What is the "Statute of Frauds" (or why certain contracts must be in writing....)
In perusing recent appeals court opinions, an unpublished case initially caught my eye because it came out of my rather small hometown of Cheboygan. Then it got more interesting as it involved a dispute between best-selling author Brad Thor and Barrett Moore, a former military member who provided source information used in some of Mr. Thor's novels.
The case had some "nosy neighbor" appeal, but as an unpublished case it cannot be cited for authority and doesn't break any new legal ground. So from a legal perspective, it's not very interesting.
BUT it involved the "statute of frauds", a contract requirement that every first year law student learns about, but most non-lawyers do not. So what is the statute of frauds?
Generally, contracts can be created by oral agreement - a written contract is not needed. As you can imagine, in a dispute this leads to difficulty in actually proving that a contract exists. So, by law (statute) certain types of agreements must be in writing in order to avoid arguments as to whether a contract ever existed. Michigan has had a "Statute of Frauds" since 1846, the year it became a state, and the name and concept comes from an English law from the 1600s. It's an old law.
In Michigan, contracts that must be in writing to be enforced include: any contracts for real estate; any contract that will take more than a year by its terms to complete; a promise to guaranty the debt of another person; and an agreement to pay a commission on sale of an interest in real estate.
In the case referenced at the beginning of this post, Mr. Moore claimed he was owed a portion of the royalties from Mr. Thor's book sales. Mr. Thor argued that there was no contract to pay Mr. Moore for his assistance with the source material for Mr. Thor's books, and, even if there were, the statute of frauds applied and any agreement between the parties in this case was not in writing. With respect to the latter claim, the argument was that the statute of frauds applied because it was impossible for an agreement to pay a percentage of royalties on book sales to be performed in under a year.
Ultimately, the court decided that there was no contract created. Contracts require one party to make an offer and the other to accept that offer, and the evidence provided did not show that there was offer and acceptance, so there was no contract. The court never had to address whether the statute of frauds applied. While it didn't matter for the resolution of this case, it did provide me with the opportunity to explain the statute of frauds.
Bottom line: If you are a real estate broker; you are purchasing, selling or leasing real estate; your agreement cannot possibly be performed in under a year; or you are providing or asking for a third-party guaranty, your agreement needs to be in writing!