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Statutes of Frauds in Colorado
Although sounding somewhat archaic, “statutes of frauds” are the general term used to refer statutory requirements that certain types of contracts be made and signed in writing. Importantly, the purpose of statutes of frauds is to prevent individuals from being able to enforce fraudulent contracts that they simply made up.
Put in other words, statutes of frauds are designed to make oral agreements for certain kinds of contracts unenforceable. That is, where a statute of frauds applies to a certain type of contract, the individual trying to enforce the contract has to have extrinsic proof through a writing signed by the other party that a contract was, in fact, entered into.
Importantly, statutes of frauds consist of state law and, thus, the exact requirements of a particular statute and applicability to certain types of contracts varies from state to state. However, in general statutes of frauds apply to six types of agreements. Those agreements are:
– Contracts in consideration of marriage, including prenuptial agreements;
– Contracts that cannot be performed within one year, excluding contracts of an indefinite duration;
– Contracts for the transfer of an interest in land;
– Contracts by the executor of a will to a debt of an estate with his own money;
– Contracts for the sale of goods totaling $500 or more; and
– Contracts where one party acts as a surety or guarantor for another party’s debt or other obligation.
If some individual wishes to enter into one of these types of contracts, in order to be enforceable, the contract must be in writing and signed by the party against whom enforcement is sought. While these categories generally are included in most statutes of frauds enacted across various states, the rest of this article discusses Colorado’s specific statutes of frauds and their specific requirements.
Specific Statutes of Frauds in Colorado
While Colorado has multiple different statutes of frauds applicable to different areas of law, the contracts governed by those statutes are similar to the ones listed above. In particular, the following types of contracts are governed by Colorado’s statutes of frauds:
– Contracts that are for a longer period than 1 year;
– Lease agreements for real property that are longer than a period of 1 year;
– Contracts selling real property;
– Contracts taking on or assuming the debt of another person;
– Contracts relating to marriage except mutual promises to marry;
– Credit agreements greater than $25,000;
– Contracts for the sale of goods over $500; and
– Contracts to lease goods over $1,000.
See C.R.S. §§ 38-10-112, 38-10-108, 38-10-124, 4-2-201, & 4-2.5-201.
Along these lines, Colorado’s primary statutes of frauds are codified at Colorado Revised Statutes (“C.R.S.”) § 38-10-101, et seq. The main governing statute in the act is C.R.S. § 38-10-112 which provides:
(1) Except for contracts for the sale of goods which are governed by [C.R.S. § 4-2-201], and lease contracts which are governed by [C.R.S. § 4-2.5-201], in the following cases every agreement shall be void, unless such agreement or some note or memorandum thereof is in writing and subscribed by the party charged therewith:
(a) Every agreement that by the terms is not to be performed within one year after the making thereof;
(b) Every special promise to answer for the debt, default, or miscarriage of another person;
(c) Every agreement, promise, or undertaking made upon consideration of marriage, except mutual promises to marry.
Additional statutes include C.R.S. § 38-10-108, C.R.S. § 38-10-124, C.R.S. § 4-2-201, and C.R.S. § 4-2.5-201. The first of which, C.R.S. § 38-10-108, governs contracts pertaining to sales and interests in land and provides:
Every contract for the leasing for a longer period than one year or for the sale of any lands or any interest in lands is void unless the contract or some note or memorandum thereof expressing the consideration is in writing and subscribed by the party by whom the lease or sale is to be made.
Secondly, C.R.S. § 38-10-124, specifically applies to credit agreements and provides:
(1) As used in this section, unless the context otherwise requires:
(a) “Credit agreement” means:
(I) A contract, promise, undertaking, offer, or commitment to lend, borrow, repay, or forbear repayment of money, to otherwise extend or receive credit, or to make any other financial accommodation;
(II) Any amendment of, cancellation of, waiver of, or substitution for any or all of the terms or provisions of any of the credit agreements defined in subparagraphs (I) and (III) of this paragraph (a); and
(III) Any representations and warranties made or omissions in connection with the negotiation, execution, administration, or performance of, or collection of sums due under, any of the credit agreements defined in subparagraphs (I) and (II) of this paragraph (a).
(b) “Creditor” means a financial institution which offers to extend, is asked to extend, or extends credit under a credit agreement with a debtor.
(c) “Debtor” means a person who or entity which obtains credit or seeks a credit agreement with a creditor or who owes money to a creditor.
(d) “Financial institution” means a bank, savings and loan association, savings bank, credit union, or mortgage or finance company.
(2) Notwithstanding any statutory or case law to the contrary, including but not limited to section 38-10-112, no debtor or creditor may file or maintain an action or a claim relating to a credit agreement involving a principal amount in excess of twenty-five thousand dollars unless the credit agreement is in writing and is signed by the party against whom enforcement is sought.
(3) A credit agreement may not be implied under any circumstances, including, without limitation, from the relationship, fiduciary or otherwise, of the creditor and the debtor or from performance or partial performance by or on behalf of the creditor or debtor, or by promissory estoppel.
Thirdly, C.R.S. § 4-2-201 governs contracts for the sale of goods and provides:
(1) Except as otherwise provided in this section, a contract for the sale of goods for the price of five hundred dollars or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
(2) Between merchants, if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) of this section against such party unless written notice of objection to its contents is given within ten days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) of this section but which is valid in other respects is enforceable:
(a) If the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
(b) If the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
(c) With respect to goods for which payment has been made and accepted or which have been received and accepted (section 4-2-606 ).
Lastly, C.R.S. § 4-2.5-101, which applies to leases of goods, provides:
(1) A lease contract is not enforceable by way of action or defense unless:
(a) The total payments to be made under the lease contract, excluding payments for options to renew or buy, are less than one thousand dollars; or
(b) There is a writing, signed by the party against whom enforcement is sought or by that party’s authorized agent, sufficient to indicate that a lease contract has been made between the parties and to describe the goods leased and the lease term.
(2) Any description of leased goods or of the lease term is sufficient and satisfies subsection (1) (b) of this section, whether or not it is specific, if it reasonably identifies what is described.
(3) A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the lease contract is not enforceable under subsection (1) (b) of this section beyond the lease term and the quantity of goods shown in the writing.
(4) A lease contract that does not satisfy the requirements of subsection (1) of this section, but which is valid in other respects, is enforceable:
(a) If the goods are to be specially manufactured or obtained for the lessee and are not suitable for lease or sale to others in the ordinary course of the lessor’s business, and the lessor, before notice of repudiation is received and under circumstances that reasonably indicate that the goods are for the lessee, has made either a substantial beginning of their manufacture or commitments for their procurement;
(b) If the party against whom enforcement is sought admits in that party’s pleading, testimony or otherwise in court that a lease contract was made, but the lease contract is not enforceable under this provision beyond the quantity of goods admitted; or
(c) With respect to goods that have been received and accepted by the lessee.
(5) The lease term under a lease contract referred to in subsection (4) of this section is:
(a) If there is a writing signed by the party against whom enforcement is sought or by that party’s authorized agent specifying the lease term, the term so specified;
(b) If the party against whom enforcement is sought admits in that party’s pleading, testimony, or otherwise in court a lease term, the term so admitted; or
(c) A reasonable lease term.
Case Law for Colorado’s Statutes of Frauds and Pleading the Statute of Frauds as an Affirmative Defense
Importantly, where a statute of frauds does apply, it is a defense to enforcement of an alleged oral contract. That is, if a person or entity is suing to enforce a type of contract governed by a statute of frauds, then it is a defense to the claim that the contract must be in writing and signed by the defendant in order to be enforceable.
Along these lines, a statute of frauds defense is an affirmative defense and must be plead and maintained throughout the lawsuit, otherwise it will be deemed waived. See Univex Int’l, Inc. v. Orix Credit All., Inc., 902 P.2d 877, 879 (Colo. App. 1995) (indicating that failing to assert a statute of frauds defense in a party’s answer and at trial will result in waiver of the defense).
Additionally, where a statute of frauds is applicable, under Colorado law an oral agreement may overcome a statute of frauds defense where there has been part performance under that agreement. That is, an oral contract otherwise enforceable under the statute of frauds may be enforceable if the parties have taken action in conformance with the contract. See Ralston Oil and Gas Co. v. July Corp., 719 P.2d 334, 339 (Colo. App. 1985) (finding an oral contract enforceable where the statute of frauds applies and where the defendant had transferred property back to the plaintiff in conformance with the oral agreement).
However, in order for part performance of an agreement to give rise to an enforceable contract, the part performance must be a substantial portion of the contract and must be in conformance with the oral agreement as opposed to some other, independent reason. See Nelson v. Elway, 908 P.2d 102 (Colo. 1995). Put in other words, the partial performance must be substantial enough and direct enough that it convincingly evidences the existence of the oral agreement.
Lastly, where an agreement is found to be unenforceable under a Colorado statute of frauds, that does not mean that a party who relied on the contract – for example, by giving the other party money – will be out of luck and left with an inequitable result.
In particular, while the statute of frauds may be an affirmative defense to enforcement of a contract, it is not a defense to a promissory estoppel claim. That is, where a plaintiff relied on the promise of a defendant and incurred a substantial detriment in reliance on that promise, the plaintiff may still pursue a promissory estoppel claim to recover damages despite the statute of frauds barring a breach of contract claim.
© 2017 J.D. Porter, LLC. Author: Jordan Porter. Denver, Colorado.