A Little Statute of Frauds Knowledge

Over the years, I've had to pull out the old Statute of Frauds whenever potential clients tell me stories of the "agreements" they have to buy, sell or lease property, goods or services; to earn a fee for putting together a deal for another person or for closing a sale; and so on.  And the stories turn into questions: How do I collect what's owed me? The other side won't perform its promise, how do I get what I am entitled to?

I say "potential clients" because more often than not, after I answer their questions, they go looking for another attorney to tell them what they want to hear.

The reason is often a principle learned the first semester of law school although often forgotten by practitioners: the Statute of Frauds. In Texas, the Statute of Frauds appears as Chapter 26 of the Business and Commerce Code.  The second part of that chapter — Section 26.02 — is one that many consumers are aware of: it's the statute which requires loan agreements to be in writing in order to be enforceable.  Individuals generally like that statute, because it is designed to protect  borrowers against lenders.

But the real Statute of Frauds appears in Section 26.01 — "Promise or Agreement Must be in Writing."  (There are other statutes of frauds, too, of less general applicability, like the one in Article Two of the Uniform Commercial Code, which says that an agreement to sell goods for $500 or more isn't enforceable absent a written agreement signed by the person against whom enforcement is sought.  So if you stumble upon an antique desk at a garage sale that is "a steal" at $600 and get the seller to agree by word of mouth to hold it half an hour until you return with the money, don't threaten legal action upon discovering 30 minutes later that he sold the desk for $650 to another guy while you were gone.)

In a nutshell, what Section 26.01 says is that some kinds of promises and agreements are NOT enforceable unless contained in a WRITING that is SIGNED by the promisor. What types of promises and agreements? Among others: Real estate leases for a period of more than one year; contracts to sell real estate; promises to pay commissions for selling oil, gas or mineral interests; any  other agreement "not to be performed within one year from the date of making the agreement"; or a promise to cover another person's debt.

That means that the "contract" you have by way of oral agreement or handshake to buy the house your spouse loves, or to sell your house to that couple that immediately fell in love with it, cannot be enforced — either by Seller or the Buyer.

That means that when you got that fabulous oral lease of a house for your family for the next two years, or shook hands with the landlord on a five year lease of that commercial space, it cannot be enforced — either by the Landlord or the Tenant.

That means that when you got that fabulous handshake agreement for home services, or employment, for the next three years, it cannot be enforced — either by the obligee/promisee (you) or the obligor/promisor (the other guy).

And that means that when the majority stockholder and president of the corporation told you — in front of witnesses, no less — that he absolutely personally guaranteed to pay you the money you were loaning to his company should it default — sorry, you have a problem.

Clever litigators, sympathetic courts, and many antifraud statutes have punched exceptions into the Statute of Frauds for especially egregious or seriously inequitable factual situations or circumstances, especially where the parties were not acting at arm's length but there existed some relationship of trust between them or there was a substantial disparity of bargaining power between the parties, and it is sometimes possible to staple together three or four emails or handwritten notes to create the semblance of a single authenticated writing, BUT the initial hurdle still remains — IF YOU DIDN'T GET IT IN WRITING SIGNED BY THE OTHER SIDE, YOU MAY HAVE A STATUTE OF FRAUDS PROBLEM.

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