Statute of Fraud: Contracts Required to be in Writing

Contracts required to be in writting: The Statute of Fraud (1677) has provided that certain contracts must be put into writing in order for them to be enforceable in court. Where any of the stipulated contracts is not put in a written form, it is probably impossible for the court to consider such contract as binding because it lacks the basic characteristics of a binding contract.

There are numerous reasons for the law’s imposition of form on certain contracts. The first is that it promotes certainty as it is unusually relative easy to tell whether the required form has been used in order for the contract to be valid. Following this train of thought, it also promotes certainty in determining what was agreed by the parties. This may prevent dishonest and fraud in many cases.

Secondly, the requirements of form in many cases may prevent a person from being bound by a hasty promise. In the process of preparing the contract in the required form, the promisor may have had time to reflect on his promise and the need to exercise caution. This smay not be possible where his is immediately bound by an oral promise.

Thirdly, and most importantly is that; form is often protective of the weaker party in a contractual relationship. This ensures that the weaker party is provided with a written record of the terms of the contract.

Contracts required to be in writing
Contracts required to be in writing

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Contracts required to be in writting

Now that you know the reasons why the law stipulates that some certain contracts should be in writing, i will explain some of the contracts which are required to be in written form according to the Statute of Fraud (1677).

1. Contracts of guarantee

Section 4 of the Statute of Fraud 1677 provides that “No action shall be brought whereby to charge of the defendant upon any special promise to answer for the debt, default or miscarriage of another person unless there is a written evidence of the promise.”

This provision applies whether the liability guaranteed is contractual or tortuous. It applies only where the defendant’s promise to pay the debt is made to the creditor. It does not apply where the promise is made to the debtor.

Note that there is actually a difference between a contract of guarantee and an indemnity.

While a guarantee is a promise to pay another’s debt if he fails to pay, an indemnity is a promise to indemnify the creditor against loss arising out of the principal contract. The Statute of Frauds applies on to a guarantee and not to an indemnity which is enforceable even where unwritten.

In Nigeria, the contract of guarantee is a common feature of bank loans; it was also a common feature of the contract of employment of the old established trading firms like the UAC and John Holt. The practice was for the store keepers to provide a guarantor for a specified amount before he could be employed or loaned an advance to buy produce.

For a contract of guarantee to arise, there must be three parties, namely:

  • A creditor;
  • A principal debtor; and
  • A promisor who undertakes to discharge the principal debtor’s liability should the latter fail to discharge it himself.

In the case of Crown Flour Mills Ltd v Okokun [2008] 4 NWLR (Pt 1077) 254, it was said that the fact that the obligation of a guarantor arises only when the principal has defaulted in his obligation to the creditor does not mean that the creditor has to demand payment from the principal or give notice to the surety, before the creditor can proceed against the surety.

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Exceptions to this requirement

The effect of the Statute of Fraud to contract of guarantees is that it has to be in writing other wise the contract will be invalid. However, there are exceptions to this rule. As we continue, I will highlight these exceptions:

Part performance of a larger transaction

The Statute applies to a guarantee which stands alone but not to one which is part of a larger transaction. It didn’t, for example, apply where the defendant introduced clients to a firm of stockbroker on the terms that he was to receive half the commission earned and to pay half the losses incurred by the stock brokers on transactions with such clients.

The promise to pay losses was enforceable though oral, as it formed part of a larger transaction in which the defendant was interested otherwise than a guarantor. The promise, therefore, did not have to be in writing.

Protection of property

A guarantee is not within the Statute if it is given to protect some proprietary interest of the guarantor. Thus, A may buy goods from B which are held by C as Security for a Debt owned by B to C. If A induces C to deliver the goods to him by promising to pay B’s debt in case B does not pay it, A’s promise is not within the Statute. The main object of A’s promise is said to be to protect his own property and not to guarantee B’s debt.

Contracts required to be in writing
Contracts required to be in writing

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2. Contracts for sale or other disposition of property

Section 4 of the Statute of Fraud 1677 provides thus:

“No claim may be brought upon any contract for the sale of land or any interest in land, unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereupon by him lawfully authorized.”

From the forgoing provision, it is clear that the contract is first concluded by the parties, and then evidenced in writing. Thus, where the parties are still negotiating or have merely entered into a tentative agreement, the “subject to contract” principle, the contract is put on hold and is not in existence to be evidenced in writing.

The statute of fraud requires all the terms of the contract to be stated in the memorandum and it is usual to have the listed information and terms below in the memorandum:

  • The name or description of the parties
  • The description of the property
  • The price
  • Other agreements

Necessarily, the memorandum must be signed by the person who has an obligation to transfer interest in the property.

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Conclusion:

With the intervention of equity, the courts have devised the doctrine of part performance to avoid strict application of the Statute in order to prevent fraud.

Thus, where one of the parties stands by and another of the parties changes his position by performing his side of the bargain acting on the supposition that there was a binding contract of sale, the court will not allow a part to break the contract or when sued to rely on the statute. This is done through the principle of part performance.

Hope this article was helpful? Well, i would like to here you question and contributions to this topic if you have any. Kindly use the comment section to tell me what you think about the requirement to be in written according to the statute of fraud.