How the Requirement of a Written Contract Can Affect Your Case with a Debt Collector

Everybody has heard of the statute of limitations, which refers to the amount of time a company has to bring suit against you, but have you ever heard of the “Statute of Frauds?” That can be equally important for some debt disputes in rare circumstances.

What is the Statute of Frauds?

The statute of frauds is a law – a written statute – that every state legislature has passed, as far as I know, requiring that certain claims can only be brought if there is a written contract. You will be able to find the statute for your state by googling “statute of frauds” and your state name. In plain English, the statute of frauds means that you cannot sue on an oral contract if the amount in dispute is over a certain limit, or if the performance of the contract was not to be completed within a certain amount of time. A promise to repay $10,000 at some undetermined time, for example, or to repay a certain sum over a period of time greater than five years (i.e., $10,000 in $100 payments until the balance is zero), would almost certainly violate the statute of limitations.

This is not an issue that comes up directly in most credit card cases, obviously, as the credit card application – if they can find it – or other supporting documentation which they often have, would take the case out of the statute of frauds.

Unilateral Contracts

Another reason the statute of frauds rarely applies to debt cases is that use of a credit card creates what is known as a “unilateral” contract to repay the money borrowed (to pay for the purchase).  A contract is made when there is an offer and an acceptance, and use of a credit card, sent under certain conditions, is an acceptance that creates a contract. And this is so whether you sign an agreement to follow the terms and conditions of the contract or not. Debt collectors love to use this because they almost never have the contract, however you should remember that they must still prove you used the card, and they must prove the terms and conditions – all with competent evidence.

Settlement

Another way the statute might come up in the credit card context is a debt collector harassing you and then, supposedly, claiming that you have agreed to settle the case over the phone for monthly payments of $200 for the next six years. That sort of agreement would probably violate the statute of frauds.

Statute of Frauds Applies to Either Party

It cuts both ways, too: if you think you have an agreement to settle a case brought by a debt collector for payments of some amount of money extending over more than five years (in some states – check on yours for the time limit that applies to you), but you do not have it in writing, then you do not have a settlement. Understand: this does not mean that payments that would occur after the five years are up do not have to be made, it means that the entire contract… is no contract. None of the payments have to be made – and none of the actions for which those payments would be made (like dismissing the case against you) have to be done.

Remedy for Violating the Statute of Frauds

There is no “remedy” for violating the statute of frauds. If you make an oral contract that does violate it, that contract is unenforceable. That is, you can’t sue or be sued, for breaking the contract – there is no contract. The fault can be “cured,” of course, in certain ways. Obviously putting the contract into writing would cure it. “Partial performance” sometimes will do it, too. That is, if the person who has something left to do starts to do it, that might cure the contract. Thus if someone claims you owe them money under something you think breaks the statute of frauds, a partial payment might have disastrous consequences for you.

Integration Clause

Most written contracts have something very much like a statute of frauds built into them – and you should be aware of this, again, in the settlement context of any debt on a written contract.  It’s called an “integration” clause. It’s the thing that says “this contract is the complete agreement between the parties and cannot be changed unless both parties sign any modification” [or words to that effect]. Most contracts have an integration clause, and every credit card contract I’ve ever seen has one. In most situations this part of the contract means that you must have a written and signed agreement before you take any action on a contract. An oral agreement will not change any part of a written contract with that integration phrase.

In your normal life, this also means that if you have an oral agreement with someone and then you create a written contract to “get it in writing,” the written contract will likely wipe out the complete oral agreement – so you have to get everything in writing, not just part of it.