B. Agreements Required to Be in Writing: The Statute of Frauds
| Author | John D. McCamus |
| Profession | Professor of Law. Osgoode Hall Law School, York University |
| Pages | 161-181 |
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Originally titled An Act for the Prevention of Frauds and Perjuries, the basic purpose of the Statute of Frauds was to reduce the prospects for success of perjured testimony under the procedural rules in place at the time of its enactment. The basic strategy of the statute was to require
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that certain types of agreements be recorded in writing and signed by the person against whom they would be enforced in order to provide a strong evidentiary basis for a finding that such an undertaking was actually given. Section 4 of the 1677 legislation provided as follows:
[N]o Action shall be brought whereby to charge any Executor or Administrator upon any special Promise, to answer Damages out of his own Estate or whereby to charge the Defendant upon any special Promise to answer for the Debt, Default or Miscarriages of another Person or to charge any Person upon any Agreement made upon Consideration of Marriage or upon any Contract or Sale of Lands, Tenements or Hereditaments, or any Interest in or concerning them or upon any Agreement that is not to be performed within the Space of one Year from the making thereof unless the Agreement upon which such Action shall be brought, or some Memorandum or Note thereof, shall be in writing, and signed by the Party to be charged therewith, or some other Person thereunto by him lawfully authorized.5In section 17 of the statute, similar requirements were imposed on contracts for the sale of goods, wares and merchandise for the price of £10 and more.6Other provisions of the statute apply to certain kinds of arrangements concerning trusts. Two further categories were added to the statute by Lord Tenterden’s Act7in the early-nineteenth century. The first category concerned undertakings by adults to ratify otherwise unenforceable contracts entered into during infancy.8The second category consisted of misrepresentations as to credit worthiness for which the representor was to be held liable.9The latter provision was added in order to avoid circumvention of the writing requirement concerning guarantees. It precluded actions against oral guarantors based on the
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theory that the oral guarantee could alternatively be considered to be a representation concerning the creditworthiness of the debtor.10In due course, the English statute came into force in other Commonwealth jurisdictions, including the common law provinces of Canada.11Over the centuries since its initial enactment, the statute has been subject to criticism on various grounds. The statute itself is very much the product of its legal and social environment in early Reformation England.12The statute was a reaction to the perception that with the evolution of the action in assumpsit in the late-sixteenth and early-seventeenth centuries, which provided a device for the enforcement of informal contracts, the procedural pendulum had swung too far in the direction of permitting spurious allegations of the existence of informal agreements to enjoy success.13Opportunities for this form of fraud were exacerbated by the procedural rules of the time. Thus, the parties to a particular claim and their spouses were not competent witnesses in a proceeding. Accordingly, the alleged promisor would not have an opportunity to deny personally an allegation that an oral undertaking had been given. Further, although the action in assumpsit brought with it the significant procedural improvement of trial by jury rather than by more archaic means, trial by jury in that era had not evolved into a modern system of fact-finding. Jurors were members of the local community, who might have knowledge of the events in question, rather than dispassionate adjudicators of the facts. Legal historians report that perjury and subornation of witnesses were commonplace at the time and that there was a perception that the citizenry was particularly litigious.14In
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such an environment, then, there were significant opportunities for the making of fraudulent claims. It is understandable that legislators of that time held the view that the enactment of legislation, requiring certain important types of transactions to be recorded in writing and signed by the potential defendant, would improve the administration of justice. As circumstances and procedural rules changed over time, however, the underlying rationale of the statute lost much of its force. Moreover, the scheme of the statute itself facilitated yet another kind of fraud. If a person induced another to transfer value such as money in return for an oral undertaking to transfer, for example, an interest in land, the money would have been transferred in return for an unenforceable undertaking. In such circumstances, the party giving the oral undertaking might be considered to be unjustly enriched as a result of fraudulent conduct.
The growth of dissatisfaction with the effect of the statute over time led to two different types of developments that can receive only brief treatment within the confines of the present volume. First, the statute became encrusted with an elaborate and intricate body of doctrine confining the scope of the provisions of the statute and, further, providing alternative avenues for relief where the statute had the unavoidable effect of rendering a particular undertaking unenforceable. Second, in the modern era, the Statute of Frauds attracted the scrutiny of various law reform agencies15throughout the British Commonwealth and, in turn, legislative reform or repeal.16On the other hand, of course, requirements of formality in the context of certain transactions may have a contemporary justification. Thus, a requirement of formality may have the beneficial effect of signalling to the party giving the undertaking that it is legally enforceable and therefore requires due deliberation.17
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Further, there are particular situations in which an argument can be made for the need for a written record either because of concerns about the possibility of perjured testimony or the desirability of creating and preserving a written record of the transaction in order to facilitate the operation of registration systems as, for example, in the case of transactions concerning land. Thus, in jurisdictions that have substantially reformed the statute, formality requirements have typically been preserved with respect to guarantees and transactions in land.18
This provision applies to undertakings given to a third party to guarantee the performance of an existing obligation of another person to that third party. The obligation may take the form of a debt, that is, an existing obligation to pay money, a default, that is, a future obligation to pay money or liability for a miscarriage, that is, tortious wrongdoing. In identifying the existence of a guarantee, the critical point is that the guarantee must be a secondary form of liability in the sense that it secures the obligation of another person who has a primary liability to the third party. The guarantor’s liability is contingent upon the principal debtor’s failure to discharge the obligation to repay the money to the third-party creditor. A guarantee can thus be distinguished from a contract of indemnity under which a primary obligation is undertaken. Thus, if A promises a landlord, B, that A will insure that all rental payments due to B under a lease to C will be paid by A, the liability of A to B is "direct" or "original" and may be enforceable even if, for some reason, C’s obligation to pay the rent may no longer be enforceable against C.19In particular types of fact situations, however, the distinc-
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tion between guarantees and indemnities may be very subtle.20Accordingly, in 1958,21the British Columbia statute was reformed to include indemnities within the writing requirements. In the absence of such reforms, however, if the undertaking is properly characterized as an indemnity, it falls outside the statute and may be enforceable even though not in writing.
Guarantees may be excluded from the statute in two further situations in which guarantees may be characterized as mere incidents of a larger contractual relationship. First, a del credere agent is one who for an additional commission agrees to guarantee the performance and solvency of the purchaser. It has been held in this context that the guarantee is part of a larger relationship of principal and agent and therefore not subject to the statutory requirements.22The second is where a guarantee is given in the context of a larger transaction in order to protect the proprietary interests of the guarantor in an asset. In such a case, the guarantee may be held to be merely incidental to that larger transaction and therefore outside the statute. Thus, in Fitzgerald v. Dressler23where A sold goods to B who, in turn, resold them to C, A had retained possession of the goods and a lien over them to insure payment of the price by B. C guaranteed B’s payment of the price in order to encourage release of the goods by A to C. C’s guarantee was held to fall outside the statute.
Notwithstanding the...
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