STATUTE OF FRAUDS

STATUTE OF FRAUDS

Contracts That Must Be Written

The law is more concerned with substance than with form. With reference to form, it is generally immaterial
whether a contract is oral or written, or even manifested by acts or conduct. Thus all contracts may be oral

except those specially required by a statute to be in writing.

Most contracts which are required by statute to be in writing are referred to as coming under the Statute of
Frauds. The Statute of Frauds was first adopted in England in 1677 and became part of the English common
law. Subsequently, it was introduced into this country and has been codified in California. The purpose of the
California Statute of Frauds is to prevent perjury, forgery and dishonest conduct on the part of unscrupulous
people in proving the existence and terms of certain important types of contracts.

The statute provides that certain contracts are invalid, unless the contract or some note or memorandum of the
contract is in writing and subscribed (i.e., signed) by the party to be charged or by his or her agent. Under
Section 1624 of California’s Civil Code, contracts that are required to be in writing are:

1. An agreement that by its terms is not to be performed within a year from the making thereof;

2. A special promise to answer for the debt, default, or miscarriage of another, except in the cases provided
for in Civil Code Section 2794;

3. An agreement for the leasing for a longer period than one year or for the sale of real property, or of an
interest therein. Such agreement, if made by an agent of the party sought to be charged, is invalid, unless
the authority of the agent is in writing and subscribed by the party sought to be charged;

4. An agreement authorizing or employing an agent, broker, or any other person, to purchase or sell real
estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser
or seller of real estate or a lessee or lessor of real estate where such lease is for a longer period than one
year, for compensation or a commission;

5. An agreement which by its terms is not to be performed during the lifetime of the promisor;

6. An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust
upon the property purchased, unless assumption of the indebtedness by the purchaser is specifically
provided for in the conveyance of such property.

7. A contract, promise, undertaking, or commitment to loan money or to grant or extend credit, in an amount
greater than one hundred thousand dollars ($100,000), not primarily for personal, family, or household
purposes, made by a person engaged in the business of lending or arranging for the lending of money or
extending credit. For purposes of this section, a contract, promise, undertaking, or commitment to loan
money secured solely by residential property consisting of one to four dwelling units shall be deemed to be
for personal, family, or household purposes.

Relates to remedy. It should be noted that the Statute of Frauds relates to the remedy only and not to the
substantial validity of the contract. Thus, the contract which fails to comply with the statute is not void but
merely unenforceable. This, of course, is an important distinction. It is effective for all purposes until, in an
attempt to enforce it by action, its invalidity is urged. Moreover, the statute is a defense only and cannot be the
basis for affirmative action. It has been held that significant partial performance can excuse the lack of a
writing.

When a contract has been fully performed, the Statute of Frauds does not apply and may not be invoked for any
reason.

The note or memorandum required by the statute may be in any form since its purpose is simply evidence of the
contract. It may consist of one paper, or even a series of letters. It must however contain all the material terms
of the contract so that a court can determine to what the parties agreed. It must, bear the signature of the party to
be charged or held to the agreement. The other party bringing the action can always add his or her signature
later.

Real estate applications of the statute. It is readily apparent that several very important sections of the Statute
of Frauds apply to persons dealing in real estate. Practically all contracts for the sale of any interest in real
property must be in writing. This includes assignment of a percentage of the proceeds of oil produced from
designated lands. It embraces any and all instruments creating liens, such as trust deeds, mortgages, leases for
periods of longer than one year, rights to rights of way through property and any and all encumbrances incurred
or suffered by the owners, or by operation of law. “By operation of law” means judgments, attachments, or

restrictions placed on the property by legislative bodies, zoning ordinances, and other such means.

The statute does not apply to a lease for a year or less.

Commissions. The Statute of Frauds provides that for a broker to collect a commission when earned, the
contract providing for a commission must be in writing and signed by the party to be charged (e.g., a property
owner who employs the broker to produce a buyer; or a buyer who employs the broker to find a suitable
property).

The Statute of Frauds is applicable to situations where the lease of real estate for a period exceeding one year is
involved. A broker who is commissioned to seek a lessee of property for a term exceeding one year cannot rely
upon an oral agreement to collect a commission. If the broker is successful in negotiating the lease, the contract
with the lessor must be in writing or there must be reliable written evidence thereof to sustain a claim of
commission.

It has been held that the moral obligation to pay for services performed under oral authorization is sufficient
consideration to support a promise of compensation contained in escrow instructions later drawn up. It also has
been held that these provisions have no application to an oral agreement between brokers to share a commission
to be earned as a result of the sale or exchange of real estate.

The Statute of Frauds invalidates any unwritten agreement by a purchaser of real property to pay an
indebtedness secured by a mortgage or deed of trust upon that property, unless assumption of the indebtedness
is specifically provided for in the property conveyance.