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Statute of Fraud

DEFINITION

Concept that certain agreements are required to be documented in writing to be valid.

EXPLANATION

Contracts that should be in writing include:

  • Marriage
  • Settlements
  • The sale of personal property over $500
  • The payment of debt
  • One party guaranteeing another party’s debt
  • The transfer of real property
  • The sale or lease of land for more than one year
  • The administration of an estate
  • Contracts that cannot be performed within a year of their execution

History of Recording System and the Statute of Fraud

In the past, the exchange of property between parties occurred as a ceremonial custom in the presence of a credible witness. This ceremony — known as livery of seisin — also involved the exchange of earthly material as a sign of good will and “evidence” of the exchange.

However, the absence of a formal record-keeping system led to property ownership disputes, such as unverifiable title claims and uncertain property boundaries. This made the process of purchasing, selling, and/or maintaining a property arduous. For example, property owners in the past often had to physically possess their property in order to protect their claim to it. Owners could not own multiple properties without the fear that they may be repossessed by another party.

The establishment of the statute of frauds assisted this problem. Requiring the transfer of property to be documented in writing dramatically reduced uncertainty over property ownership.

In 1850, California adopted a real property recording system. This system originated from principles found in England’s common law system, including stare decisis (using precedents to determine future case law). Over the next 150 years, it evolved into a comprehensive system tasked with managing and collecting title interests.

The modern recording system allows titles to be easily discovered and ensures that the process of transferring property is protected and simple.

Case Law As It Relates to Statute of Fraud

Case Review: Arya Group, Inc. v. Cher (2000)

The case, Arya Group, Inc. v. Cher (2000) 77 Cal.4th 610., involved a dispute between a contractor and the famous musician, Cher.

A contractor (Arya Group) was hired for the construction and design of Cher’s Malibu complex. Arya Group initially had an oral agreement with Cher. It later memorialized the terms in a written contract, but Cher never signed it. However, based on Cher’s words, Arya Group assumed an implied contract and began work.

Cher initially paid installments to Arya Group. She also had Arya Group meet with Janet Bussel, an associate with whom Cher had previously completed residential projects. However, Cher ultimately terminated the contract. She claimed that because she had not signed a written contract, she was therefore not responsible for paying the remainder of Arya Group’s fees. Arya Group brought legal suit and beat Cher for contractual damages.

The Superior Court contended that, on the basis of the statute of frauds, a oral contract was not enforceable. Therefore, it ruled in favor of Cher. Arya Group appealed.

Arya Group alleged that the purpose of the arranged meetings with Bussel was for her to get as much information about the project as possible so that Cher would reap all of the efforts of Arya Group and then terminate the contract. It claimed that Cher was unjustly enriched (whereby a person unfairly benefits from another’s misfortune for which the one enriched has not paid).

The Court of Appeals agreed with Arya Group. It reasoned that although the written contract was not signed, Arya Group did not foreclose his right to enforce the oral agreement. Cher was a sophisticated businesswoman who had the help of professional legal counsel. Therefore, she was held liable for the balance.

Limitations of Statute of Frauds

There are deviations in what will be considered as being enforceable when it comes to certain contracts. A written document alone is not needed to deem a contract as enforceable as there can be a number of ways for a contract to be negotiated and ultimately agreed upon that don’t involve a single, formal document. An example could be if a private seller of a computer is negotiating the price over emails and texts with the buyer, their ultimate terms  of agreement could activate an enforceable contract.

An oral statement is one of the remaining factors that could end the contract and its terms due to the statute of frauds concerning the formation of a contract and not a contract  that is disintegrating. The statute of frauds was created as a way to avoid a situation where an individual claims they have entered into a contract that does not exist.

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