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Statute of Frauds in Real Estate Litigation

Posted by attorney Jingming Cai

Statute of Frauds is a type of state law, modeled after an old 1677 English law, that requires certain types of contracts to be in writing. The law's purpose is to prevent the possibility of a nonexistent contract between two parties being "proved" by perjury or fraud. This objective is accomplished by prescribing that particular contracts not be enforced unless a written note or memorandum of agreement exists that is signed by the persons or their authorized representatives to be bound by the contract's terms. The statute of frauds is invoked by a defendant in a breach of contract action. If the defendant can establish that the contract he has failed to perform is legally unenforceable because it has not satisfied the requirement of the statute, then the defendant cannot be liable for its breach. For example, if a plaintiff claims that a defendant agreed to pay her a commission for selling his building. If the defendant can demonstrate that no commission contract was signed, the statute of frauds will prevent the plaintiff from recovering the commission. A strict application of the statute of frauds can produce an unjust result. A party, who in good faith believes a contract exists and therefore spends time and money to perform the contract, would be unable to force the other party to perform because the agreement was not in writing. Therefore, courts often employ the term part performance to determine whether a plaintiff's conduct based on her belief that a contract exists justifies enforcement of the contract even though it has failed to comply with the statute of frauds. Part performance refers to acts performed by the plaintiff in reliance on the performance of the duties imposed on the defendant by the terms of the contract. The plaintiff's actions must be substantial in order to demonstrate that he actually has relied on the terms of the contract. Where services have been performed based upon a contract that is unenforceable because of the statute of frauds, the value of those services can nevertheless be recovered on the basis of quantum meruit, or the reasonable value of those services. If one party has performed in reliance on an oral contract and will be irreparably harmed if the contract is not enforced, some courts apply the theory of equitable estoppel to prevent the statute of frauds from being employed as a defense. Equitable estoppel holds that if a person has so altered his position that justice demands the enforcement of the contract, the court will enforce the contract even though it fails to comply with the statute.

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