A QUICK LOOK AT SECTION ONE OF THE ILLINOIS FRAUDS ACT.
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. For 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.