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Statute of Frauds in Business Litigation– Some Basics

On Behalf of | Dec 21, 2014 | Business Litigation

Buffington Law Firm’s business attorneys have taken many breach of contract lawsuits to court in which one of the key issues was the failure of the parties to document their deal or transaction in a written agreement. In last week’s Blog article we discussed some of the pitfalls of failing to create a written contract that spells out the rights and duties of the parties to an agreement. We mentioned that one of the pitfalls of not having a written contract is the Statute of Frauds. Essentially, the Statute of Frauds may render certain types of agreements unenforceable if there is no written agreement. The Statute of Frauds is codified at Cal. Civil Code Section 1624.

Incidentally, the very name of the Statute, “Statute of Frauds” is somewhat misleading. The Statute does not really deal with fraud (which is actually dealt with at Cal. Civil Code Sections 1709-1710 and elsewhere). The purpose of the Statute of Frauds is to prevent a person from maintaining an action in court to enforce an agreement that in fact never existed, by rendering certain types of unwritten agreements unenforceable in court.

Oral contracts are often perfectly enforceable. Their real pitfall, as discussed in last week’s Blog article, is that parties will often disagree in court as to what the agreement actually was. In the experience of Buffington Law Firm’s business litigation team, often the lack of a writing really indicates that the parties themselves were never sure, or never actually agreed, what the agreement was. The Statute of Frauds essentially constitutes a group of different types of contracts that are only enforceable if evidenced by a writing.

In practice, asserting the Statute of Frauds, or defending a lawsuit on the basis of the Statute of Frauds, can be factually and legally complex, requiring a full-blown trial to sort out whether the Statute constitutes a defense against a Plaintiff who is trying to sue on an alleged contract. Certain types of contracts are unenforceable unless they are in writing and signed by “the party to be charged” i.e. the defendant. Other types of contracts only require that writings exist that can be pieced together to show what the transaction, deal, or agreement was. You can imagine that this type of controversy keeps business litigation attorneys busy. When litigating this type of controversy the plaintiff must show, at a minimum, writings that indicate a) who the parties are; b) the subject matter of the contract, i.e. that a given writing actually pertains to the alleged contract; c) the essential terms and conditions of the contract.

The types of contracts to which the Statute of Frauds applies are disparate and thus are a trap for the unwary. While a detailed discussion of each type and how the Statute applies to it is beyond the scope of this short Blog article, the most common types of contract involving a Statute of Frauds defense that have arisen in Buffington Law Firm’s litigation practice include:

· Contracts making one party responsible for the debt of another, e.g. debt guarantees;

· Contracts whereby performance of the contract will not occur within one year of the contract date;

· Contracts to sell an interest in real property or a leasehold interest for a period in excess of one year;

·  Mortgage obligations;

There are others; see generally Cal. Civil Code Section 1624

There are many exceptions and “ins-and-outs” of the Statute of Frauds, which simply underscore the theme of this Blog series: it is always better to have a written contract. If you have a breach of contract controversy, we urge you to contact Buffington Law Firm for a free legal consultation to discuss your rights.