Have you ever heard the term “Statute of Frauds,” but have absolutely no idea what it means? If that’s the case, then you’re in the right place. We’re here to teach you all about the Statute of Frauds and how it may apply to your future contracts. 

What is the Statute of Frauds?

First, we’ll start with the basics. The Statute of Frauds is a barrier that some contracts must meet to become legally binding. The Statute of Frauds requires certain contracts to be in writing. The goal is to prevent false assertions about a contract that was never really created. 

What types of contracts does the Statute of Frauds apply to?

Under the Statute of Frauds, the following situations require a written contract to be enforceable:

• Real estate sales

• Real estate lease agreements lasting longer than one year

• Property transfers after the owner’s death

• Contracts which, by their terms, cannot possibly be performed within one year

• Agreements to pay someone else’s debt

• Contracts that last longer than the life of a party

• A contract for the sale of goods over $500

• A contract made in consideration of marriage (such as a prenuptial agreement)

  Not all contracts involving real property are automatically in the Statute of Frauds world. Only contracts transferring an interest in the property fall under this umbrella.

Are there any Colorado-specific Statute of Frauds laws?

In addition to the contracts listed above, Colorado's Statute of Frauds also prohibits a debtor or creditor from filing or maintaining a claim relating to a credit agreement that is in excess of $25,000, unless the claim is in writing and is signed by both parties. A “credit agreement” is any contract or promise to extend or receive credit or to make any other type of financial accommodation. Additionally, contracts to lease goods with a value of over $1,000 are included in Colorado’s Statute of Frauds.

Why do these particular contracts need to be in writing?

Practical reasoning drives the requirement for written agreements over oral ones. The Statute of Frauds makes the parties more cautious about their agreements. If you write down your agreement, there is a lower chance of confusion and ambiguity in the future, and writing it down helps provide clarity to the overall purpose of the contract.

Another reason for the written requirement is to prevent dishonesty in the case of a later lawsuit. If a contract is purely oral, the details of the agreement become subject to a ‘he said, she said’ situation. The details are not written down, so lying about the substance of the contract becomes easier when it is oral.

If the original contract is modified, does the modification also need to follow the Statute of Frauds?

If a contract that previously met the requirements of the Statute of Frauds requires a modification, the modification does not automatically have to abide by the Statute of Frauds as well.  The modification’s effect on the contract must be analyzed. If the new contract falls into one of the previously mentioned categories, then the Statute of Frauds will apply to the modification. If not, there is no Statute of Frauds requirement.   

Are there any exceptions to the Statute of Frauds?

There are a few exceptions that allow for an oral agreement to be upheld despite Statute of Frauds requirements. These exceptions include partial performance and promissory estoppel. Furthermore, if an oral amendment is made to a written contract, the oral amendment can be upheld so long as a material part of the contract is not disturbed.

For the partial performance exception to apply, performance must be substantial in nature, not minimal work. The theory behind this is that a party to an agreement should not be able to use the Statute of Frauds as an instrument or shield for fraud against the party who performs the contract, whether or not the contract is oral. For example, many sales contracts require the buyer to apply for a loan shortly after the contract is formed. If the first purchaser, relying on the verbal acceptance of the seller, applied for the required loan, this may be sufficient part performance to allow the buyer to enforce the terms of the contract.

A second exception to the Statute of Frauds requirement is promissory estoppel, which is the doctrine where a party to a contract may recover based on a promise made when the party’s reliance on that promise was reasonable, and the party attempting to recover detrimentally relied on the promise.

For example, if a seller and a buyer orally agree to sell a home, and after hearing of the seller’s verbal acceptance of the contract, the buyer enters into a different contract to sell its home, the seller may be estopped from denying the existence of its contract with the first buyer. Promissory estoppel protects the buyer who detrimentally and reasonably relied on the seller’s oral promise. Because of the exceptions to the statute of frauds, the seller cannot assume that it has no legal obligations to the original purchaser.

Regardless of what your contractual issues may be, GLO has extensive experience working on contracts and has handled numerous Statute of Frauds issues. If you do find yourself questioning whether your contract falls into the Statute of Frauds world, fill out an interest form today to see if GLO can help you.

GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.