If you enter into contracts in
Illinois, you should at least be aware of the Frauds Act. Illinois law limits
certain claims and actions if they are not supported by a writing signed by the
party to be charged with the claim or action. This statute is known as the
Illinois Frauds Act. It states in section one: “That no action
shall be brought, whereby to charge any executor or administrator upon any
special promise to answer any debt or damages out of his own estate, or whereby
to charge the defendant upon any special promise to answer for the debt,
default or miscarriage of another person, or to charge any person upon any
agreement made upon consideration of marriage, or upon any agreement that is
not to be performed within the space of one year from the making thereof,
unless the promise or 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.” 740 ILCS 80/1.
Please be mindful that the Frauds Act has 18 sections. This
particular blog only addresses section one. The reader is therefore warned that
understanding section one does not mean that you understand the entirety of the
Frauds Act. However, section one is a good start. Also, please be mindful that
when the statute says “writing” that writing must be signed by the party to be
charged. If you intend to sue someone to enforce an agreement and the Frauds
Act requires the agreement to be in writing and that writing must be signed by
the party you sue. The purpose of the Frauds Act is to prevent fraud, not
facilitate it, and courts will not apply the statute if the result would be to
perpetrate a fraud. As you might expect, the fact pattern can become important
in any Frauds Act analysis.
There are several situations where the Frauds Act becomes an
important legal impediment to any right or cause of action.
- Section one of the Frauds Act requires parties to use
written agreements if they are entering into a contractual arrangement that is
not to be performed within one year of its making. If you interview for a job
and you are offered a five-year position, that agreement is not enforceable
unless it is in writing. The critical question in these circumstances is not
whether the agreement was in fact performed within one year but whether or not
the agreement was performable within one year. If it appears from a
reasonable interpretation of the terms of the agreement that the agreement is
capable of being performed within one year, then the Frauds Act will not apply.
- The Frauds Act requires a writing if you are calling upon one
person to answer for the debt, default, or wrongdoing of another person. Think personal guarantee.
If you guarantee the debt of another, that guarantee must be in writing.
Likewise, if a family member is involved in an accident and you agree to pay
the money damages arising from an accident, that agreement must be in writing
in order to be enforceable.
- An agreement, promise, or undertaking made in consideration of
marriage. To be honest,
I have not had occasion to litigate this issue and the cases on this issue are
relatively old. However, if one makes a promise in exchange for something other
than a mutual agreement or promise to marry, then the agreement must be in
writing. Mutual promises to marry do not need to be in writing. However, if you
are promised money or some other valuable matter in exchange for a promise to
marry, then that agreement must be in writing. Of course, if you are agreeing
to marry someone for money, there may be larger issues on the table.
- A special promise made by an executor or administrator to answer
damages out of his or her own estate. In my experience, any
dealings with an estate, executor or administrator, must be in writing. There
is no occasion for estate matters to be based upon oral agreements. If you make
a claim against or owe an obligation to an estate, resolution of all matters
should be reduced to writing.
- An agreement for the sale of lands or any interest in land for a
term longer than one year.
If you are buying real property, use a written agreement. If you are entering
into a multi-year lease, use a written agreement. These transactions are
sufficiently complex or detailed that a written agreement is warranted even if
the Frauds Act did not exist.
It is important to remember
that the Frauds Act is an affirmative defense. If you are sued on an oral
agreement and you fail to raise or plead the affirmative defense, you may be
barred or prevented from using the statute as a defense. In addition, there are
recognized defenses to the Frauds Act. For example, the defense may be waived,
subsequently acknowledging the oral agreement may bar the Frauds Act, a claim
of equitable estoppel may be brought against the Frauds Act defense, and the
full performance doctrine will allow a contract action when the plaintiff has
fully performed the terms of the oral agreement.
Waiver and subsequently acknowledging
the oral agreement are typically straight forward issues. Equitable estoppel is
more involved. In order to assert equitable estoppel a party must show six
elements: (1) words or conduct of the party against whom estoppel is alleged,
constituting either misrepresentation or concealment of material facts, (2)
knowledge on the part of the party against whom estoppel is asserted that the
representations were untrue, (3) the party claiming the benefit of estoppel
must not have known the representations were false either at the time they were
made or at the time they were acted upon, (4) the party estopped must either
intend or expect that his or her conduct or representations will be acted upon
by the party asserting estoppel, (5) the party claiming the benefit of estoppel
must have relied or acted upon the representations, and (6) the party claiming
the benefit of estoppel must be in a position of prejudice if the party against
whom estoppel is alleged is permitted to deny the truth of the representations
made. Estoppel arguments
sometimes arise in situations where the parties entered into an oral modification
of a prior written agreement.
Full Performance Doctrine. If a party has fully performed their side of
the agreement, then the Frauds Act won’t bar a contract action. There are also
circumstances under which partial performance will suffice, but that topic is
beyond this blog.
anyone reading this blog, the important take-away is that you should look at
the Frauds Act if you have any doubt that your agreement needs to be reduced to
a writing. In my opinion, if the agreement is worth performing, then it should
be worth the time and effort to put it in writing. Even if the agreement is
simple and straight forward, it is a good idea to put the agreement in writing.
This helps the parties to clarify their understanding and it forces the parties
to express their understanding. This process leads to clarity. If the written contract
helps to avoid confusion or misunderstanding in the future, then it has served
its purpose. If you have ever litigated an oral contract, then you probably
already understand the value and usefulness of a clean written contract.