”: The Statute of Frauds

            The February program dealt generally with the importance of putting important legal agreements into writing. In addition to thus ensuring or at least assisting their enforceability, committing them to written form helps to avoid unnecessary later disputes and encourages the parties at the time of the agreements to think through their key terms. Indeed, putting agreements (and other important statements of intention) into writing is an essential part of planning one’s business affairs - - a recurrent theme of all these programs.

            As everyone knows, the Statute of Frauds requires that certain kinds of agreements be made in writing or at least confirmed in writing by a separate memorandum, and signed by the party to be charged, in order to be legally enforceable. In Indiana, any lease of real estate for a term of more than three years (one year in most other states) is subject to this requirement. So are any contracts for the sale of real estate (including brokerage commissions), guaranties, and, in general, any agreements not capable of being entirely performed within a year from the date that they were made. 

            Under Indiana’s version of the Uniform Commercial Code, most contracts for the sale of goods for the price of $500 or more or for the lease of goods for total payments of $1,000 or more (excluding options to renew or purchase) must also be in writing to be enforceable. 

            There are important exceptions to these requirements. For example, almost all contracts for services are not covered and so do not have to be in writing in order to be enforceable. Real estate leases of less than three years are also not covered, and likewise sales of securities. Fraud and “equitable estoppel,” if proven, can prevent the application of the statutory bar (except in the case of business credit agreements), as can full performance of an agreement by one party or even partial performance (in limited circumstances).

            However, to repeat, it would be extremely unwise to rely upon these exceptions unless strictly necessary. Oral agreements are inherently less definite than written agreements and often so indefinite as to be unenforceable for that reason alone.  They are never to be favored as part of proper business or estate planning. 

            Equally importantly, when a written agreement is involved, both parties to it should understand and pay close attention to its terms. Under the Parol Evidence Rule and the closely related “four corners of the document” rule, oral statements not set forth in an agreement may only be allowed as evidence to alter its terms if the agreement itself is ambiguous. Thus, parties to written agreements should never rely on the courts or various consumer protection agencies to provide relief from those agreements because they are “unfair” in some general sense though not illegal. 

            One of the basic principles of our contract-based society is that most written contracts will be enforced according to their terms, so even members of the general public should try to pay close attention to them. And, in regard to contracts that must be preformed on time, members of the public should be sure to include a “Time Is Of The Essence” and, in many cases, an adequate “Liquidated Damages” provision. 

            Again, please feel free to send any questions that you may have to my email address at thelakeshorelawyer@lakeshoreptv.com, and I’ll endeavor to answer them on a no-names basis (but not as your attorney unless subsequently agreed) on my blog, thelakeshorelawyer.blogspot.com.