6.3 Statute of Frauds

• Library: Virginia Law and Practice: A Handbook for Attorneys (Virginia CLE) (2020 Ed.)

6.3 STATUTE OF FRAUDS

6.301 Introduction. The purpose of the statute of frauds has remained constant throughout history: to encourage "the placing of important matters in writing so that each party to the contract is certain of his duties and benefits." ²²⁹ As the Virginia Supreme Court has explained, the primary objective of the statute of frauds:

was to prevent the setting up of pretended agreements and then supporting them by perjury. There is further a manifest policy of requiring contracts of so important a nature as the sale and purchase of real estate to be reduced to writing since otherwise, from the imperfection of memory and the honest mistakes of witnesses, it often happens either that the specific contract is incapable of exact proof or that it is unintentionally varied from its original terms. It was not intended that the statute should perpetrate frauds. ²³⁰

The statute, being an antifraud device, is not enforced by courts when doing so would allow its being used to benefit a party who had committed fraud or other inequity. ²³¹ Courts have devised doctrines such as equitable estoppel and part performance to exempt a contract from the statute. Courts have also developed exceptions to the statute based on full performance, many of which have been codified to prevent a beneficiary from taking advantage of a bargain and later pleading that the bargain never existed.

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The Virginia statute of frauds is codified at Va. Code § 11-2, which lists the contracts that are of such significance that they must be in writing to be enforced.

6.302 Scope of the Statute.

A. In General. Contracts that are governed by the statute must be in writing to be enforceable, unless an exemption (such as fraud or equitable estoppel) can be applied.

B. Representations as to Credit. A recommendation to a party considering an extension of credit or undertaking trade as to the creditworthiness and trustworthiness of a potential obligor must be in writing, if the party making the recommendation is to be charged later with liability for a surety recommendation. ²³² This rule is designed to protect both the promisor and the promisee. ²³³ The writing requirement fosters the most reliable type of evidence and removes the uncertainty that could surround an unwritten agreement. ²³⁴ Courts have not enforced the statute of frauds writing requirement in cases of clearly fraudulent behavior. Where there is evidence that substantially confirms fraud, the declarant will be held liable under the agreement, regardless of whether the declaration was oral or written. The rule is applied to provide a fair resolution of a matter, not to foster the perpetration of a fraud.

C. Ratification of Contracts by Infants After Coming of Age. Virginia's statute of frauds codifies the long-standing rule that a promise ratifying a debt incurred during infancy, which is made after one attains the age of majority, must be in writing to be actionable. ²³⁵ According to the Supreme Court of Virginia,

[n]o particular form of words is required to make a confirmation of a debt contracted by a person when an infant after he attains his majority, but they must import an unequivocal recognition and confirmation of

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the previous engagement, though they need not amount to a direct promise to pay. ²³⁶

The court further explained that

any written instrument, signed by the parties, which, in the case of adults, would have amounted to an adoption of the act of a party acting as an agent, will, in the case of an infant who has attained his majority, amount to a ratification. The memorandum or writing, to be sufficient, must recognize the debt as a debt binding upon the party who signs it. It must, either in terms, or on a fair construction of the instrument, refer to the contract which is to be ratified, and treat it as a subsisting contract. ²³⁷

D. Promises by Executors or Administrators. Promises by an executor or administrator of a decedent's estate to pay any debt of the decedent from the personal representative's own funds must be in writing to be enforceable. ²³⁸ In contrast, a promise by the personal representative to pay a debt directly from the assets of the decedent's estate need not be in writing. ²³⁹ Personal representatives are not, as a rule, personally liable for the debts of the decedent's estate. The statute provides a requirement of stricter proof and better evidence and, therefore, more certainty of an obligation outside the usual course of a person's obligations.

E. Promises to Answer for the Debt, Default, or Misdoings of Another. A promise in the nature of a guaranty or surety to pay the debts of another party or be liable upon the default or wrongful action of another must be in writing to be enforceable against the party charged. ²⁴⁰ This is one of the most important sections of the statute of frauds and one that has generated a large body of case law. The protection of sureties and guarantors from claims of liability for the obligations of others is a hallmark of the law. Just as Va. Code § 11-2(3) demands higher proof regarding the promises of a

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personal representative for the debts of a decedent's estate, Virginia law demands greater formality of contract and certainty of obligations to charge a party for the obligations of another. The purpose of Va. Code § 11-2(4) manifestly was to secure the highest and most satisfactory species of evidence in a case where a party, without apparent benefit to himself, enters into stipulations of suretyship and where there would be great temptation on the part of the creditor, in danger of losing his debt by the insolvency of his debtor, to support a suit against the friends or relatives of the debtor . . . by means of false evidence, by exaggerating words of recommendation, encouragement or forbearance and requests for indulgence, into positive contracts. ²⁴¹

The statute requires that the "nature and extent of the undertaking, including the essential promise to pay the debt of another, must so appear [in the writing], or the agreement is not enforceable." ²⁴² In other words, the writing must be more thorough and complete than is generally required by the statute of frauds. The key elements of the undertaking must be addressed; however, the statute "does not require that the complete agreement between the parties show on the face of the signed writing." ²⁴³ Because any action brought upon the promise to answer for another's debt would impose liability on the guarantor, the guarantor must sign the promise in order to be bound. ²⁴⁴ This provides an element of proof and reinforces the significance of the guarantor's commitment.

Although consideration is necessary to make a binding promise to pay another's debt, the consideration need not be expressed in the written promise. ²⁴⁵ Additionally, the promise is exempt from the statute of frauds when (i) a promise to pay the debt of another is based upon new and original consideration, ²⁴⁶ or (ii) if there is new and original consideration, together with a novation of the existing debt. ²⁴⁷ The distinction here is that the promise

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of the guarantor is no longer the contingent promise to pay the debt of another. Instead, it is now a contract concerning the guarantor's immediate liability to the creditor, upon the occurrence of the contingency.

The intention of the parties is an important consideration when determining whether the statute of frauds applies to a promise to pay the debt of another. If the promisor intended the promise to be collateral or an additional assurance to strengthen the consideration already given, then the statute applies. ²⁴⁸ If the promise was original, meaning that it was offered as an inducement and as part and parcel of the original consideration, then the statute of frauds does not apply. ²⁴⁹ Moreover, if the promise is made at the time or before the debt is created, and the debt could be classified as merely a potential debt, then the promise is original, and the statute is not applicable. ²⁵⁰ If, however, the promise is added to the promise of another to pay the debt, then it is collateral and covered by the statute. For example, "Give her the groceries, and I will pay for them" is a direct promise and does not need to be in writing. In contrast, "Give her the groceries, and if she does not pay, I will" is a collateral promise and must be in writing. However, the promise "Well, she failed to pay for the groceries, so I will pay you for them" is derived from the collateral promise and, although it confirms what was a contingent liability, it is a new, direct promise and, as long as it is based on consideration, it need not be in writing to be enforceable. "Whether an undertaking is collateral and governed by the statute of frauds or direct and exempt from the statute is not to be judged by the unilateral intent of the promisor but by the mutual understanding between the promisor and the promisee." ²⁵¹ The real character of the promise does not depend altogether on the words or form of expression used but is based largely upon the situation of the parties, what they mutually understood from the language, and whether they understood the transaction to be a direct or collateral promise. ²⁵²

F. Agreements in Consideration of Marriage. Agreements in consideration of marriage must be in writing to be enforceable. ²⁵³ A verbal

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promise before marriage to make a gift in consideration of the marriage cannot be enforced after the marriage. ²⁵⁴

In Hannon v. Hounihan, ²⁵⁵ the Virginia Supreme Court held that a marriage was not sufficient part performance to take the case out of the statute of frauds for a promise that property should go to the survivor of the marriage. In Hannon, the husband and wife allegedly made a contract when they married that whoever lived the longest was to retain title to their property, but no written proof of such a contract was ever found. ²⁵⁶ The court found that...