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Massachusetts Statute of Frauds Doesn't Bar Promissory Estoppel

The Statute of Frauds, codified at Massachusetts General Laws Chapter 259 Section 1, requires that certain contracts be in writing in order to be enforceable through the courts. Among those contracts are land sales, agreements that will not be performed within a year, and promises to pay the "debt, default or misdoings of another." 

There are exceptions, however, that will allow a party to bring an action on an unwritten contract that would ordinarily be barred by the Statute of Frauds. The Massachusetts Appeals Court recently considered the application of the Statute of Frauds in Barrie-Chivian v. Lepler.

The defendant was married to the plaintiffs' daughter. Several months after the marriage, the plaintiffs agreed to invest in the defendant's real estate company. After the plaintiffs' initial investment became profitable, the parties agreed to convert the investment and profit into loans. The defendant subsequently sought additional loans from the plaintiffs. According to the appeals court opinion, the plaintiffs would not have made the loans if the defendant had not agreed to sign personal guaranties. The plaintiffs requested written personal guaranties multiple times, and the defendant agreed to provide them but failed to do so. Several years after the loans were made, the plaintiffs still had not been paid, and they filed suit against the defendant.

The defendant admitted to promising the personal guarantees but moved for summary judgment, arguing the plaintiffs could not recover because of the Statute of Frauds. The judge denied that motion, and the defendant raised the issue several more times. The trial judge did not grant any of the motions on that issue and ultimately sent the case to the jury. The jury awarded the plaintiffs more than $300,000 on their promissory estoppel claim, and the defendant appealed, arguing the Statute of Frauds barred recovery on the personal guaranty without a writing, and it was error for the judge to allow the case to reach the jury on the promissory estoppel theory.

The defendant argued that, if the Statute of Frauds would bar the enforcement of the contract, the plaintiff must show that there was a partial writing or that the defendant fraudulently extended the promise when it was made. The appeals court noted that the case the defendant cited was decided before promissory estoppel came into use. More recent case law, however, shows that the Statute of Frauds does not bar a promissory estoppel claim. Although those cases did not necessarily use the term "promissory estoppel," the elements required were similar to those in the Second Restatement of Contracts.

The appeals court did not accept the defendant's argument that the plaintiffs could only recover if there was a partial writing. The court noted that "[p]romissory estoppel is an equitable doctrine..." It is to be used to prevent injustice, and the court found that it would be an injustice to allow a defendant to use the lack of a writing to avoid a debt in a case where the defendant admitted to inducing reliance by promising to sign a contract. The court also found that the defendant's testimony that he had agreed to execute a written guarantee served the same function as a partial writing in addressing the concerns raised in having an unwritten agreement. The court also found that it was not a requirement that the promise had been made fraudulently. The appeals court affirmed the judgment.

Although in this case the plaintiffs were able to enforce the agreement without a contract, the case also illustrates the importance of executing a written document in business matters. The lack of a writing provided the defendant with an argument against repaying the plaintiffs. It may be even more important to obtain a written document when there is also a personal relationship, as there was here, since often when the personal relationship sours, the business relationship does as well.

If you have a business dispute, a skilled Boston business litigation attorney can help you. Call the Law Offices of Richard Mucci at (781) 729-3999 to schedule an appointment.

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