Statute of frauds

Overview

The Statute of Frauds was developed primarily to discourage fraud and perjury in proving the existence and content of a contract. Its essential function is to bar proof of certain contracts unless a sufficient writing exists for certain transactions.

The Statute of Frauds demands at least some evidence of a contract; a party may not claim that an oral contract or modification was made without submitting some proof. One method of proof is that the contract be memorialized, i.e., set forth with certainty, in a signed writing.

Uniform Commercial Code

The Uniform Commercial Code (U.C.C.) contains a Statute of Frauds which raises the same questions as common law concerning whether a purely electronic contract can meet the writing and signature requirements. However, the U.C.C. Statute of Frauds includes exceptions to the requirements — for specially manufactured goods not suitable for sale to others which the seller has begun to manufacture, and for goods that have been received and accepted.

The comment to section 2-201 states that a writing sufficient to satisfy the section must meet only three “definite and invariable” requirements: the writing must evidence a contract for the sale of goods, must be signed, which includes any authentication identifying the party to be charged, and must specify the quantity.

In evaluating electronic communications, the question arises whether there is a writing and a signature as required by U.C.C. §2-201. Section 1-201(39) defines signed as including any symbol executed or adopted by a party with present intention to authenticate a writing. Section 1-201(46) defines written as including printing, typewriting, or any other intentional reduction to tangible form.

One of the primary goals of electronic messaging is the elimination of paper transactions, which ultimately means the elimination of conventional writings. Maintaining a paper trail to guard against possible problems with the Statute of Frauds diminishes the objectives of computer contracting. No judicial decision answers the question of whether electronic communication satisfies the Statute of Frauds writing and signing requirements.

In addition, no clear conventions or rules control the formation of contracts via electronic messaging. Statutes and regulation governing the enforceability and recording of business transactions generally refer to documents, writings, and signatures — not electronic messages, data logs, and authorization codes.

To eliminate any question about writing requirements and the legality of signatures, parties can enter into a trading partner agreement. With respect to writing requirements, such an agreement may adopt one or more of several different provisions. The agreement may: 1) redefine the term writing; 2) provide that the parties not challenge the validity of electronic messages merely on the basis that they are in electronic form; and 3) provide that the parties accord electronic messages the same status as paper messages. Trading partner agreements can also eliminate questions about the legality of electronic signature]s, by providing that specified electronic codes serve as effective signatures. (One means by which this can be accomplished involves digital signatures.)