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Statute of Frauds
There are few provisions of state law affecting real estate as misunderstood as the Statute of Frauds. The statute is just that: a statute. The statute is commonly thought to "require" certain contracts, including real estate sale agreements and listings, to be in writing. That is, unfortunately, far too simple and misleading an interpretation of the statute.
Certainly, real estate contracts should be in writing. REALTORS? have long demanded written agreements in all of their activities on behalf of clients through Article 9 of the Code of Ethics. That is just good business and diligent representation. The Statute of Frauds is not about good business. Instead, it is an arcane rule of evidence that can affect the outcome of disputes over contracts. With that basic understanding, we can turn to an examination of the statute itself and its impact on the real estate industry.
return to top Statutory Provision Involved
ORS 41.580 Statute of Frauds Certain types of agreements are void unless the agreement, or some note or memorandum thereof, expressing the consideration, is in writing and subscribed by the party to be charged. return to top Explanation of the Statute
The operative language of the Statute of Frauds in Oregon reads: "In the following cases the agreement is void unless it, or some note or memorandum thereof, expressing the consideration, is in writing and subscribed by the party to be charged, or by the lawfully authorized agent of the party; evidence, therefore, of the agreement shall not be received other than the writing, or secondary evidence of its contents in the cases prescribed by law." Three of the eight types of contracts named in the statute involve real estate.
The three types of real estate contracts affected by the Statute of Frauds are: (1) An agreement leasing property for longer than one year, or for the sale of real property, or of any interest therein; (2) an agreement concerning real property made by an agent of the party sought to be charged unless the authority of the agent is in writing; and (3) an agreement authorizing or employing an agent or broker to sell or purchase real estate for a compensation or commission. In other words, leases longer than a year, sale agreements, powers of attorney, and listings all fall under the Statute of Frauds.
return to top Understanding the Statute of Frauds
It is important to notice first that the Statute of Frauds says absolutely nothing about the formation of contracts. The statute doesn't address the enforceability of a contract directly. Instead, it establishes a rule of evidence for use in Oregon courts. The common understanding that the Statute of Frauds makes certain contracts that are not in writing "illegal" is simply wrong.
What the Statute of Frauds says in reality is that certain evidence cannot be admitted in court to prove the existence of particular kinds of agreements. Without the required evidence, the agreement is considered void. "Void" here means of no legal force or effect. So the Statute of Frauds says certain agreements will not be enforced (not that they don't exist) unless the proper evidence is introduced in court. As you can see, that has nothing whatever to do with the contract itself.
Not only does the Statute of Frauds have nothing to do with the contract itself, it requires more than just that the "contract" be "in writing." Indeed, the Statute doesn't even mention "contracts." Instead, it speaks in terms of an "agreement" or some "note" or "memorandum" of an agreement. This agreement or note or memorandum must "express" the consideration for the agreement and be "subscribed by the party to be bound." "Subscribed" means signed at the end of a document.
A more accurate restatement of the Statute of Frauds, for real estate purposes, might be that an agreement for the sale of real property, lease for a year or more or a listing, or some note or memorandum regarding the sale, lease or listing, must be in writing, express the consideration and the person against whom you want to enforce the agreement must have signed at the end of the document. This restatement is important because it draws out a number of unintuitive aspects of the Statute.
First, the Statute of Frauds is asymmetrical. That is the case because the only signature necessary is the signature of the person against whom the agreement is being enforced. For instance, a seller who signed a sale agreement accepting an offer a buyer did not sign could not use the Statute of Frauds to defend against a suit by the buyer, but the seller could not enforce the contract against the buyer. This asymmetry makes possible the other important unintuitive aspect of the Statute of Frauds: you don't really need a written contract at all.
As mentioned above, the Statute of Frauds talks about an "agreement or some note or memorandum thereof." Suppose I drop my mother a note that says "I agreed to sell my house to Bill Smith for $250,000" and I sign the letter. Can Bill Smith use the letter to my mother as evidence of an agreement to sell my house? Yes, he can! Can I use the letter against Bill if he backs out of the deal? No, I cannot because he didn't sign anything. How about using an addendum signed by both parties that references a sale agreement neither signed? Sure, either party could use it to satisfy the Statute of Frauds but that doesn't mean there was actually a contract. Whether there was actually a contract in the first place is never a Statute of Frauds issue.
As you can see, the Statute of Frauds is not as straight-forward as commonly believed. Actually, the worse is yet to come. Because the Statute of Frauds is a rule of evidence, courts do not consider it a substantive provision of law that makes all agreements that fall within its preview void if they do not meet the requirements of the Statute. Instead, courts will consider whether there is other evidence of the existence of an agreement and if there is, and injustice would result from not enforcing the agreement, they will take the agreement "out of the Statute of Frauds." This neat judicial trick makes it very unwise to rely on the Statute of Frauds to avoid a contract that actually existed.
A person who uses the Statute of Frauds to avoid a contract actually agreed to is committing a fraud himself. They are using a rule of evidence to avoid doing something they actually agreed to do. Courts do not like being party to such manipulation and will avoid it if they believe it to be happening. It is for this reason courts hold that a contract the terms of which have been partially performed, is "taken out of the Statute of Frauds." Courts will also enforce an oral agreement notwithstanding the Statute of Frauds if there is other evidence there was a contract and one party relied on the contract to their detriment. In an ordinary real estate transaction or listing agreement, either or both of these factors will come into play almost immediately - which explains why such contracts are almost never successfully avoided using the Statute of Frauds.
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