Statute of frauds: Overview, definition and example
What is the statute of frauds?
The statute of frauds is a legal principle that requires certain types of contracts to be in writing in order to be enforceable. This rule is designed to prevent fraud and misunderstandings in important agreements. Typically, contracts related to real estate transactions, long-term agreements (lasting more than a year), and agreements involving large sums of money must be in writing.
Why is the statute of frauds important?
The statute of frauds is important because it ensures that there is clear, documented evidence of key contracts, reducing the risk of fraud or misinterpretation. By requiring written agreements for certain types of contracts, it helps parties avoid disputes over the terms and existence of an agreement. It also ensures that the terms of significant agreements are carefully considered and agreed upon.
Understanding the statute of frauds through an example
Imagine a business enters into a verbal agreement with a supplier to deliver materials over the next five years. Since the contract is for more than a year, it falls under the statute of frauds, meaning it must be written down to be enforceable. If the agreement is only verbal and a dispute arises, the court may not enforce the contract because it doesn't meet the written requirement.
Another example could involve a real estate transaction where a buyer and seller agree on the sale of property but don’t put the agreement in writing. The statute of frauds requires such agreements to be written to ensure both parties are protected in case of disagreements or disputes later on.
An example of a statute of frauds clause
Here’s how a statute of frauds clause might look in a contract:
"This Agreement shall be valid and enforceable only if executed in writing by both parties and shall be subject to the requirements of the statute of frauds as applicable under [jurisdiction]."
Conclusion
The statute of frauds is a safeguard in contract law, requiring certain contracts to be in writing to be legally binding. This ensures clarity and reduces the risk of disputes or fraudulent claims. Businesses need to be aware of which types of contracts must be in writing to avoid issues down the line. By adhering to these rules, parties can ensure that their agreements are enforceable and properly documented.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.