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What you need to know about California’s Statute of Frauds

What Is California Statute Of Frauds
Get to grips with the California Statute of Frauds; what written documentation it mandates, what it applies to, and some use cases and examples to get a full understanding of it.

In the intricate web of legal matters, few concepts carry as much weight as the California Statute of Frauds.

This legal doctrine has, over the centuries, continued to shape the landscape of contracts and agreements, primarily by mandating that certain agreements be put in writing to be legally binding.

In this article, I will explore the specifics of California’s Statute of Frauds, dissect its provisions, and present examples so that you can get a greater understanding of it and ensure your contracts stand the test of law in the Golden State.

Join us on this journey through the nuances of written agreements, exceptions, and the critical importance of proper documentation in the world of California contract law.

What is the Statute of Frauds?

The Statute of Frauds was adopted in England in 1677 to prevent perjury by requiring certain types of contracts to be in writing to be enforceable. In nearly 400 years, the Statute of Frauds has changed very little.

Every state in the United States, except for Louisiana, has codified the Statute of Frauds. Although the requirements vary from state to state, most jurisdictions require four types of agreements to be in writing — contracts to assume the obligation of another, contracts that cannot be performed within one year, contracts for the sale of land, and contracts for the sale of goods.

Section 1624 of the California Code of Civil Procedure

Before we delve into some examples of the California Statute of Frauds, let’s take a look in more detail at section 1624 of the California Code of Civil Procedure.

Section 1624 lists various types of contracts that are invalid unless they are in writing and subscribed to by the party to be charged or their agent.

These include:

  1. Agreements not to be performed within a year: This requirement aims to provide clarity and prevent disputes regarding the terms and conditions of the contract, especially in situations where performance extends over a significant period.
  2. Special promises to answer for the debt, default, or miscarriage of another: This provision protects parties from being held liable for the obligations of others without clear documentation, ensuring transparency and accountability in financial transactions.
  3. Agreements for the leasing or sale of real property: Given the significant value and complexity involved in real estate transactions, written documentation is essential to define the rights and obligations of the parties involved and prevent misunderstandings.
  4. Agreements authorizing or employing an agent, broker, or other person for real estate transactions: This requirement safeguards against unauthorized actions and ensures that parties are bound only by agreements they have explicitly entered into or authorized.
  5. Agreements not to be performed during the promisor’s lifetime: Such agreements involve long-term commitments and require written documentation to prevent ambiguity and ensure enforceability, especially in cases where performance extends beyond the promisor’s lifetime.
  6. Agreements by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust: This provision aims to clarify the terms of the transaction and protect both parties’ interests by ensuring that any assumptions or obligations are clearly documented.
  7. Contracts or commitments to loan money or extend credit exceeding $100,000, not primarily for personal, family, or household purposes: This requirement adds an extra layer of protection in significant financial transactions, ensuring that parties are fully aware of their obligations and rights.

Despite the general requirement for written contracts, there are exceptions for certain types of financial agreements termed as “qualified financial contracts.”

These contracts, involving transactions such as foreign exchange, commodity trading, and currency swaps, may be enforceable without a written note under specific circumstances. This exception acknowledges the nature of financial markets and the need for flexibility in executing transactions efficiently.

It’s important to note that the section doesn’t apply to leases governed by Division 10 of the Commercial Code.

This exclusion recognizes that lease agreements may be subject to different legal frameworks and considerations compared to other types of contracts, thus warranting separate treatment.

Lastly, the excerpt emphasizes the importance of written confirmation, particularly in the context of electronic communications.

While electronic messages may facilitate contract negotiations and discussions, they may not suffice as conclusive evidence of a contractual agreement, especially in significant transactions like real property conveyance.

Therefore, written confirmation meeting specific requirements is necessary to ensure the enforceability and validity of such contracts, safeguarding against misunderstandings or disputes.

Writings required but not codified in Civil Code section 1624

Contracts in contemplation of marriage (pre-nuptial agreements) are contracts that change the community property rights, and obligations of married couples also need to be in writing to be enforceable; however, they do not operate like the general Statute of Frauds.

Family Code section 852(a) provides that a “transmutation,” or an interspousal transaction changing the character of a community or separate property, is not valid unless made in writing by an express declaration approved by the adversely affected spouse.

Pre-nuptial contracts, unlike the Statute of Frauds, are not subject to an implied exception for part performance.

The sale of goods for the price of $500 or more is governed by California Commercial Code section 2201. Unlike the Statute of Frauds, which only requires a note or memorandum, under the Commercial Code, the memorandum is sufficient if it indicates that a contract for sale has been made.

The following exceptions for the writing requirement are addressed in section 2201(3):

  1. If the goods are specially manufactured for the buyer and not suitable for sale to others in the ordinary course of the seller’s business
  2. The defendant admits that a contract for sale was made.
  3.  With respect to goods for which payment was made and accepted or which have been received and

What are the requirements of a writing?

Section 1624(a) requires “some note or memorandum” in “writing and subscribed by the party to be charged or by the party’s agent.”

To be sufficient as a memorandum within the Statute of Frauds, the required writing must state with reasonable certainty each party to the contract, the subject matter to which the contract relates, and the terms and conditions of all promises constituting the contract and by whom and to whom the promises are made.

An agreement under the Statute of Frauds should state with specificity:

  • The names of the parties.
  • The subject matter of the contract.
  • If the contract involves property, sufficiently identify the property (address, APN, property description).
  • Clearly state the terms of the contract.
  • Signatures of the parties. The statute reads “subscribed by the party to be charged” means the person charged with court performance of the obligation. In simple terms, the contract must be signed by the party who is resisting enforcement (defendant). The plaintiff can enforce a contract even if the plaintiff or his/her agent has not signed the agreement.

The writing does not have to be a formal contract, California courts have held that letters, telegrams, receipts, and, like informal writings, suffice the writing requirement of the Statute of Frauds if they contain the essential elements of the agreement and more than one writing may satisfy this requirement as long as they are properly connected with each other.

An e-mail can also satisfy the California Statute of Frauds, assuming that there is a binding oral agreement on the date of the e-mail and the e-mail contains all material terms because California law has found that typed names appearing on the end of a telegram is sufficient under the statute and there is no meaningful difference between a typewritten signature on a telegram and an e-mail.

An oral agreement within the Statute of Frauds is voidable by either party, and each party assumes the risk of the other party withdrawing.

The Statute of Frauds relates only to the remedy and not the validity of the oral agreement. Once an oral agreement has been fully performed, it cannot be challenged.

Caution

Letters of intent

A letter of intent, also known as a memorandum of understanding, is frequently used during negotiations during real estate transactions before the agreement is finalized.

Since letters of intent may create a binding agreement, it is best to include a disclaimer at the top or bottom indicating this letter does not create a binding agreement and is for negotiation purposes only.

Exceptions to the writing requirement

Executed Contracts

An executed contract is a contract in which all parties have fully fulfilled their obligations. A fully executed oral contract is not affected by the Statute of Frauds and cannot be challenged because it is not in writing.

Promissory estoppel

Promissory estoppel is a legal doctrine that states that if someone reasonably relies on a promise and acts (or fails to act) in a way that causes them financial harm because of that promise, the promise can be enforced.

Estoppel will depend on the facts in every case, where no other remedy is available, and there must be unconscionable injury and unjust enrichment by the defendant.

Part performance

Partial performance — where one party completes performance under an oral contract — may make the oral contract enforceable, despite the Statute of Frauds. A party must demonstrate his or her performance was solely attributable to the oral contract. Payment of money or rendering ordinary services do not relieve the party from the requirements of the Statute of Frauds.

Examples of California Statute of Frauds

Needs a writing

Mary’s daughter is 13 years old, and for her sixteenth birthday party, Mary hires Taylor Swift to perform. Under the terms of the contract, this agreement cannot be completed within one year and must be in writing to be enforceable.

Doesn’t need a writing

Eva enters into an oral contract to work for her employer for the rest of her life is a contract that does not need to be in writing as there is a possibility that Eva will die within the year.

Needs a writing

Henry is behind on paying his student loans, and the loan provider keeps calling. To stop these harassing telephone calls, Henry’s mother promises to pay the balance in full. To be enforceable by the loan company, Mom’s promise needs to be in writing.

Doesn’t need a writing

Henry wants to buy a new car. The car dealer sells Henry a car based solely on his mother’s promise to pay, and her credit does not need to be in writing as the promise is original.

Needs a writing

Eva enters into a two-year lease agreement. The Statute of Frauds requires this lease to be in writing.

Doesn’t need a writing

Eva enters into a month-to-month rental agreement.

Doesn’t need a writing

John loans his sister $150,000. This agreement does not need to be in writing if John is not in the business of loaning money.

Conclusion

California’s Statute of Frauds recognizes seven types of contracts that must be in writing to be enforceable.

The writing can be formal or informal but must state (a) each party to the contract (b) the land, goods or other subject matter to which the contract relates, and (c) the terms and conditions of all promises constituting the contract and by whom and to whom promises are made.

The writing must express these essential terms with sufficient certainty to constitute an enforceable contract.

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