Virtually every lawyer learns about the Statute of Frauds, backwards and forwards, in the first year of law school. In the business community at large, however, the statute of frauds is poorly understood. The very term "statute of frauds" is itself something of a misnomer. The statute of frauds does not deal with fraud at all, at least not directly, and is not even one discrete statute, but rather a number of different statutes, variously codified. The following article offers an overview of a few of the Pennsylvania statutes which we commonly refer to as the statute of frauds.
The concept of a statute of frauds is borrowed from English common law. In fact, Pennsylvania’s primary statute of frauds dates back to 1772, when Pennsylvania was still a British colony. This statute, codified at 33 P.S. § 1, provides in essence that all conveyances of an interest in land, including leases for periods in excess of three years, must be in the form of a signed writing in order to be enforceable in a court of law. In short, a purported oral conveyance of real estate is of no legal effect. The rule extends not just to conveyances of full fee title, but also to agreements for the sale of real estate, easements and brokerage or listing agreements.
The rationale for the statute of frauds is that requiring a signed writing will prevent or at least radically limit attempts to enforce unfounded and fraudulent claims against the real estate of another. The statute reflects a recognition that the higher the stakes in a transaction, the greater the incentive to fabricate or distort an agreement, and, therefore, the greater the need for requiring a signed writing. Thus, the statute of frauds drastically reduces the opportunity for fraud, perjury and similar mischief in real estate transactions.
The statute of frauds governing real estate leases has been further codified in Pennsylvania’s Landlord-Tenant Act at 68 P.S. § 250.202. That section provides that a purported oral lease for a period greater than three years has no greater force than a tenancy at will, terminable at any time by either party unless the tenancy has already continued for more than one year, with both landlord and tenant recognizing its rightful existence by claiming and admitting liability for rent, in which case the tenancy is construed as a year-to-year lease.
Other legislation has extended the statute of frauds to contracts not involving real estate. The Pennsylvania Uniform Commercial Code (UCC) at 13 P.S. § 2201(a) provides that a contract for the sale of goods for $500.00 or more is not legally binding without a writing sufficient to indicate that a contract has been made, signed by the party against whom enforcement is sought. While the general rule is that both parties to a sales contract for $500.00 or more must sign a contract, the UCC also makes some concessions to the realities of our fast-paced business world. Section 2201(b) provides that "between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know of its contents, it satisfies the requirements of subsection (a) against such party unless written notice of objection to its contents is given within ten days after it is received." In lay terms, if both parties are merchants, as opposed to consumers, then even if the parties do not both sign a contract to memorialize their agreement for the sale of goods, if one party later sends a purchase order confirmation sufficient to bind the sender to the deal, the recipient of the purchase order will be bound also unless the recipient raises a timely objection to the terms of the purchase order confirmation. Thus, the UCC treats knowing acquiescence as the equivalent of signed agreement.
The UCC also establishes other exceptions to the operation of the statute of frauds. Section 2201(c)(1) provides that if goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of business, then the buyer will be bound to proceed with the purchase even if the buyer did not sign an agreement if the circumstances reasonably indicate that the goods are for the buyer, and the seller has either made a substantial beginning of their manufacture or has made commitments for their procurement. The rationale for this exception is that if no seller would go to such lengths on a special order unless there actually had been an orally agreed contract, thereby minimizing the risk of fraud.
Another exception to the statutes of frauds governing both real estate and the sale of goods is based upon admission. The UCC at Section 2201(c)(2) provides that a contract that does not otherwise satisfy the signed writing requirement is enforceable "if the party against whom enforcement is sought admits in his pleadings, in his testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted." Under the UCC, the admission is irrelevant unless made in a legal pleading, testimony or otherwise in court. Under the real estate statute of frauds, likewise, if the title holder admits in either his pleadings or his testimony that he did in fact enter into a contract, the purpose of the statute of limitations is served, and the court will enforce an oral agreement to sell the real estate.
There is a similar exception based upon the concept of ratification. Under this exception, even if the original contract was oral and therefore unenforceable, if the party against whom enforcement is sought later acknowledges the existence of the contract by signed writing, the acknowledgment can constitute a ratification of the oral agreement and provide a legal basis for enforcement. This exception raises the question of what would happen if, for instance, the seller under an oral contract for the sale of real estate sought to trick the buyer into confirming the deal by sending a purchase confirmation containing an inflated price term. Imagine, for instance, a seller trying to bind a buyer to an oral deal by writing, "This will confirm our agreement for you to buy my property at 123 Main Street for $200,000.00 on or before December 31, 2005." What if the buyer were to write back with "What are you trying to pull? Our agreement was for $180,000.00."? Does the response bind the buyer to a deal at $180,000.00? And if it does, is the tactic ethical?
Partial performance of an oral contract can also give rise to an exception to the statute of frauds. That is, if payment for a sale has been made by the buyer and accepted by the seller, such partial performance provides sufficient confirmation of an agreement of sale so as to take the transaction out of the statute of frauds and bind the seller to the deal. Likewise, if the buyer has received and accepted goods under an oral agreement of sale, the acceptance of the goods will normally be a sufficient basis to bind the buyer to the deal even if it were otherwise unenforceable due to the operation of the statute of frauds. As with the other exceptions to the operation of the statute of frauds, the partial performance is based upon the existence of solid evidence of a contract over and above the word of the party seeking to enforce it.
The real estate and UCC statutes of frauds are perhaps the most commonly cited examples of statutes of frauds, but there are others as well. The Pennsylvania statute at 33 P.S. § 3 provides that no action may be brought to hold an executor or administrator personally liable for the debt of an estate, or to hold anyone personally responsible for the debt of another (assuming the person does not otherwise have a legal responsibility for the other’s debt) unless the person has agreed in a signed writing to be liable for the other’s debt. Pennsylvania law also provides that declarations of trust are not binding unless established by means of a signed writing.
There are also numerous statutes which, though not strictly statutes of frauds, contain various writing requirements for reasons akin to the purposes of the statutes of frauds. This is true, for example, of many consumer protection laws which require that certain notices and disclosures be conveyed conspicuously in writing and in often in bold or large print. See, for instance, the Pennsylvania Motor Vehicle Sales Financing Law at 69 P.S. § 614, and the Goods and Services Installment Sales Act at 69 P.S. § 1303.
With any contract, it is good advice to commit all details of the deal to a writing signed by all parties. It is better advice still to consult with your lawyer to ensure that the contract is not merely written, but written in compliance with the many and varied statutes on the books in Pennsylvania.
If you require legal representation for a real estate or business matter or have questions about the Statute of Frauds, the attorneys of Wolf, Baldwin & Associates, P.C. have the experience to represent you through court or arbitration. Click here now to contact us and to schedule an appointment. We will be happy to advise you about your rights under Pennsylvania law.