The “Statute of Frauds” and Contracts Concerning Real Property
Every grant or assignment of an existing trust in lands, goods, or things in action must be in writing and subscribed by the party making it or his agent lawfully authorized. If it is not in a proper writing, it is void under Colorado law.
Likewise, neither any estate or interest in lands, except a lease for a term not in excess of one year, nor any trust or power of any kind over or relating to lands can be created, granted, assigned, surrendered, or declared, except by operation of law, unless it is in writing subscribed by the party creating, granting, assigning, surrendering, or declaring it, or his lawful agent; this general concept is called the statute of frauds. Thus, every agreement which by its terms is not to be performed within one year after the making of the contract, or concerns real property, is void unless it, or some note or memorandum thereof, is in writing and subscribed by the party to be charged. To the contrary though, the statute of frauds is not applicable to contracts which may be performed within one year; instead, the statute of frauds only applies to contracts which by their terms are not to be performed within that time.
Additionally, the writing or memorandum must show, on its face or by reference to other writings, the names of the parties, the terms and conditions of the contract, the property affected, and the consideration or money to be paid. The reference to other writings need not be explicit, and the connection between them may be shown by extrinsic parol evidence as it pertains to the parties’ intentions with regard to the contract itself. However, courts are generally reluctant to consider extrinsic, parol evidence when the contract contains all the relevant contractual elements of the parties’ agreement. Therefore, it is prudent to ensure that the parties’ full and complete agreement is in writing to avoid a statute of frauds defense to your contract.
The statute of frauds, however, does not affect in any way a testator’s power to dispose of his real property by a will, or the creation or extinguishment of a trust by implication or operation of law. Thus, a constructive or resulting trust implied in equity to remedy fraud or bad faith, the abuse of a confidential relationship, or to prevent unjust enrichment, is not subject to the statute of frauds.
Part performance of a contract, of course, may remove a contract from coverage under the statute of frauds and permit a court of equity to enforce specific performance of the contract. The acts in partial performance must be such that they would not have been done by the performing party in the absence of the agreement. The terms of an oral agreement partially performed must, however, be definite, clear, and certain, and must be proved by competent evidence. Also, fraud, accident, or mistake may be grounds for avoiding the application of the statute of frauds.
Notwithstanding the foregoing, it is important to keep in mind that the statute of frauds applies to the making of contracts, but not to their rescission, or the extension of time for their performance.
In summary, if you are contemplating a contract that affects real property, or contractual performance cannot be accomplished within one year, ensure that you are properly complying with the statute of frauds to prevent your contract from being declared void under the statute of frauds. And, keep in mind that a hand shake deal will not suffice at all if your contract or transaction affects real property. Thus, if in doubt, and to avoid potential unnecessary arguments concerning the parties’ true intentions regarding a contract, ensure compliance with the statute of frauds, i.e. your contract is in writing, contains all relevant substantive agreements of the parties and is signed by the party to be charged with performance. If you have any questions regarding this article, the application of the statute of frauds in Colorado or your options to ensure compliance with the statute of frauds, please contact our office for legal advice.
Reprinted from Colorado Creditors’ Remedies—Debtors’ Relief, Volumes 9 and 10 in the Colorado Practice Series, with permission of Thomson Reuters. For more information about this publication please visit www.legalsolutions.thomsonreuters.com.